0001144204-15-049458.txt : 20150814 0001144204-15-049458.hdr.sgml : 20150814 20150814112403 ACCESSION NUMBER: 0001144204-15-049458 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20150630 FILED AS OF DATE: 20150814 DATE AS OF CHANGE: 20150814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: China Network Media, Inc. CENTRAL INDEX KEY: 0001440760 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 320251358 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-152579 FILM NUMBER: 151053634 BUSINESS ADDRESS: STREET 1: ROOM 205, BUILDING A STREET 2: NO. 1 TORCH ROAD, HIGH-TECH ZONE CITY: DALIAN, STATE: F4 ZIP: 116023 BUSINESS PHONE: 86 (411) 3973-1515 MAIL ADDRESS: STREET 1: ROOM 205, BUILDING A STREET 2: NO. 1 TORCH ROAD, HIGH-TECH ZONE CITY: DALIAN, STATE: F4 ZIP: 116023 FORMER COMPANY: FORMER CONFORMED NAME: METHA ENERGY SOLUTIONS INC. DATE OF NAME CHANGE: 20091106 FORMER COMPANY: FORMER CONFORMED NAME: Inscrutor Inc DATE OF NAME CHANGE: 20080723 10-Q 1 v417958_10q.htm FORM 10-Q

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended June 30, 2015

 

or

 

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

 

For the transition period from ______________ to ______________

 

Commission File Number: 333-152539

 

CHINA NETWORK MEDIA, INC.

(Exact name of registrant as specified in its charter)

  

Delaware   32-0251358
(State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization)    

 

Room 205, Building A    
No. 1 Torch Road, High-Tech Zone    
Dalian, China   116023
(Address of principal executive offices)   (Zip Code)

 

+86 (411) 3973-1515

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act 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 ¨ No x

 

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 x No ¨

  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer ¨
Non-accelerated filer  ¨ (do not check if smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨ No  x

 

At August 14, 2015, the registrant had 65,604,533 shares of common stock, par value $0.001 per share, issued and outstanding. 

 

 

 

 

CHINA NETWORK MEDIA, INC.

 

FORM 10-Q REPORT

June 30, 2015

 

 TABLE OF CONTENTS

 

  Page
Number
PART I - FINANCIAL INFORMATION  
   
Item 1. Financial Statements. 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. 6
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 17
Item 4. Controls and Procedures. 17
     
PART II - OTHER INFORMATION  
   
Item 1. Legal Proceedings. 18
Item 1A. Risk Factors. 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 18
Item 3. Defaults Upon Senior Securities. 18
Item 4. Mine Safety Disclosures. 18
Item 5. Other Information. 18
Item 6. Exhibits. 18
     
SIGNATURES   19

 

2 

 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements”.  Forward-looking statements discuss matters that are not historical facts.  Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions.  Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees.  Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties.  Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements.  These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors.  Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements.  In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.  All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

3 

 

 

CERTAIN TERMS USED IN THIS REPORT

 

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to the combined business of China Network Media Inc. and its consolidated subsidiaries and variable interest entities.

 

In addition, unless the context otherwise requires and for the purposes of this Report only:

 

  · “MGYS” refers to Metha Energy Solutions Inc., a Delaware corporation;

 

  · “PRC” and “China” refers to the People’s Republic of China, excluding, for the purpose of this prospectus, Taiwan and the special administrative regions of Hong Kong and Macau;

 

  · “PRC Operating Subsidiaries” and “PRC Operating Entities” refers to “Science & Technology (Dalian)” and “Dalian Tianyi”;

 

  · “Renminbi” and “RMB” refers to the legal currency of China;

 

  · “Science & Technology Trading” or “WFOE” refers to our indirect subsidiary of Science & Technology World Website Trade (Dalian) Co., Ltd., a PRC limited company;

 

  · “Science & Technology Network” refers to our variable interest entity Science & Technology World Network (Dalian) Co., Ltd., a PRC limited company;

 

  · “Dalian Tianyi” refers to our variable interest entity Dalian Tianyi Culture Development Co., Ltd., a PRC limited company;

 

4 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1.   Financial Statements.

 

INDEX TO FINANCIAL STATEMENTS

 

  PAGE
   
INTERIM FINANCIAL STATEMENTS  
   
CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2015 (UNAUDITED) AND DECEMBER 31, 2014 F-1
   
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS) FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2015 AND 2014 (UNAUDITED) F-2
   
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2015 AND 2014 (UNAUDITED) F-3
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) F-4~F-22

 

5 

 

 

China Network Media Inc.

Consolidated Balance Sheets

(Stated in US dollars, except for number of shares)

  

   June 30,   December 31, 
   2015   2014 
   (Unaudited)     
Assets          
Current assets          
Cash and cash equivalents  $531,591   $909,922 
Prepaid taxes   87,674    92,127 
Prepaid expenses and other current assets   24,312    41,234 
Total current assets   643,577    1,043,283 
Property and equipment, net   8,649    20,485 
Total assets  $652,226   $1,063,768 
           
Liabilities and shareholders’ deficit          
Current Liabilities          
Deferred revenue  $302,483   $964,252 
Due to related parties   85,561    84,662 
Advance from customers   16,424    32,502 
Income tax payable   95,131    133,620 
Other current liabilities   27,755    32,229 
Total current liabilities   527,354    1,247,265 
           
Total liabilities  $527,354   $1,247,265 
           
Shareholders’ equity (deficit)          
           
Common stock  ($0.001 par value,100,000,000 shares authorized; 65,604,533 and 65,175,333 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively)   65,604    65,175 
Additional paid in capital   1,343,623    1,322,828 
Accumulated deficit   (1,226,782)   (1,514,655)
Accumulated other comprehensive loss   (57,573)   (56,845)
Total shareholders' equity (deficit)   124,872    (183,497)
Total liabilities and shareholders' equity  $652,226   $1,063,768 

  

See accompanying notes to the consolidated financial statements.

 

* The assets of the variable interest entities (the “VIEs”) can be used to settle obligations of the consolidated entities. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets

 

(Note 3).

 

F-1 

 

 

China Network Media Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Stated in US dollars, except for number of shares)

 

   For the Six Months Ended June 30,   For the Three Months Ended June 30, 
   2015   2014   2015   2014 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Revenue                    
-  Third parties  $788,661   $587,340   $391,385   $311,936 
-  Related parties   -    13,563    -    6,755 
    788,661    600,903    391,385    318,691 
Cost of revenue                    
-  Third parties   101,361    266,352    47,829    110,394 
-  Related parties   -    6,151    -    2,296 
    101,361    272,503    47,829    112,690 
                     
Gross profit   687,300    328,400    343,556    206,001 
                     
Operating expenses:                    
Research and development expenses   16,952    66,337    7,670    33,581 
Selling and marketing expenses   1,201    19,665    607    11,437 
General and administrative expenses   260,652    359,063    126,148    215,640 
Total operating expenses   278,805    445,065    134,425    260,658 
Income (Loss) from Operations   408,495    (116,665)   209,131    (54,657)
                     
Other income (loss)   6,833    5,944    (228)   2,195 
                     
Income (loss) from operations before income taxes   415,328    (110,721)   208,903    (52,462)
Provision for income taxes   127,455    29,673    61,504    24,058 
Net income (loss)   287,873    (140,394)   147,399    (76,520)
                     
Other comprehensive (Loss) income                    
Foreign currency translation adjustment   (728)   2,865    (375)   (767)
Comprehensive Income (loss)  $287,145   $(137,529)  $147,024   $(77,287)
                     
Basic and diluted earnings (loss) per share  $0.004   $(0.002)  $0.002   $(0.001)
                     
Weighted-average number of shares outstanding -Basic and diluted   65,507,311    61,855,549    65,604,533    63,302,963 

 

 See accompanying notes to the consolidated financial statements.

 

F-2 

 

 

China Network Media Inc.

