XOTC:GMEC Great China Mania Holdings Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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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 March 31, 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)


Florida
 
59-2318378
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

Room 1902, 19/F., Kodak House II,
 
 
321 Java Road , Hong Kong
 
n/a
(Address of principal executive offices)
 
(Zip Code)

(852) 2102-0101
(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 T  No £

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.

Large accelerated filer   £
Accelerated filer £
Non-accelerated filer  £ (Do not check if a smaller reporting company)
Smaller reporting company  T

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 May 14, 2012 was 69,676,000.
 
 
 
 

 


GREAT CHINA MANIA HOLDINGS, INC. (FORMERLY KNOWN AS GREAT EAST BOTTLES & DRINKS (CHINA) HOLDINGS, INC.) AND SUBSIDIARIES

TABLE OF CONTENTS


PART I – FINANCIAL INFORMATION
 
Item 1
Financial Statements
3
 
Unaudited Condensed Consolidated Balance Sheets, March 31, 2012 and December 31, 2011
3
 
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the three months ended March 31, 2012 and 2011
4
 
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011
5
 
Notes to the Unaudited Condensed Consolidated Financial Statements
6
Item 2
Management’s Discussion and Analysis or Plan of Operation
11
Item 3
Quantitative and Qualitative Disclosures about Market Risk
16
Item 4
Controls and Procedures
17
     
PART II – OTHER INFORMATION
 
Item 1
Legal Proceedings
18
Item 2
Unregistered Sales Of Equity Securities And Use Of Proceeds
18
Item 3
Defaults Upon Senior Securities
18
Item 4
[Removed and Reserved]
18
Item 5
Other Information
18 
Item 6
Exhibits
18 
     
SIGNATURES
19


 
2

 


PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

   
March 31,
2012
(Unaudited)
   
December 31,
2011
(Audited)
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 283,210     $ 305,212  
Accounts receivable
    377,370       396,295  
Inventories
    42,243       52,570  
Subscription receivable
    519,210       -  
Short term loan receivable
    105,968       -  
Prepaid expenses and other receivables
    170,534       175,123  
Total current assets
    1,498,535       929,200  
                 
PROPERTY, PLANT & EQUIPMENT, NET
    -       -  
                 
TOTAL ASSETS
  $ 1,498,535     $ 929,200  
                 
LIABILITIES AND EQUITY
               
LIABILITIES
               
CURRENT LIABILITIES
               
Accounts payable
    1,033,209       792,482  
Accrued expenses and other payables
    98,360       145,151  
Unearned revenue
    30,953       20,588  
Amount due to a director
    -       2,051  
Short-term borrowings
    87,117       275,775  
Amount due to related parties
    24,526       160,897  
Total current liabilities
    1,274,165       1,396,944  
                 
LONG-TERM LIABILITIES
               
Convertible note
    115,168       128,200  
      115,168       128,200  
                 
TOTAL LIABILITIES
  $ 1,389,333     $ 1,525,144  
                 
SHAREHOLDERS’ EQUITY
               
Common stock, par value $0.01; 375,000,000 shares authorized; 69,676,000 and 28,366,000 shares issued and outstanding as of March 31, 2012 and December 31, 2011, respectively
    696,760       283,660  
Additional paid in capital
    7,354,228       7,042,086  
Accumulated deficits
    (7,943,276 )     (7,923,182 )
Accumulated other comprehensive loss
    1,490       1,492  
                 
TOTALSHAREHOLDERS’ EQUITY
    109,202       (595,944 )
                 
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
  $ 1,498,535     $ 929,200  

See accompanying notes to condensed consolidated financial statements.
 
 
 
3

 
 
 
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (UNAUDITED)


   
Three months ended March 31,
 
   
2012
   
2011
 
CONTINUING OPERATIONS
           
REVENUES
  $ 1,454,156     $ 878,853  
                 
COST OF SALES
    1,019,301       621,550  
                 
GROSS PROFIT
    434,855       257,303  
                 
EXPENSES
               
General and administrative
    455,766       263,485  
TOTAL OPERATING EXPENSES
    455,766       263,485  
                 
LOSS FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES
    (20,911 )     (6,182 )
                 
OTHER INCOME/(EXPENSE)
               