Consolidated Statements of Cash Flows

For the Periods Ended June 30, 2015 and 2014

(Stated in US dollars, except for number of shares)

 

   For Period Ended June 30, 
   2015   2014 
   (Unaudited)   (Unaudited) 
Cash Flows From Operating Activities          
Net income (loss)  $287,873   $(140,394)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   12,007    15,246 
Issuance of shares to employees and part-time consultants   21,224    90,305 
Changes in operating assets and liabilities:          
Accounts receivable   -    (678)
Prepaid expenses and other current assets   17,292    74,040 
Advance from a customer   (16,359)   (56,965)
Deferred revenue   (669,376)   (171,999)
Prepaid taxes   5,410    (12,599)
Income tax payable   (39,751)   29,558 
Other current liabilities   (4,797)   11,548 
Net cash used in operating activities   (386,477)   (161,938)
           
Cash Flows From Investing Activities          
Purchases of property and equipment   -    (2,278)
Short term loan to an unrelated party   (130,873)   - 
Cash repayment from an unrelated party   130,873      
Net cash used in investing activities   -    (2,278)
           
Cash Flows From Financing Activities          
Cash proceeds from a related party   -    146,482 
Net cash provided by financing activities   -    146,482 
Effect of exchange rate fluctuation on cash and cash equivalents   8,146    (922)
           
Net decrease in cash and cash equivalents   (378,331)   (18,656)
Cash and cash equivalents, beginning of the period   909,922    135,465 
Cash and cash equivalents, end of the period  $531,591   $116,809 
           
Supplemental disclosure information:          
Income taxes paid  $167,379   $- 

  

See accompanying notes to the consolidated financial statements.

 

F-3 

 

 

China Network Media Inc.

(Formerly Known As Metha Energy Solutions Inc.)

Notes to Consolidated Financial Statements

(Unaudited)

(U.S Dollars unless otherwise noted)

 

NOTE 1.     DESCRIPTION OF BUSINESS AND ORGANIZATION

 

China Network Media Inc. (formerly known as Metha Energy Solutions Inc.) was incorporated on April 18, 2008 under the laws of the State of Delaware.

 

Science & Technology World Website Media Holding Co., Ltd. (“Science & Technology Holding”) was organized under the laws of the British Virgin Island on February 15, 2011.

 

Science & Technology World Website Media Group Co., Ltd. (“Science & Technology Media”) was organized under the laws of the British Virgin Island on February 15, 2011 to serve as a holding company for the People's Republic of China (the "PRC") operations. On September 16, 2011, Science & Technology Media established Science & Technology World Website Hong Kong Media Holding Co., Ltd. (“HK Science & Technology”) in Hong Kong to serve as an intermediate holding company.

 

On January 20, 2012, HK Science and Technology established Science& Technology World Website Trade (Dalian) Co., Ltd (the “WFOE” or “Science & Technology Trading”) in the PRC. Its purposes are, among others, a platform for online B2B service.

 

HK Science and Technology and the WFOE are considered foreign investor and foreign invested enterprise respectively under PRC law. As a result, HK Science & Technology and the WFOE are subject to limitations under PRC law on foreign ownership of Chinese companies. According to the Catalogue of Industries for Guiding Foreign Investment (2011 Revision) (the “Catalogue”), there are four kinds of industries which are encouraged, permitted, restricted and prohibited for foreign investment. The primary business of Dalian Tianyi Culture Development Co., Ltd (“Dalian Tianyi”) and Science & Technology World Network (Dalian) Co., Ltd (“Science & Technology (Dalian)”) are within the category in which foreign investment is currently restricted.

 

On January 21, 2012, the WFOE respectively entered into a series of agreements with Dalian Tianyi, Science & Technology (Dalian) and their respective shareholders (“Contractual Arrangements”). The relationship with Dalian Tianyi, Science & Technology (Dalian) and their respective shareholders are governed by the Contractual Arrangements. The Contractual Arrangements is comprised of a series of agreements, including Exclusive Technical Consulting Service Agreements and Operating Agreements, through which WFOE has the right to advise, consult, manage and operate Dalian Tianyi and Science & Technology (Dalian), and collect 85% of their respective net profits. The shareholders of Dalian Tianyi and Science & Technology (Dalian) have granted WFOE, under the Exclusive Equity Interest Purchase Agreement, the exclusive right and option to acquire all of their equity interests respectively in Dalian Tianyi and Science & Technology (Dalian). Furthermore, the shareholders of Dalian Tianyi and Science & Technology (Dalian) is under the procedure of pledging all of their equity interests respectively in Dalian Tianyi and Science & Technology (Dalian) to WFOE under the Exclusive Equity Interest Pledge Agreement, and through the Exclusive Equity Interest Pledge Agreement, WFOE can collect the remaining 15% of Dalian Tianyi and Science & Technology (Dalian)’s respective net profits.  

 

According to the Power of Attorney executed by the shareholders of Dalian Tianyi and Science & Technology (Dalian), they exclusively authorized WFOE to perform and exercise any and all of the shareholder’s rights in Dalian Tianyi and Science & Technology (Dalian).

  

F-4 

 

 

As a result of the Contractual Arrangements, under generally accepted accounting principles in the United States, or U.S. GAAP, Science & Technology Media is considered the primary beneficiary of Dalian Tianyi and Science & Technology (Dalian) (“VIEs”) On October 29, 2012, Science & Technology Media entered into a Share Exchange Agreement by and among (i) Science & Technology Holding, (ii) the principal shareholders of China Network Media Inc., (iii) China Network Media Inc., (iv) the shareholders of Science & Technology Holding and (v) Science & Technology Media.

  

The acquisition was accounted for as a “reverse merger,” and Science & Technology Media was deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that would be reflected in the financial statements prior to the acquisition would be those of Science &Technology Media and its wholly owned subsidiaries and VIEs, and would be recorded at the historical cost, and the consolidated financial statements after completion of the acquisition would include the assets, liabilities and operation of China Network Media Inc., Science & Technology Media and its wholly owned subsidiaries and VIEs from the closing date of the acquisition. As a result of the issuance of the shares of common stock pursuant to the Exchange Agreement, a change in control of occurred as a result of the acquisition.

 

In connection with the closing of the Exchange Agreement, Toft ApS, China Network Media Inc.’ principal shareholder, agreed to cancel its 10,000,000 shares of the common stock that it owned in China Network Media Inc. and to issue 50,000,000 shares to shareholders of Science & Technology Holding, who acquired a majority interest in China Network Media Inc., in October 2012 for the purpose of the reverse acquisition of Science & Technology Media. Additionally, the existing officers and directors from China Network Media Inc. resigned from its board of directors and all officer positions effective immediately after the closing of the reverse merger. Accordingly, China Network Media Inc. appointed Mr. Jiang Wei, the former major shareholder of Science & Technology Holding as the Chairman of the Board and appointed Mr. Peng HuiAn, the former major shareholder of Science & Technology Holding as the Chief Executive Officer. The shareholders of Science & Technology Media shareholder were issued common stock of China Network Media Inc. constituting approximately 95.02% of the fully diluted outstanding shares. After the RTO, 52,620,030 common stock were outstanding.

 

China Network Media Inc.’s directors approved the Exchange Agreement and the transactions contemplated thereby. Simultaneously, the directors of Science & Technology Media also approved the Exchange Agreement and the transactions contemplated thereby.

 

As a result of the Exchange Agreement, China Network Media Inc. acquired 100% of the processing and production operations of Science & Technology Media and its subsidiaries, the business and operations of which now constitutes its primary business and operations.

 

On March 19, 2013, the Company submitted dissolution application for Science & Technology Holding which was approved on April 2, 2013.

 

China Network Media Inc., its wholly-owned subsidiaries and VIEs are collectively referred as “the Company”, “we”, “us”, “our” for the purposes of these notes.

 

We operate a multi-languages portal website that serves to the technology industry and provide advertising opportunities to the companies through our diverse business network in China. The Company currently operates its website through different versions in China.

 

F-5 

 

 

As our main target, we provide online platform to business entrepreneurs and corporations with a B2B marketplace that can help our customers:

 

  ¨ Set their brand image through multiple languages online magazine, online corporate multimedia advertisement, executives interviews, institutional alliances and flexible membership package that tailor made based on what our customers need;

  

  ¨ Set up customer’s online exhibition to introduce their products to the public, where they have our tailor-made corporate introduction with 3D product description and factory facilities online show room ;

 

  ¨ Develop intelligent leisure retirement industry through building a unique international intelligent technology health leisure endowment industrial district including residential area, holiday resort, spa area etc. ;

 

  ¨ Develop an e-commercial platform to combine the online sales business with above intelligent leisure district and all the branches over the world to provide elderly products and also exclusive products provided by our agents;

 

  ¨ B2B product purchase platform for companies and end-users;

 

F-6 

 

 

  ¨ Online job opportunity section for corporate clients; and

 

  ¨ Corporate blogs.

 

We currently derive a substantial portion of our revenues from online advertising membership services. Our advertising membership solutions present corporate users with attractive opportunities to combine the visual impact and engagement of traditional television-like multimedia advertisements and online magazines with the interactivity and precise targeting capabilities of the Internet. We strive to promote a novel and unique advertising environment on our website to attract technology enterprises.