Other income
    10,029       4,947  
Other expenses
    (9,212 )     (3,411 )
TOTAL OTHER INCOME
    817       1,536  
                 
NET LOSS BEFORE PROVISION FOR INCOME TAXES
    (20,094 )     (4,646 )
                 
PROVISION FOR INCOME TAXES
    -       -  
                 
NET LOSS FROM CONTINUING OPERATIONS
  $ (20,094 )   $ (4,646 )
                 
DISCONTINUED OPERATIONS
               
Net loss
    -       (80,233 )
Gain on disposal of discontinued operations
    -       958,855  
                 
NET INCOME FROM DISCONTINUED OPERATIONS
  $ -     $ 878,622  
                 
NET (LOSS) / INCOME FOR THE PERIOD
  $ (20,094 )   $ 873,976  
                 
OTHER COMPREHENSIVE INCOME
    -       -  
                 
TOTAL COMPREHENSIVE (LOSS) / INCOME FOR THE PERIOD
               
Arising from continuing operations
    (20,094 )     (4,646 )
Arising from discontinued operations
    -       878,622  
                 
    $ (20,094 )   $ 873,976  
                 
LOSS PER SHARE, BASIC AND DILUTED – CONTINUING OPERATIONS
  $ (0.00 )     (0.00 )
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING, BASIC AND DILUTED
    58,501,824       13,156,467  

See accompanying notes to condensed consolidated financial statements.
 
 
 
4

 
 
 
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

   
For the three months ended March 31,
 
   
2012
   
2011
 
Cash flows from operating activities
           
Net loss from continuing operations
  $ (20,094 )   $ (4,646 )
Changes in operating assets and liabilities:
               
Decrease / (Increase) in accounts receivable
    18,925       (306,677 )
Decrease / (Increase) in inventories
    10,327       (113,726 )
Decrease / (Increase) in prepaid expenses and other receivables
    4,589       (10,052 )
Increase in accounts payable
    240,727       208,432  
Decrease in unearned revenue
    10,365       3,551  
(Decrease) / Increase in accrued expenses and other payables
    (46,791 )     90,641  
Decrease in amount due to a director
    (2,051 )     -  
Net cash provided by/(used in) continuing operating activities
    215,997       (132,477 )
Net cash used in discontinued operating activities
    -       (144,522 )
Net cash provided by/(used in) operating activities
    215,997       (276,999 )
                 
Cash flows from investing activities
               
Net cash used in continuing investing activities
    -       -  
Net cash used in discontinued investing activities
    -       (31,465 )
Net cash used in investing activities
    -       (31,465 )
                 
Cash flows from financing activities
               
(Decrease) / Increase in short term loan
    (242,339 )     66,686  
Advance from short-term borrowings
    17,382       138,055  
Repayment of convertible note
    (13,032 )     -  
Net cash (used in) / provided by continuing financing activities
    (237,989 )     204,741  
Net cash provided by discontinued financing activities
    -       116,483  
Net cash (used in) / provided by financing activities
    (237,989 )     321,224  
                 
Net (decrease) / increase in cash and cash equivalents
               
Continuing operations
    (21,992 )     72,264  
Discontinued operations
    -       (59,504 )
      (21,992 )     12,760  
Effect of foreign exchange rate changes
               
Continuing operations
    (10 )     -  
Discontinued operations
    -       2,769  
      (10 )     2,769  
Cash and cash equivalents at beginning of period
               
Continuing operations
    305,212       -  
Discontinued operations
    -       56,735  
      305,212       56,735  
Cash and cash equivalents at end of period
               
Continuing operations
    283,210       72,264  
Discontinued operations
    -       -  
    $ 283,210     $ 72,264  
Supplemental disclosure of cash flows information:
               
Cash paid for interest
               
Discontinued operations
  $ -     $ 454  
                 
Non cash financing activities:
               
Conversion of debt to shares
  $ 206,042     $ 1,382,170  
Issuance of shares unpaid
    519,210       -  
    $ 725,252     $ 1,382,170  
 
See accompanying notes to condensed consolidated financial statements.
 
 
 
5

 
 
 
GREAT CHINA MANIA HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2012

NOTE 1 – ORGANIZATION AND PRINCIPAL ACTIVITIES

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 specialized in provision of electronic content; 2) GMEH, which specialized in artist management services; and 3) GCG, which specialized in retail sales of video games and accessories.

On March 31, 2011, the Company disposed Water Scientific and no longer carries on the operations 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 months ended March 31, 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 months ended March 31, 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 March 31, 2012, the results of its operations and cash flows for the three months ended for March 31, 2012 and 2011.

The results of operations for the three months ended March 31, 2012 are not necessarily indicative of the results for a full year period.


 
6

 
 
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 (a)  
Economic and political risk

The Company’s continuing operations and discontinued operations are conducted in Hong Kong. Accordingly, the political, economic, and legal environments in the Hong Kong may influence the Company’s business, financial condition, and results of operations.

The Company’s major operations in the Hong Kong are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, and legal environment. The Company’s results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, and rates and methods of taxation, among other things.

(b)  
Cash and cash equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.  The Company’s continued operations maintain bank accounts in Hong Kong. The Company’s discontinued operations maintain bank accounts in Hong Kong.

(c)  
Inventory

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.

(d)  
Property, plant and equipment

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.

(e) Accounting for the impairment of long-lived assets

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 three months ended March 31, 2012 and 2011.

(f) 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 March 31, 2012 and 2011, respectively.
 
 
7

 

 
(g) 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.

(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 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 return.
(iii)
Revenue from the provision of advertising services is recognized when services are rendered.
(iv)
Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered.
(v)
Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the relating predetermined 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.
 
 
 
8

 


(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. As of March 31, 2012 and 2011, there were no dilutive securities outstanding.

(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.

(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:

   
March 31,
2012
 
December 31,
2011
 
March 31,
2011
             
Period end HKD : US$ exchange rate
    0.1282     0.1282     0.1282
Average for the period HKD : US$ exchange rate
    0.1282     0.1282     0.1282

(m) Recent accounting pronouncements

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:

   
March 31,
2012
 
December 31,
2011
 
Raw materials
$
11,360
$
7,109
 
Trading inventories
 
30,883
 
45,461
 
Total
$
42,243
$
52,570
 

The raw materials represent the paper used by GCM and the trading inventories represent the video games and accessories held by GCG.
 
 
 
9

 


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:

   
March 31,
2011
   
December 31, 2011
 
             
Prepaid expenses
  $ 117,544     $ 157,827  
Deposits paid
    41,658       7,095  
Other receivables
    11,332       10,201  
    $ 170,534     $ 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 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:

   
March 31,
2011
   
December 31, 2011
 
             
Accrued expenses
  $ 18,213     $ 144,813  
Deposits received
    79,890       -  
Other payables
    257       338  
    $ 98,360     $ 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:

   
March 31,
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 3 non affiliate individuals with no fixed repayment term. During the reporting period, they converted a portion of the short term borrowings of $206,040 into 12,810,000 shares of Company’s common stock.

NOTE 9 – SHORT TERM LOAN RECEIVABLE

During the reporting period, the Company has granted a short term loan amounted to $105,968 to a third party company at 6% interest per annum with no fixed payment terms. The Compay has recognized $1,590 as interest income during the three months ended March 31, 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:

   
March 31,
2012
   
December 31, 2011
 
             
China Culture Limited (“CCL”)
  $ 24,526     $ 109,583  
Global Mania Empire Management Limited (“GME”)
    -       51,314  
                 
Total amount due to related parties
  $ 24,526     $ 160,897  

The amount due to CCL is a temporary advance to the Company for working capital purpose. 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 purpose. The balance is unsecured, interest free and has no fixed repayment term.
 
NOTE 11 – COMMON STOCK AND WEIGHTED AVERAGE NUMBER OF SHARES FOR EARNINGS PER SHARE CALCULATION

On January 19, 2012, the Company issued 28,500,000 shares of common stock for additional working capital to a major shareholder, who is an affiliate of the Company, for a consideration of $519,200. This amount has been reported as a Stock Subscription Receivable in the financial statements of the Company.

On January 26, 2012 the Company issued 9,410,000 shares of common stock to 3 non affiliate individuals for settlement of short term borrowings totaling of $149,450.