 

NOTE 2.      GOING CONCERN AND LIQUIDITY

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company currently has limited revenue and has accumulated deficit of $1,226,782 and $1,514,655 as of June 30, 2015 and December 31, 2014 and net income of 287,873 and net losses of $140,394 for the six months ended June 30, 2015 and 2014, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management plans to fund continuing operations through new financing from related parties and equity financing arrangements. The Company’s continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required until 2015 when it can generate sources of recurring revenues and to ultimately attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The principal sources of liquidity are cash and cash equivalents, short-term investments, loans from shareholders, as well as the cash flows generated from our operations.

 

As of June 30, 2015, the Company had cash and cash equivalents of approximately $531,591. As of December 31, 2014, the Company had cash and cash equivalents of approximately $909,922. Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.

 

The Company believes that the current cash and cash equivalents combined with proceeds that it expect to generate from operating activities are sufficient to meet anticipated working capital needs, commitments and capital expenditures over the next twelve months. It may, however, require additional cash resources due to changes in business conditions and other future developments, or changes in general economic conditions. The management also promised to provide economic supports to the Company for operation need including provide loans to the Company.

 

F-7 

 

 

NOTE 3.      VARIABLE INTEREST ENTITIES

 

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its Variable Interest Entities (“VIEs”).

 

Risks in Relation to the VIE Structure:

 

The Ministry of Commerce of PRC (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law (the “Draft”) in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China. The Draft embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

 

The MOFCOM is currently soliciting comments on the Draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The Draft, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations. The Draft expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a Foreign Investment Enterprise (“FIE”).

 

Under the Draft, Variable Interest Entities (“VIEs”) that are controlled via contractual arrangement would be deemed as FIEs, if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in an industry category that falls under restricted to foreign investment or prohibited from foreign investment, the VIE structure may be deemed legitimate only if the ultimate controlling persons) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the VIEs will be treated as FIEs and any operation in the industry category falls under restricted to foreign investment or prohibited from foreign investment, without market entry clearance may be considered as illegal. Moreover, for the enterprises which are not incorporated under the laws of China (foreign investors) but are "controlled" by Chinese investors, they may submit documentary evidence to apply for identifying their investment as the investment by Chinese investors when they applying for the market entry clearance to engage in any investment as set out in industries restricted to foreign investment or prohibited from foreign investment in China. The competent authorities of foreign investment will grant the review opinion on whether the said investment is identified as the investment by Chinese investors.

 

In conclusion, if the Draft enacted as proposed, it is possible that the Company's conduct of certain of its operations and businesses through the VIEs could be found by PRC authorities to be in violation of PRC laws and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. If such a finding were made, regulatory authorities with jurisdiction over the licensing and operation of such businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Company's income, revoking the business or operating licenses of the affected businesses, requiring the Company to restructure its ownership structure or operations, or requiring the Company to discontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Company's business operations, and have a material adverse impact on the Company's cash flows, financial position and operating performance. The Company's management considers the possibility of such a finding by PRC regulatory authorities to be remote.

 

These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.

 

F-8 

 

 

The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.

 

The significant terms of the VIE Agreements are summarized below:

 

Exclusive Technical Consulting Service Agreement: During the term of this Agreement, Science & Technology Trading shall provide the following technical consulting services to Dalian Tianyi and Science & Technology (Dalian) in accordance with this Agreement: (i) Provision of advanced management skills to offer a framework for the construction of a new management platform; (ii) Provision of technology information and materials related to Dalian Tianyi and Science & Technology (Dalian)’s business development and operation. The content of the technology information and documents may be enhanced or diminished during the performance of this Agreement and upon mutual agreement to address each Party’s requirements; and (iii) Training of technical and managerial personnel for Dalian Tianyi and Science & Technology (Dalian) and provision of required training documents. Science & Technology Trading will send technologists and managerial personnel to Dalian Tianyi and Science & Technology (Dalian) to provide related technology and training services as necessary. Dalian Tianyi and Science & Technology (Dalian) hereby agrees to accept the technical consulting services provided by Science & Technology Trading. Dalian Tianyi and Science & Technology (Dalian) further agrees that, during the term of this Agreement, it shall not accept technical consulting and services from any other party without the prior written consent of Science & Technology Trading. Science & Technology Trading shall be the sole and exclusive owner of all right, title and interests to any and all intellectual property rights arising from the performance of this Agreement, including but not limited to, copyrights, patent, know-how and commercial secrets, whether such intellectual property is developed by Science & Technology Trading or Dalian Tianyi and Science & Technology (Dalian).

 

Exclusive Equity Interest Purchase Agreement: Under the Exclusive Option Agreements entered into by and among Science & Technology Trading, each of the PRC Shareholders irrevocably granted to Science & Technology Trading the exclusive right to purchase or designate one or more persons to purchase all or any portion of the Equity Interest from the PRC Shareholders subject to compliance with legal restrictions under applicable PRC laws. The PRC Shareholders shall not sell or transfer all or any portion of the Equity Interest to any party other than Science & Technology Trading and/or the Specified Person.

 

Equity Interest Pledge Agreement: Under the Equity Pledge Agreements entered into by and among Science& Technology Trading, the PRC Operating Entities and each of the PRC Shareholders, the PRC Shareholders pledged all of their equity interests in the PRC Operating Entities as security to ensure that Science& Technology Trading collects the Consulting Fee under the Service Agreement. The Pledge shall be effective as of the date that the Pledge is recorded in the register of shareholders of Dalian Tianyi and Science & Technology (Dalian) and shall remain effective so long as this Agreement remains in effect. During the Term of the Pledge, Science& Technology Trading shall be entitled to foreclose on the Pledge in accordance with this Agreement in the event that Dalian Tianyi and Science & Technology (Dalian) fail to pay the Consulting Fees in accordance with the Service Agreement. Science& Technology Trading shall be entitled to exercise, dispose of or assign the Pledge in accordance with this Agreement.

 

Powers of Attorney: The PRC Shareholders have each executed an irrevocable power of attorney to appoint Science& Technology Trading as their sole representative with full authority to perform and exercise any and all shareholder’s rights associated with the Equity Interest, including but not limited to, the right to attend shareholders’ meetings, the right to execute shareholders’ resolutions, the right to sell, assign, transfer or pledge any or all of the Equity Interest and the right to vote the Equity Interest for all matters, including but not limited to, the appointment of legal representatives, board members, executive directors, inspectors, chief managers and other senior management officers and the submission of all the Company’s related documentations to the competent authorities. The term of each power of attorney is valid so long as such shareholder is a shareholder of the respective PRC Operating Entity.

 

F-9 

 

 

As a result of these VIE Agreements, the Company through its wholly-owned subsidiary, Science& Technology Trading, was granted with unconstrained decision making rights and power over key strategic and operational functions that would significantly impact the PRC Operating Entities or the VIEs’ economic performance, which includes, but is not limited to, the development and execution of the overall business strategy; important and material decision making; decision making for merger and acquisition targets and execution of merger and acquisition plans; business partnership strategy development and execution; government liaison; operation management and review; and human resources recruitment and compensation and incentive strategy development and execution. Science& Technology Trading also provides comprehensive services to the VIEs for their daily operations, such as operational technical support, OA technical support, accounting support, general administration support and technical support for products and services. As a result of the Exclusive Business Cooperation Agreements, the Equity Pledge Agreements and the Exclusive Option Agreements, the Company will bear all of the VIEs’ operating costs in exchange for 100% of the net income of the VIEs. Under these agreements, the Company has the absolute and exclusive right to enjoy economic benefits similar to equity ownership through the VIE Agreements with our PRC Operating Entities and their shareholders.

 

These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. Apart from the above risks, there are no significant judgments or assumptions regarding enforceability of the contracts.

 

In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event the Company is unable to enforce these contractual arrangements, it may not be able to exert effective control over the VIEs, and its ability to conduct its business may be materially and adversely affected.

 

The assets of the variable interest entities (the “VIEs”) can be used to settle obligations of the consolidated entities. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

 

F-10 

 

 

Most of our operations are conducted through our affiliated companies which the Company controls through contractual agreements in the form of variable interest entities. Current regulations in China permit our PRC subsidiaries to pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of these Chinese affiliates to make dividends and other payments to us may be restricted by factors that include changes in applicable foreign exchange and other laws and regulations.

 

  A. Under PRC law, our subsidiary may only pay dividends after 10% of its after-tax profits have been set aside as reserve funds, unless such reserves have reached at least 50% of its registered capital. Such cash reserve may not be distributed as cash dividends.