On March 20, 2012 the Company issued 3,400,000 shares of common stock to 1 non affiliate individual for settlement of  short term borrowings totaling $56,592

The calculation of common stock as at March 31, 2012 and weighted average number of shares for the three months ended March 31, 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  
Issuance of share on January 19, 2012 for capital raising
  28,500,000     22,862,637  
Issuance of share on January 26, 2012 for debt conversion
  9,410,000     6,824,835  
Issuance of share on March 20, 2012 for debt conversion
  3,400,000     448,352  
             
Issued and outstanding as of March 31 2012
  69,676,000     58,501,824  

As of March 31, 2012 and March 31, 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 (the “Note”) to a third party note holder (“Note Holder”), which matures on May 31, 2016.  On June 30, 2011, the first installment of $128,200 was received. The Note bears a call back option exercisable by the Note Holder on the unused portion of the Note after 12 months from the date of the Note. The Note can be convertible into common stock of the Company by the Note Holder under certain conditions..  As of March 31, 2012, the Note did not qualify to be convertible under those conditions and is therefore not dilutive.

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 three months ended March 31, 2012:

   
2012
   
2011
 
             
Lease payment to CCL
  $ 34,614     $ 47,590  

NOTE 14 – CONTINGENCIES AND COMMITMENTS

As of March 31, 2012, the expected annual lease payments under the Company and its subsidiaries’ operating leases are as follows:

   
March 31, 2012
 
For the year ended December 31,
     
2012
  99,563  
2013
  29,486  
Total
  129,049  

NOTE 15 – SEGMENT REPORTING

The Company’s reportable segments of businesses include provision of electronic content operated by GCM, artist management services operated by GMEH and 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 three months ended March 31,
 
   
2012
   
2011
 
Revenues from:
           
Continuing operations
           
GCM
  $ 625,170     $ 479,075  
GMEH
    435,318       294,010  
GCG
    393,668       105,768  
Corporate
    -       -  
    $ 1,454,156     $ 878,853  
Discontinued operations
    -       -  
    $ 1,454,156     $ 878,853  
                 
Segment net profit/(loss) from:
               
GCM
  $ 15,825     $ 20,368  
GMEH
    10,635       11,452  
GCG
    (5,790 )     (4,415 )
Corporate
    (40,764 )     (32,051 )
    $ (20,094 )   $ (4,646 )
Discontinued operations
    -       878,622  
    $ (20,094 )   $ 873,976  

Net profit from discontinued operations of Water Scientific in 2011 consisted of $80,233 net loss from operations through  March 31, 2011 offset by $958,855 gain on disposal of discontinued operations.

Segment assets:
 
March 31,
2012
   
December 31, 2011
 
             
GCM
  $ 327,038     $ 291,861  
GMEH
    463,673       482,882  
GCG
    89,107       121,772  
Corporate
    618,717       32,685  
    $ 1,498,535     $ 929,200  
Discontinued operations
    -       -  
    $ 1,498,535     $ 929,200  


 
10

 
 
 
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.


 
11

 
 
 
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 return.
(iii)
Revenue from the provision of advertising services is recognized when services are rendered.
(iv)
Revenue from provision of artist management, event management, and promotion for its clients is recognized when services are rendered.
(v)
Revenue from artist-related merchandising is recognized when receipt is confirmed by clients according to the relating predetermined 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 March 31, 2012 as Compared to Three Months Ended March 31, 2011.

The following table summarizes the results of our operations during the three-month period ended March 31, 2012 and 2011, and provides information regarding the dollar and percentage increase / (decrease) from the three-month period ended March 31, 2011 to the three-month period ended March 31, 2012.
 
 
 
12

 
 

 
 
Three months ended
March 31,
   
 
Increase
       
   
2012
   
2011
   
(decrease)
     % Change  
 Revenue                        
GCM
  $ 625,170     $ 479,075     $ 146,095     30.50 %
GMEH
    435,318       105,768       329,550     311.58 %
GCG
    393,668       294,010       99,658     33.90 %
      1,454,156       878,853       575,303     65.46 %
Cost of sales
                             
GCM
    383,966       287,818       96,148     33.45 %
GMEH
    269,827       59,997       209,830     349.73 %
GCG
    365,508       273,735       91,773     33.48 %
      1,019,301       621,550       397,751     63.99 %
Gross profit
                             
GCM
    241,204       191,257       49,947     26.12 %
GMEH
    165,491       45,771       119,720     261.56 %
GCG
    28,160       20,275       7,885     38.89 %
      434,855       257,303       177,552     69.01 %
General & administrative
    455,766       263,485       192,281     72.98 %
Loss from operations
    (20,911 )     (6,182 )     (14,729 )   238.26 %
Other income (expense)
    817       1,536       (719 )   (46.81 %)
Provision for taxation
    -       -       -     N/A  
   
Net loss from continuing operations
 
GCM
  $ 15,825     $ 20,368     $ (4,543 )   (22.30 %)
GMEH
    10,635       11,452       (817 )   (7.13 %)
GCG
    (5,790 )     (4,415 )     (1,375 )   (31.14 %)
Corporate
    (40,764 )     (32,051 )     (8,713 )   (27.18 %)
    $ (20,094 )   $ (4,646 )   $ (15,448 )   (332.50 %)

 
 
13

 

 
Revenues

Revenues increased by $575,303 to $1,454,156 for the three months ended March 31, 2012 as compared to $878,853 for the same period in 2011. The increases were mainly due to increases in revenue from GCM, GMEH and GCG operations.

Sales revenue of GCM increased by $146,095 to $625,170 for the three months ended March 31, 2012 as compared to $479,075 for the same period in 2011, representing a 30.50% increase. The increase in revenue was mainly due to the increase in electronic content sales by $66,591 and traditional paper magazines sales by $79,504.

Sales revenue of GMEH increased by $329,550 to $435,318 for the three months ended March 31, 2012 as compared to $105,768 for the same period in 2011, representing a 311.58% increase. The increase in revenue was mainly due to 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 increased by $99,658 to $393,668 for the three months ended March 31, 2012 as compared to $294,010 for the same period in 2011, representing a 33.90% increase. The increase in revenue was mainly due to GCG commenced its operation only since February 2011 and therefore there were only 2 months revenue in the 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 $397,751 to $1,019,301 for the three months ended March 31, 2012 as compared to $621,550 for the same period in 2011. The increases were mainly due to increases in cost of sales from GCM, GMEH and GCG operations.

Cost of sales of GCM increased by $96,148 to $383,966 for the three months ended March 31, 2012 as compared to $287,818 for the same period in 2011, representing a 33.45% increase. The increase was mainly due to the increase of paper cost by $37,508, printer cost by $15,796, distribution fee by $7,806 and other production costs by $35,038.

Cost of sales of GMEH increased by $209,830 to $269,827 for the three months ended March 31, 2012 as compared to $59,997 for the same period in 2011, representing a 349.73% increase. The increase was mainly due to GMEH commenced its operation only since March 2011 and therefore there was only 1 month cost of sales in first quarter ended March 31, 2011 as compared to 3 months cost of sales in the same quarter in 2012.
 
Cost of sales of GCG increased by $91,773 to $365,508 for the three months ended March 31 of 2012 as compared to $273,735 in the same period in 2011, representing a 33.48% increase. The increase was mainly due to GCG commenced its operation only since February 2011 and therefore there were only 2 months cost of sales in the first quarter ended March 31, 2011 as compared to 3 months revenues in the same quarter in 2012.
 
 
 
14

 

 
Gross margin

Gross margin increased by $177,552 to $434,855 for the three months ended March 31, 2012 as compared to $257,303 for the same period in 2011. The increases were mainly due to increases gross margin from GCM, GMEH and GCG operations.

Gross margin of GCM increased by $49,947 to $241,204 for the three months ended March 31, 2012 as compared to $191,257 for the same period in 2011, representing a 26.12% increase. The increase was mainly due to the increase in sales from both electronic content and traditional paper magazine by $146,095 offset by the increase in cost of sales of traditional magazines by $96,148.

Gross margin of GMEH increased by $119,720 to $165,491 for the three months ended March 31 of 2012 as compared to $45,771 for the same period in 2011, representing a 261.56% increase. The increase was mainly due to GMEH commenced its operation only since March 2011 and therefore there was only 1 month gross margin in first quarter ended March 31, 2011 as compared to 3 months gross margin in the same quarter in 2012.

Gross margin of GCG increased by $7,885 to $28,160 for the three months ended March 31 of 2012 as compared to $20,275 for the same period in 2011, representing a 38.89% increase. The increase was mainly due to GCG commenced its operation only since February 2011 and therefore there were only 2 months gross margin in the first quarter ended March 31, 2011 as compared to 3 months gross margin in the same quarter in 2012.