 

  B. The PRC Income Tax Law also imposes a 10% withholding income tax on dividends generated on or after January 1, 2008 and distributed by a resident enterprise to its foreign investors, if such foreign investors are considered as non-resident enterprise without any establishment or place within China or if the received dividends have no connection with such foreign investors’ establishment or place within China, unless such foreign investors’ jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

 

As of June 30, 2015, there were no such retained earnings available for distribution.

 

The following financial statement amounts and balances of the VIEs were included in the accompanying consolidated financial statements as of and for the six months and three months ended June 30, 2015 and 2014, respectively: 

 

   June 30,
2015
   December 31,
2014
 
   (Unaudited)     
         
Total assets  $652,226   $1,063,768 
           
Total liabilities  $527,354   $1,247,265 

 

   Six Months Ended June 30, 
   2015   2014 
   (Unaudited)   (Unaudited) 
         
Revenues  $788,661   $600,903 
           
Net income (loss)  $287,873   $(140,394)

 

   For Three Months Ended June 30, 
   2015   2014 
   (Unaudited)   (Unaudited) 
Revenues  $391,385   $318,691 
           
Net income (loss)  $147,399   $(76,520)

 

All of our current revenue is generated in PRC currency Renminbi (“RMB”). Any future restrictions on currency exchanges may limit our ability to use net revenues generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

 

Foreign currency exchange regulation in China is primarily governed by the following rules:

 

  ¨ Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

 

  ¨ Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

F-11 

 

 

Under the Administration Rules, RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (“SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like ours that need foreign exchange for the distribution of profits to their shareholders may affect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.

 

NOTE 4.      SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

 

a.Basis of preparation

 

The accompanying consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements as of June 30, 2015 and for the six months and three months periods ended June 30, 2015 and 2014 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with United States generally accepted accounting principles (U.S. GAAP), have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2014, previously filed with the SEC.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s consolidated financial position as of June 30, 2015, its consolidated results of operations and cash flows for the six months and three months periods ended June 30, 2015 and 2014, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

  b. Principles of consolidation

 

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries and VIEs. Upon consolidation, all balances and transactions between the Company and its subsidiaries and VIEs have been eliminated.

 

  c. Use of estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets.

 

  d. Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, cash on deposit with various financial institutions in PRC and all highly-liquid investments with original maturities of three months or less at the time of purchase. Cash accounts are not insured or otherwise protected. Should any bank or trust company holding cash deposits become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash on deposits with that particular bank or other financial institutions.

 

F-12 

 

 

  e. Property and equipment

 

Property and equipment mainly comprise computer equipment, hardware and office furniture. Property and equipment are recorded at cost less accumulated depreciation with no residual value.

 

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

 

Office and other equipment  5 years
    
Computers  3 years

 

Depreciation expense is allocated among Research and development expenses, Selling and marketing expenses and General and administrative expenses.

 

When office equipment and electronic devices are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon.  Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

 

  f. Impairment of long-lived assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset.  If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount of the asset and its fair value. There were no impairment losses for the six months ended June 30, 2015 and 2014, respectively.

 

  g. Revenue recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenues are recognized when the four of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured. The recognition of revenue involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.

 

Online Membership Revenue

 

Online membership revenue includes revenue from members for brand advertising services as well as others services.

 

F-13 

 

 

The Company has the arrangements with nonrefundable up-front fees model (“the Model”) to recognize revenue for the online membership business. We apply the Model, where a contract is signed to establish a fixed price for our services to be provided for a period of time as a membership enrollment, for a majority of our online membership revenue. Revenue is recognized ratably over the membership periods on a straight line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer. The Company provides advertisement placements to our advertising customers on our different Website channels and in different formats, which can include, among other things, banners, links, logos, buttons, rich media, pre-roll and post-roll video screens, pause video screens and content integration, as specified in the contracts with the members. The members can choose various on line services from the membership contracts based on their yearly membership.

 

For online membership revenue recognition, the Company recognizes revenue when all revenue recognition criteria are met.

 

Others Revenues

 

Other revenues are primarily generated from online advertisement planning services which introduce our customer’s profile, product, and awareness promotion for their executive officers to build a better brand name for non-member companies. We follow the guidance of the FASB Accounting Standards Codification No. 605 for revenue recognition for others revenues. The Company recognize others revenue when they are realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable, the services are rendered and collectability is reasonably assured.

 

  h. Related parties

 

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

  i. Earnings (loss) per common share

 

Basic earnings (loss) per share is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for all periods.  Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of shares outstanding, increased by common stock equivalents. Common stock equivalents represent incremental shares issuable upon exercise of outstanding warrants. The Company has no such warrants. However, potential common shares are not included in the denominator of the diluted earnings (loss) per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

 

F-14 

 

 

  j. Foreign currency transactions and translations

 

An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The reporting currency of the Company is United States dollars (“U.S. dollars” or “$”), and the functional currency of HK Science & Technology is Hong Kong dollars (“HK dollar”).  The functional currency of the Company’s PRC subsidiary and VIEs is the Renminbi (“RMB’), and PRC is the primary economic environment in which the Company operates. The reporting currency of these consolidated financial statements is the United States dollar.

 

For financial reporting purposes, the financial statements of the Company’s PRC subsidiary and VIEs, which are prepared using the RMB, are translated into the Company’s reporting currency, the United States dollar. The financial statements of HK Science & Technology, which are prepared using the HK dollar, are translated into the Company’s reporting currency, the United States dollar. Assets and liabilities are translated using the exchange rate at each balance sheet date.  Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders' equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in owners’ equity.

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions.  The resulting exchange differences are included in the determination of net income (loss) of the consolidated financial statements for the respective periods.

 

The exchange rates used for foreign currency translation were as follows:

 

   June 30,
2015
   December 31,
2014
 
(US$1 = RMB)
Balance sheet items, except for equity accounts
   6.0888    6.1535 
(US$1 = HKD)          
Balance sheet items, except for equity accounts   7.7525    7.7580 

 

   Six Months Ended June 30, 
   2015   2014 
(US$1 = RMB)
Items in the statements of income and comprehensive income, and statements of cash flows
   6.1128    6.1199 
(US$1 = HKD)
Items in the statements of income and comprehensive income, and statements of cash flows
   7.7538    7.7579 

 

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

 

Translations adjustments resulting from this process are included in accumulated other comprehensive loss in the shareholder’s deficit were $57,573 at June 30, 2015 and $56,845 at December 31, 2014, respectively.

 

F-15 

 

 

  k. Fair Value Measurements

 

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements.  ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

  ¨ Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

  ¨ Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

  ¨ Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

There were no transfers between level 1, level 2 or level 3 measurements for the three months ended June 30, 2015 and 2014, respectively.

 

As of June 30, 2015 the Company used Level 2 to measure the fair value of the shares that the Company issued to employees and part-time consultants for the service rendered. As the Company’s shares were still not active on OTCBB, no quoted price for those shares. 

 

The carrying values of the Company’s financial assets and liabilities, including accounts receivables, other current assets, and accrued expenses and other current liabilities, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.

 

  l. Share-Based Compensation

 

Pursuant to ASC Topic 718, Compensation - Stock Compensation, the Company measures the cost of employee services received in exchange for an award of stock-based compensation based on the grant-date fair value of the award. The cost is recognized over the requisite service period, except for awards granted to employees for past services, which are fully expensed by the grant date.

 

F-16 

 

 

  m. Recently adopted accounting pronouncements

 

The Company does not believe other recently issued but not yet effective accounting standards from ASU 2015-01 to ASU 2015-11, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.

 

NOTE 5.          EARNINGS (LOSS) PER SHARE

 

The FASB’s accounting standard for earnings (loss) per share requires presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share. Basic earnings (loss) per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. The Company has no potential dilutive securities as of June 30, 2015.

 

The following is a reconciliation of the basic and diluted earnings (loss) per share computations for the six months ended June 30, 2015 and 2014: 

 

   For Six Months Ended June 30, 
   2015   2014 
   (Unaudited)   (Unaudited) 
Net income(loss) for basic and diluted earnings (loss) per share  $287,873   $(140,394)
           
Weighted average shares used in basic and diluted computation   65,507,311    61,855,549 
Earnings (loss)  per share:          
Basic and diluted  $0.004   $(0.002)

 

F-17 

 

 

NOTE 6.          CONCENTRATION OF RISK

 

Credit risk

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents. The Company places its cash and cash equivalents with financial institutions, which management believes are of high-credit ratings and quality.

 

The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

 

Concentration of customers and suppliers

 

For the six months ended June 30, 2015, three customers accounted for 42%, 19% and 12% of the Company’s sales respectively. For the six months ended June 30, 2014, two customers accounted for 13% and 12% of the Company’s sales. Except for the afore-mentioned customers, there was no other single customer who accounted for more than 10% of the Company’s sales for the six months ended June 30, 2015 and 2014, respectively.

 

For the three months ended June 30, 2015, three customers accounted for 43%, 20% and 12% of the Company’s sales. For the three months ended June 30, 2014, two customers accounted for 23% and 12% of the Company’s sales. Except for the afore-mentioned customers, there was no other single customer who accounted for more than 10% of the Company’s sales for the three months ended June 30, 2015 and 2014, respectively.

 

For the six months and three months ended June 30, 2015, there was no supplier who accounted for more than 10% of the Company’s purchases. For the six months and three months ended June 30, 2014, one supplier accounted for 22% and 18% of the Company’s purchases. Except for the afore-mentioned, there was no other single supplier who accounted for more than 10% of the Company’s cost of sales for the six and three months ended June 31, 2015 and 2014, respectively.

 

NOTE 7.           PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

At June 30, 2015 and December 31, 2014, prepayment and other current assets consist of:

 

   June 30, 2015   December 31, 2014 
   (Unaudited)     
         
Prepaid rental, phone and to other vendors  $99   $5,199 
Prepayment to advertisement and internet resources providers   8,768    18,428 
Other current assets   15,445    17,607 
   $24,312   $41,234 

 

Prepayment to advertisement and internet resources providers consists of the deposits required by and made to the telecommunication platform operators for using their network services.

 

F-18 

 

 

NOTE 8.           PROPERTY AND EQUIPMENT

 

Property and equipment consists of network equipment and servers used for hosting Company’s website and furniture, equipment and computers used in the office.

 

Property and equipment consists of the following:

 

   June 30, 2015   December 31, 2014 
   (Unaudited)     
Office and other equipment  $97,042   $96,022 
Computers   65,128    64,444 
Property and equipment, cost   162,170    160,466 
Less: accumulated depreciation   (153,521)   (139,981)
Property and equipment, net  $8,649   $20,485 

 

Depreciation expense for the six months ended June 30, 2015 and 2014 were $12,007 and $15,246, respectively. Depreciation expense for the three months ended June 30, 2015 and 2014 were $5,195 and $7,470, respectively.  

 

NOTE 9.           RELATED PARTY TRANSACTIONS

 

At June 30, 2015 and December 31, 2014, the Company had a balance due to Xie He Si Decoration Co., Ltd, a related company owned by the Chairman, Mr. Jiang Wei, of $85,561 and $84,662, respectively, for advances made to fund operations. This payable is due on demand, is non-interest bearing and has no maturity date.

 

NOTE 10.        ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE

 

Advances from customers represent customer payments for membership contracts but membership has not started. Deferred revenue represents customer payments made in advance for membership contracts while services have not been fully provided. Membership contracts are typically billed on full basis in advance and revenue is recognized ratably over the membership period.

 

As of June 30, 2015 and December 31, 2014, advances from customers and deferred revenue consisted of the following:

 

   June 30, 2015   December 31, 2014 
   (Unaudited)     
Advance from customers  $16,424   $32,502 
Deferred revenue, current   302,483    964,252 
Total  $318,907   $996,754 

 

F-19 

 

 

NOTE 11.        OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

   June 30, 2015   December 31, 2014 
   (Unaudited)     
Payroll payable  $17,739   $21,103 
Other payable   10,016    11,126 
Total  $27,755   $32,229 

 

NOTE 12.        TAXATION

 

  A) Income Tax

 

Science & Technology Trading and our combined VIEs are established in Dalian, Province, PRC, and governed by the Income Tax Law of the PRC concerning privately-held enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments in 2015 and 2014.

 

The effective tax rate for the Company for the six months ended June 30, 2015 and 2014 was 31% and 27% respectively.

 

A reconciliation of the provision for income taxes determined at the U.S. federal corporate income tax rate to the Company’s effective income tax rate is as follows: 

 

   June 30, 2015   June 30, 2014 
   Unaudited   Unaudited 
US federal rate   34%   35%
Taxable income(losses)   415,328    (110,721)
Computed expected income tax (expense) benefit   (141,212)   38,752 
Reconciliation items:          
Rate differential for domestic earnings   37,380    (11,072)
Non-deductible expenses   (199)   (774)
Valuation allowance on deferred tax assets   (23,424)   (56,579)
Effective income tax expense  $(127,455)  $(29,673)

 

F-20 

 

 

Realization of the net deferred tax assets is dependent on factors including future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing deductible temporary differences and tax loss or credit carry forwards. The Company evaluates the potential realization of deferred tax assets on an entity-by-entity basis. As of June 30, 2015, valuation allowances were provided against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized. The Company had deferred tax assets which consisted of tax loss carry-forwards, which can be carried forward to offset future taxable income for five years from the year the loss occurred. The management determines it is more likely than not that these deferred tax assets could not be recognized, so full allowances were provided as of June 30, 2015 and December 31, 2014. The deferred tax assets arising from net operating losses will expire from 2019 if not utilized.

 

The Company adopted ASC 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Our estimated liability for unrecognized tax benefits, may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are recorded in our financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. The Company has elected to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the combined statements of operations. The Company did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

 

  B) Value Added Tax and relevant surcharge

 

Revenue of our membership and advertising planning services are subject to 6% value added tax (“VAT”) and 0.72% total surcharge of the gross service income for the business incurred on and after November 1, 2014. 

 

The Company pays the VAT when the invoices are issued to customers and estimates the income tax as the full received amounts had been recognized as revenue. The prepaid VAT and income tax are deductible in the following years.

 

NOTE 13.        SHAREHOLDERS’ DEFICIT AND STATUTORY RESERVES

 

On October 29, 2012, Science & Technology Media entered into a Share Exchange Agreement by and among (i) Science & Technology Holding, (ii) the principal shareholders of China Network Media Inc. (iii) China Network Media Inc. and (iv) the shareholders of Science &Technology Holding.

 

As a result of the Exchange Agreement, China Network Media Inc. acquired 100% of the processing and production operations of Science & Technology Media and its subsidiaries, the business and operations of which now constitutes its primary business and operations. Specifically, as a result of the Exchange Agreement on October 29, 2012:

 

  ¨   China Network Media Inc. acquired and now owns 100% of the issued and outstanding shares of capital stock of Science &Technology Media, a British Virgin Islands holding company which controls Dalian Tianyi, Science &Technology (Dalian) and their telecommunications business;

 

  ¨   China Network Media Inc. issued 50,000,000 shares of common stock to the shareholders of Science & Technology Media shareholders; and

 

  ¨   Science & Technology Media were issued common stock of China Network Media Inc. constituting approximately 95.02% of the fully diluted outstanding shares.

 

F-21 

 

 

As stipulated by the laws and regulations for enterprises operating in PRC, the subsidiaries of the Company are required to make annual appropriations to a statutory surplus reserve fund. Specifically, the subsidiaries of the Company are required to allocate 10% of their profits after taxes, as determined in accordance with the PRC accounting standards applicable to the subsidiaries of the Company, to a statutory surplus reserve until such reserve reaches 50% of the registered capital of the subsidiaries of the Company. The Company can use the statutory surplus reserve to offset deficits, expand its plant or increase capital when and only when the reserve balance exceeds 50% of the registered capital, and the amount capitalized should be limited to 50% of the statutory surplus reserve. The Company is not yet subject to the requirement to appropriate statutory reserves as they have not produced accumulated net earnings since inception 

 

NOTE 14.        SHARES GRANTED AND ISSUED TO EMPLOYEES

 

On February 25, 2014 the Company determined to cancel 10,000 shares which have been issued to 1 consultant, for the contract terminated. The total fair value of these shares was estimated to be $40.

 

On April 8, 2014 the Company determined to grant equity awards of 2,377,950 and 820,354 shares to 10 part-time consultants and 53 employees respectively, for the services rendered. The total fair value of these shares at the date of grant was estimated to be $90,305.

 

On September 17, 2014 the Company determined to grant equity awards of 373,200 shares to 13 part-time consultants for the services rendered. The total fair value of these shares at the date of grant was estimated to be $10,538.

 

On December 14, 2014 the Company determined to grant equity awards of 1,218,000 shares to 9 part-time consultants for the services rendered. The total fair value of these shares at the date of grant was estimated to be $60,234.

 

On February 10, 2015, the Company determined to grant equity awards of 429,200 shares to 2 part-time consultants and 46 employees for the services rendered. The total fair value of these shares at the date of grant was estimated to be $21,224.