General and administrative

The following table summarizes general and administrative expenses during the three-month period ended March 31, 2012 and 2011, and provides information regarding the dollar and percentage increase / (decrease) from the three-month period ended March 31, 2011 to the three-month period ended March 31, 2012.
 
   
Three months ended
March 31,
             
   
2012
   
2011
   
Increase (decrease)
   
% Change
 
                         
Payroll cost
    333,727     175,058     158,669     90.64 %
Rental expenses
    82,821     66,684     16,137     24.20 %
Legal and professional fee
    6,142     5,240     902     17.21 %
Entertainment
    3,104     -     3,104     N/A  
Miscellaneous
    29,972     16,503     13,469     81.62 %
      455,766     263,485     192,281     72.98 %

Payroll cost increased by $158,669 to $333,727 for the three months ended March 31, 2012 as compared to $175,058 for the same period in 2011, representing a 90.64% increase. The increase was mainly due to the fact that the  Company commenced its operation in February of 2011 and there was only 2 months of payroll costs in first quarter ended February 28, 2011 as compared to 3 months of payroll costs in the same quarter in 2012.

Miscellaneous expenses increased by $13,469 to $29,972 for the three months ended March 31 of 2012 as compared to $16,503 for the same period in 2011, representing an 81.62% increase. The increase was mainly due to the fact that 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.
 
 
 
15

 

 
Net loss from continuing operations

Net loss from continuing operations increased by $15,448 to a net loss of $20,094 for the three months ended March 31, 2012 as compared to $4,646 for the same period in 2011.

Liquidity and Capital Resources

Cash

Our cash balance as of March 31, 2012 was $283,210, representing an increase of $210,946 as compared to $72,264 as of March 31, 2011. The increase of cash was mainly due to the operating cash inflows of 86,040, financing cash inflow of $123,414 and effect of foreign exchange rate changes on cash of $1,492 in aggregate..

Cash flow

Operating Activities

Net cash provided by operating activities for the three months ended March 31, 2012 amounted to $215,997 compared to net cash used in operating activities of $276,999 in the same period of 2011.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2012 amounted to $237,989 compared to net cash provided by financing activities of $321,224 in the same period of 2011.

Working capital

Our net current assets increased by $692,114 to $224,370 as of March 31, 2012 from net current liabilities of $467,744 as of March 31, 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 March 31, 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 three months ended March 31, 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.
 
 
 
16

 
 
 
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 March 31, 2012:
 
1.
Insufficient accounting personnel with the appropriate level of accounting knowledge, experience and training in the application of accounting principles generally accepted in the United States commensurate with financial statement reporting requirements.
 
As a result, we have concluded that our internal controls over financial reporting are not effective as of March 31, 2012.
 
Remediation of Material Weakness in Internal Control

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can only provide reasonable assurances with respect to financial statement preparation and presentation. In addition, any evaluation of effectiveness for future periods is subject to the risk that controls may become inadequate because of changes in conditions in the future.

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.

To remediate the material weakness surrounding this, we have performed and are continuing to perform, among others, the following actions:
·  
additional training of our accounting personnel by our independent accountants of the proper format and compilation of data for US GAAP financial statements; and
·  
additional coordination with our local accountants and auditors to strengthen our controls in an attempt to supplement the additional training of our employees

Changes in Internal Control over Financial Reporting

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.


 
17

 


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.

Issuer Purchases of Equity Securities

We did not repurchase any of our securities during the quarter ended March 31, 2012.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. [REMOVED AND RESERVED].

ITEM 5.OTHER INFORMATION

None.

ITEM 6. EXHIBITS.

Exhibit Number
Description
31.1
Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
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.
32.2
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


 
18

 
 
 
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/ Yau Wai Hung                                           
Yau Wai Hung
Chief Executive Officer and Director
 
Date: May 17, 2012

By:           /S/ Yau Wai Hung                                           
Yau Wai Hung
Chief Executive Officer and Director
(Acting Principal Accounting Officer)

Date: May 17, 2012
 

 
19

 

XOTC:GMEC Quarterly Report 10-Q Filling

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XOTC:GMEC Great China Mania Holdings Inc Quarterly Report 10-Q Filing - 3/31/2012
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