 

The fair value of the shares granted was $0.04945 per share calculated through the application of an income approach to evaluate the future value of the operation into a present market value. This method eliminates the discrepancy in time value of money by using a discount rate to reflect all business risks including intrinsic and extrinsic uncertainties in relation to the operation.

 

Major assumptions used for measuring the fair value as follow:

 

  It is assumed that there will be no material change in the existing political, legal, technological, fiscal or economic condition which may adversely affect the business of the Company;

 

  The Company will adhere to the terms that bond with the contracts and agreements;

 

  The Company’s competitive advantages and disadvantages will not change significantly during the period.

 

NOTE 15.        COMMITMENTS

 

The Company’s operating lease commitment as of June 30, 2015 and December 31, 2014 were $45,636 and $25,883, respectively. The unpaid contract amount is expected to be paid in one year.

 

NOTE 16.        SUBSEQUENT EVENTS

 

There were no any significant events occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our consolidated financial statements.

 

F-22 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

The following discussion provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition for the quarter ended June 30, 2015. The discussion should be read along with our financial statements and notes thereto contained elsewhere in this Report. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward-looking statements.  See “Cautionary Statement On Forward-Looking Information.”

 

Overview

 

We are an emerging online media, search, community and mobile service group. We operate a multi-lingual portal website that serves the technology industry and provides advertising opportunities to companies through our diverse business network in China. We conduct our business through our variable interest entities Dalian Tianyi and Science & Technology (Dalian) in China, which we control through a series of contractual arrangements.

 

As our main target, we are working on building a carrier in network technology industry integrating new network media, intelligent aged care, seniors housing and aged friendly communities, and technology product selling as the primary business; mobile TV media, traditional media, software development, network game as auxiliary business, to get huge business opportunity from internet industry and healthy retirement industry based in Dalian and facing the whole world:

 

  · Build brand image through multiple languages online magazines, online corporate multimedia advertisement, executives interviews, institutional alliances and flexible membership package that are tailored to each business’ needs.

 

  ·

Showcase products to the public, through our custom-made corporate and factory facilities online show room;

 

Also, the Company has the following future developments:

 

  · Develop intelligent leisure retirement industry through building a unique international intelligent technology health leisure endowment industrial district including residential area, holiday resort, spa area etc. ;

 

  · Develop an e-commercial platform to combine the online sales business with above intelligent leisure district and all the branches over the world to provide elderly products and also exclusive products provided by our agents;

 

  · Host product purchase for businesses and end-users;

 

  · Publish job openings and seek talents for corporate clients; and

 

  · Post corporate blogs;

 

We currently derive a substantial portion of our revenues from online advertising services. Our advertising solutions present corporate users with attractive opportunities to combine the visual impact of traditional television-like multimedia advertisements and online magazines with the interactivity and precise targeting capabilities of the Internet.

  

6 

 

 

Critical Accounting Policies and Management Estimates

 

Our discussion and analysis of our financial condition and results of operations relates to our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the consolidation, revenue recognition, income taxes and uncertain tax positions, computation of net loss per share, determination of net accounts receivable, and determination of functional currencies represent critical accounting policies that reflect the more significant judgments and estimates used in the preparation of our consolidated financial statements.

 

Principles of consolidation

 

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries and VIEs. Upon consolidation, all balances and transactions between the Company and its subsidiaries and VIEs have been eliminated.

 

Risks in Relation to the VIE Structure:

 

The Ministry of Commerce of PRC (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law (the “Draft”) in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China. The Draft embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

 

The MOFCOM is currently soliciting comments on the Draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The Draft, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations. The Draft expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a Foreign Investment Enterprise (“FIE”).

 

Under the Draft, Variable Interest Entities (“VIEs”) that are controlled via contractual arrangement would be deemed as FIEs, if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in an industry category that falls under restricted to foreign investment or prohibited from foreign investment, the VIE structure may be deemed legitimate only if the ultimate controlling persons) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the VIEs will be treated as FIEs and any operation in the industry category falls under restricted to foreign investment or prohibited from foreign investment, without market entry clearance may be considered as illegal. Moreover, for the enterprises which are not incorporated under the laws of China (foreign investors) but are "controlled" by Chinese investors, they may submit documentary evidence to apply for identifying their investment as the investment by Chinese investors when they applying for the market entry clearance to engage in any investment as set out in industries restricted to foreign investment or prohibited from foreign investment in China. The competent authorities of foreign investment will grant the review opinion on whether the said investment is identified as the investment by Chinese investors.

 

In conclusion, if the Draft enacted as proposed, it is possible that the Company's conduct of certain of its operations and businesses through the VIEs could be found by PRC authorities to be in violation of PRC laws and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. If such a finding were made, regulatory authorities with jurisdiction over the licensing and operation of such businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Company's income, revoking the business or operating licenses of the affected businesses, requiring the Company to restructure its ownership structure or operations, or requiring the Company to discontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Company's business operations, and have a material adverse impact on the Company's cash flows, financial position and operating performance. The Company's management considers the possibility of such a finding by PRC regulatory authorities to be remote.

 

7 

 

 

These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company’s ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.

 

The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets.

  

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenues are recognized when the four of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured. The recognition of revenue involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.

 

Online Membership Revenue

 

Online membership revenue includes revenue from members for brand advertising services as well as others services.

 

8 

 

 

The Company has the arrangements with nonrefundable up-front fees model (“the Model”) to recognize revenue for the online membership business. We apply the Model, where a contract is signed to establish a fixed price for our services to be provided for a period of time as a membership enrollment, for a majority of our online membership revenue. Revenue is recognized ratably over the membership periods on a straight line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer. We provide advertisement placements to our advertising customers on our different Website channels and in different formats, which can include, among other things, banners, links, logos, buttons, rich media, pre-roll and post-roll video screens, pause video screens and content integration, as specified in the contracts with the members. The members can choose various on line services from the membership contracts based on their yearly membership.

 

For online membership revenue recognition, we recognize revenue when all revenue recognition criteria are met.

  

Others Revenues

 

Other revenues are primarily generated from online advertisement planning services which introduce our customer’s profile, product, and awareness promotion for their executive officers to build a better brand name for non-member companies. We follows the guidance of FASB Accounting Standards Codification No. 605 for revenue recognition for others revenues. The Company recognize others revenue when they are realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable, the services are rendered and collectability is reasonably assured.

  

Income Taxes and Uncertain Tax Positions

 

Income Taxes

 

The Company follows ASC 740, Income Taxes, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates, applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

The Company adopted ASC 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Our estimated liability for unrecognized tax benefits, may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are recorded in our financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. The Company has elected to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the combined statements of operations. The Company did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

 

9 

 

 

Property and equipment

 

Property and equipment mainly comprise computer equipment, hardware and office furniture. Property and equipment are recorded at cost less accumulated depreciation with no residual value.

 

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

  

Office and other equipment 5 years
   
Computers 3 years

 

Depreciation expense is included in Selling and marketing expenses and general and administrative expenses.

 

When office equipment and electronic devices are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon. Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

 

Foreign currency transactions and translations

 

An entity’s functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management’s judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The reporting currency of the Company is United States dollars (“U.S. dollars” or “$”), and the functional currency of HK Science & Technology is Hong Kong dollars (“HK dollar”). The functional currency of the Company’s PRC subsidiary and VIEs is the Renminbi (“RMB’), and PRC is the primary economic environment in which the Company operates. The reporting currency of these consolidated financial statements is the United States dollar.

 

For financial reporting purposes, the financial statements of the Company’s PRC subsidiary and VIEs, which are prepared using the RMB, are translated into the Company’s reporting currency, the United States dollar. Assets and liabilities are translated using the exchange rate at each balance sheet date. Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders' equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in owners’ equity.

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions. The resulting exchange differences from settlement date are included in the determination of net income (loss) of the consolidated financial statements for the respective periods.

 

The exchange rates used for foreign currency translation were as follows:

 

  

June 30,

2015

   December 31,
2014
 
(US$1 = RMB)          
Balance sheet items, except for equity accounts   6.0888    6.1535 
(US$1 = HKD)          
Balance sheet items, except for equity accounts   7.7525    7.7580 

 

10 

 

 

   Six Months Ended June 30, 
   2015   2014 
(US$1 = RMB)          
Items in the statements of income and comprehensive income, and statements of cash flows   6.1128    6.1199 
(US$1 = HKD)          
Items in the statements of income and comprehensive income, and statements of cash flows   7.7538    7.7579 

 

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

 

Translations adjustments resulting from this process are included in accumulated other comprehensive loss in the shareholder’s deficit were $57,573 at June 30, 2015 and $56,845 at December 31, 2014, respectively. 

 

Results of Operations for Three Months Ended June 30, 2015 and 2014

 

The following table shows key components of the results of operations during three months ended June 30, 2015 and 2014:

 

  

For Three Months Ended

June 30,

  

Change

of

Amount

   Change of % 
   2015   2014         
   (Unaudited)   (Unaudited)         
Revenue                    
-      Third parties  $391,385   $311,936   $79,449    25%
-      Related parties   -    6,755    (6,755)   (100)%
    391,385    318,691    72,694    23%
Cost of revenue                    
-     Third parties   47,829    110,394    (62,565)   (57)%
-     Related parties   -    2,296    (2,296)   (100)%
    47,829    112,690    (64,861)   (58)%
                     
Gross profit   343,556    206,001    137,555    67%
                     
Operating expenses:                    
Research and development expenses   7,670    33,581    (25,911)   (77)%
Selling and marketing expenses   607    11,437    (10,830)   (95)%
General and administrative expenses   126,148    215,640    (89,492)   (42)%
Total operating expenses   134,425    260,658    (126,233)   (48)%
Income (loss) from Operations   209,131    (54,657)   263,788    (483)%
                     
Other (expense) income   (228)   2,195    (2,423)   (110)%
                     
Income (loss) from operations before income taxes   208,903    (52,462)   261,365    (498)%
Provision for income taxes   61,504    24,058    37,446    156%
Net income (loss)   147,399    (76,520)   223,919    (293)%
                     
Other comprehensive loss                    
Foreign currency translation adjustment   (375)   (767)   392    (51)%
Comprehensive income (loss)  $147,024   $(77,287)  $224,311    (290)%

 

11 

 

  

Revenue

 

Total revenue was $391,385 for three months ended June 30, 2015, compared to $318,691 for the corresponding period in 2014. The increase in total revenues from the three months ended June 30, 2014 to the three months ended June 30, 2015 was $72,694 or 23%. The increase was mainly attributable to increases in online members to 22 with average annual contract price of $67,305, from 37 with average annual contract price of $37,363 driven by the business development activities.

  

Costs and Expenses

 

Cost of revenue

 

Total cost of revenues was $47,829 for the three months ended June 30, 2015, compared to $112,690 for the corresponding period in 2014. The decrease in cost of revenues from the three months ended June 30, 2014 to the three months ended June 30, 2015 was $64,861, or 58%. The main decrease in cost of revenues was mainly a result of decrease in the cooperation fee for network building of $20,260, decrease in labor cost of $32,064, and other cost decrease of $14,170 and offset by increase in sales tax of $1,633.

 

Operating Expenses 

 

Total operating expenses were $134,425 for the three months ended June 30, 2015, compared to $260,658 for the corresponding period in 2014. The decrease in operating expenses from the three months ended June 30, 2014 to the three months ended June 30, 2015 was $126,233, or 48%. The decrease was mainly attributable to decrease of research and development expenses of $25,911, decrease of general and administrative expenses of $89,492 and selling expenses of $10,830

 

Research and Development Expenses

 

Research and development expenses mainly consist of personnel-related expenses incurred for costs associated with new research in new products and services, development and enhancement of existing products and services, and enhancement of our websites, which mainly include the development costs of online advertisement and maintenance costs after the website is available for marketing.

 

Research and development expenses were $7,670 for the three months ended June 30, 2015, compared to $33,581 for the corresponding period in 2014. The decrease in research and development expenses from the three months ended June 30, 2014 to the three months ended June 30, 2015 was $25,911, or 77%. The decrease was mainly related to decrease in salary and benefits expenses.

 

Selling and Marketing Expenses

 

Selling and marketing expenses mainly consist of advertising and promotional expenditures, salary and benefits expenses, sales commissions and travel expenses.

 

Selling and marketing expenses were $607 for the three months ended June 30, 2015, compared to $11,437 for the corresponding period in 2014. The decrease in selling and marketing expenses from the three months ended June 30, 2014 to the three months ended June 30, 2015 was $10,830, or 95%. The decrease was mainly contributed by decrease in staff cost by $6,322, office expenses by $3,656 and others by $852. The main reason for the decrease of staff cost because of contracts developed in 2015 were less than those in 2014, less salary incentive for selling personnel.

 

12 

 

 

General and Administrative Expenses

 

General and administrative expenses mainly consist of salary and benefits expenses, professional service fees, and website hosting service fee, and office rental expenses.

  

General and administrative expenses were $126,148 for the three months ended June 30, 2015, compared to $215,640 for the corresponding period in 2014. The decrease in general and administrative expenses from the three months ended June 30, 2014 to the three months ended June 30, 2015 was $89,492, or 42%. The decreases were mainly due to a decrease of share base payment of $90,304, decrease of office expenses of $4,830, decrease of travelling expenses of $4,562, an increase of $16,302 for professional fees and a $6,098 decrease in miscellaneous fee as the management adjusted the staff structure and cut the office expenses budget in the second quarter 2015.

 

Loss from Operations

 

As a result of the foregoing, our operating income was $209,131 for the three months ended June 30, 2015, compared to loss of $54,657 for the three months ended June 30, 2014.

 

Other Income

 

Other expense was $228 for the three months ended June 30, 2015, compared to other income of $2,195 for the corresponding period in 2014. The decreases were mainly due to less subsidy income in 2015 and there was customer deposit recognized as other income due to the collectability was reasonably assured in the second quarter of 2014. 

 

Income Tax Expense

 

Income tax expense was $61,504 for the three months ended June 30, 2015, compared to $24,058 for the three months ended June 30, 2014.

 

Net Income (loss)

 

For the three months ended June 30, 2015, we had net income of $147,399, compared to the net loss of $76,520 for the three months ended June 30, 2014.

  

Results of Operations for Six Months Ended June 30, 2015 and 2014

 

The following table shows key components of the results of operations during six months ended June 30, 2015 and 2014:

 

   For Six Months Ended
June 30,
   Change
of
Amount
   Change of % 
   2015   2014         
   (Unaudited)   (Unaudited)         
Revenue                    
-      Third parties  $788,661   $587,340   $201,321    34%
-      Related parties   -    13,563    13,563    (100)%
    788,661    600,903    187,758    31%
Cost of revenue                    
-     Third parties   101,361    266,352    (164,991)   (62)%
-     Related parties   -    6,151    (6,151)   (100)%
    101,361    272,503    (171,142)   (63)%
                     
Gross profit   687,300    328,400    358,900    109%
                     
Operating expenses:                    
Research and development expenses   16,952    66,337    (49,385)   (74)%
Selling and marketing expenses   1,201    19,665    (18,464)   (94)%
General and administrative expenses   260,652    359,063    (98,411)   (27)%
Total operating expenses   278,805    445,065    (166,260)   (37)%
Income (loss) from Operations   408,495    (116,665)   525,160    (450)%
                     
Other income   6,833    5,944    889    15%
                     
Income (loss) from operations before income taxes   415,328    (110,721)   526,049    (475)%
Provision for income taxes   127,455    29,673    97,782    330%
Net income (loss)   287,873    (140,394)   428,267    (305)%
                     
Other comprehensive  (loss) income                    
Foreign currency translation adjustment   (728)   2,865    (3,593)   (125)%
Comprehensive income (loss)  $287,145   $(137,529)  $424,674    (309)%

  

Revenue

 

Total revenues were $788,661 for six months ended June 30, 2015, compared to $600,903 for the corresponding period in 2014. The increase in total revenues from the six months ended June 30, 2014 to the six months ended June 30, 2015 was $201,321 or 34%. The increase was mainly attributable to increases in online members to 22 with average annual contract price of $67,305, from 37 with average annual contract price of $37,363 which caused by the business development.

  

Costs and Expenses

 

Cost of revenue

 

Total cost of revenues was $101,361 for the six months ended June 30, 2015, compared to $272,503 for the corresponding period in 2014. The decrease in cost of revenues from the six months ended June 30, 2014 to the six months ended June 30, 2015 was $171,142, or 63%. The main decrease in cost of revenues was mainly a result of decrease in the cooperation fee for network building of $61,347, decrease in information cost of $16,915, decrease in labor cost of $63,789, and other cost decrease of $32,566 and increase in sales tax of $3,475.

 

Operating Expenses 

 

Total operating expenses were $278,805 for the six months ended June 30, 2015, compared to $445,065 for the corresponding period in 2013. The decrease in operating expenses from the six months ended June 30, 2014 to the six months ended June 30, 2015 was $166,260, or 37%. The decrease was mainly attributable to decrease of research and development expenses of $49,385, decrease of general and administrative expenses of $98,411 and selling expenses of $18,464.

 

13 

 

 

Research and Development Expenses

 

Research and development expenses mainly consist of personnel-related expenses incurred for costs associated with new research in new products and services, development and enhancement of existing products and services, and enhancement of our websites, which mainly include the development costs of online advertisement and maintenance costs after the website is available for marketing.

 

Research and development expenses were $16,952 for the six months ended June 30, 2015, compared to $66,337 for the corresponding period in 2014. The decrease in research and development expenses from the six months ended June 30, 2014 to the six months ended June 30, 2015 was $49,385, or 74%. The decrease was mainly related to decrease in salary and benefits expenses.

 

Selling and Marketing Expenses

 

Selling and marketing expenses mainly consist of advertising and promotional expenditures, salary and benefits expenses, sales commissions and travel expenses.

 

Selling and marketing expenses were $1,201 for the six months ended June 30, 2015, compared to $19,665 for the corresponding period in 2014. The decrease in selling and marketing expenses from the six months ended June 30, 2014 to the six months ended June 30, 2015 was $18,464, or 94%. The decrease was mainly contributed by decrease in staff cost by $12,871, travel cost of $1,379 and miscellaneous expense by $4,214. The Company put more emphasis on exploring sizable customers and customers located in the northeast district of China, which led to a decrease in marketing expenses in the first half year of 2015.

 

General and Administrative Expenses

 

General and administrative expenses mainly consist of salary and benefits expenses, professional service fees, and website hosting service fee, and office rental expenses.

  

General and administrative expenses were $260,652 for the six months ended June 30, 2015, compared to $359,063 for the corresponding period in 2014. The decrease in general and administrative expenses from the six months ended June 30, 2014 to the six months ended June 30, 2015 was $98,411, or 27%. The decreases were mainly due to a decrease of share base payment of $69,080, decrease of office expenses of $5,776, $12,953 decrease in staff cost and an decrease of $10,602 miscellaneous fee as the management adjusted the staff structure and cut the office expenses budget in the first half year of 2015.

 

Income (loss) from Operations

 

As a result of the foregoing, our operating income was $408,495 for the six months ended June 30, 2015, compared to loss of $116,665 for the six months ended June 30, 2014.

 

Other Income

 

Other income was $6,833 for the six months ended June 30, 2015, compared to other income of $5,944 for the corresponding period in 2014.  

 

14 

 

 

Income Tax Expense

 

Income tax expense was $127,455 for the six months ended June 30, 2015, compared to $29,673 for the six months ended June 30, 2014.

 

Net Income (loss)

 

For the six months ended June 30, 2015, we had net income of $287,873, compared to the net loss of $140,394 for the six months ended June 30, 2014.

 

Liquidity and Capital Resources

 

Our principal sources of liquidity are cash and cash equivalents, short-term investments, loans from shareholders, as well as the cash flows generated from our operations.

 

As of June 30, 2015, we had cash and cash equivalents of approximately $531,591. As of December 31, 2014, we had cash and cash equivalents of approximately $909,922. Cash equivalents primarily comprise petty cash and cash in the bank accounts.

 

We believe that our current cash and cash equivalents combined with proceeds that we expect to generate from our operating activities are sufficient to meet anticipated working capital needs, commitments and capital expenditures over the next twelve months.  We may, however, require additional cash resources due to changes in business conditions and other future developments, or changes in general economic conditions.

 

Cash Generating Ability

 

We believe that we will generate cash flow from our membership business and other business, which, along with our available cash, will provide sufficient liquidity and financial flexibility.

 

Our cash flows were summarized below:

 

   Six Months Ended June 30, 
   2015   2014 
   (Unaudited)   (Unaudited) 
Net cash used in operating activities  $(386,477)  $(161,938)
Net cash used in investing activities   -    (2,278)
Net cash provided by financing activities   -    146,482 
Effect of exchange rate change on cash and cash equivalents   8,146    (922)
Net decrease in cash and cash equivalents   (378,331)   (18,656)
Cash and cash equivalents at beginning of period   909,922    135,465 
Cash and cash equivalents at end of period  $531,591   $116,809 

  

Net Cash Used in Operating Activities

 

For the six months ended June 30, 2015, $386,477 net cash used in operating activities was primarily attributable to our net income of $287,873 adjusted by non-cash items of depreciation and amortization of $12,007 and $21,224 issuance of shares to employees and part-time consultants, prepaid expenses increased by 17,292, advance from customers decreased by $16,359, deferred revenue decreased by $669,376, prepaid tax increased by $5,410, income tax payable decreased by $39,751 and other liabilities decreased by $4,797.

 

15 

 

 

For the six months ended June 30, 2014, $161,938 net cash used in operating activities was primarily attributable to our net loss of $140,394 adjusted by non-cash items of depreciation and amortization of $15,246 and $90,305 issuance of shares to employees and part-time consultants, prepaid expenses decreased by $74,040 due to decreased advanced payment for advertising strategic cooperation fee, advance from customers increased by $56,965, other liabilities increased by $11,548, income tax payable increased by $29,558, and offset by accounts receivable increased by $678, deferred revenue decreased by $171,999, and prepaid tax decreased by $12,599. 

 

Net Cash Used in Investing Activities

 

For the six months ended June 30, 2015, net cash used in investing activities was nil.

 

For the six months ended June 30, 2014, net cash used in investing activities of $2,278 was due to the purchase of new office equipment. 

 

Net Cash Provided by Financing Activities

 

For the six months ended June 30, 2015, net cash provided by financing activities was nil.

 

For the six months ended June 30, 2014, net cash provided by financing activities of $146,482 was the result of the loan from Mr. Peng HuiAn, a shareholder of the Company.

 

Going Concern

 

The financial statements have been prepared assuming that the Company will continue as a going concern. The Company currently has limited revenue and has accumulated deficit of $1,226,782 and $1,514,655 as of June 30, 2015 and December 31, 2014 and net income of $287,873 and and net loss $140,394 for the six months ended June 30, 2015 and 2014, respectively. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Management plans to fund continuing operations through new financing from related parties and equity financing arrangements. The Companys continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required until 2015 when it can generate sources of recurring revenues and to ultimately attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The management also promised to provide economic supports to the Company for operation need including provide loans to the Company.

 

Off-Balance Sheet Commitments and Arrangements

 

As of June 30, 2015 and December 31, 2014, we had lease agreements for the principal offices with commitment amount of 45,636 and $25,883, respectively. The unpaid contract amount is expected to be paid in one year. We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder’s equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or that engages in leasing, hedging or product development services with us.

 

Impact of Recently Issued Accounting Standards

 

The Company does not believe other recently issued but not yet effective accounting standards from ASU 2015-01 to ASU 2015-11, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.

 

16 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that despite our hiring of a financial consultant who is familiar with U.S. GAAP in January 2013 and additional trainings offered to our staff in the accounting department and improvements in internal control over financial reporting, our disclosure controls and procedures were not effective as of June 30, 2015 for the material weakness describe below.

  

  · Lack of US GAAP expertise - Despite our efforts to improve the Company’s controls and procedures, our accounting personnel do not have sufficient knowledge, experience and training in maintaining our books and records and preparing financial statements in accordance with US GAAP standards and SEC rules and regulations. As such, our personnel do not have adequate accounting skills and understanding necessary to fulfill the requirements of US GAAP-based reporting, including the skills of US GAAP-based period end closing, consolidation of financial statements, and US GAAP conversion, and they are inadequately supervised by persons with requisite qualifications.

 

Our management has identified the following steps to address the above material weakness:

 

(1) In January 2013, we engaged a financial accountant to assist us in preparing our financial statements in accordance with US GAAP standards and SEC rules and regulations.

 

(2) We intend to hire, as needed, key accounting personnel with technical accounting expertise and reorganize the finance department to ensure that accounting personnel with adequate experience, skills and knowledge relating to complex, non-routine transactions are directly involved in the review and accounting evaluation of our complex, non-routine transactions.

 

Changes in Internal Controls over Financial Reporting

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

17 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.

 

Item 1A. Risk Factors.

 

Smaller reporting companies are not required to provide the information under this item.

  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

None.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None.

 

Item 6. Exhibits

  

Exhibit
Number
  Exhibit Title
     
31.1   Certification of Principal Executive and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
32.1+   Certification of Principal Executive and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
101.INS   XBRL Instance Document
     
101.SCH   XBRL Taxonomy Schema
     
101.CAL   XBRL Taxonomy Calculation Linkbase
     
101.DEF   XBRL Taxonomy Definition Linkbase
     
101.LAB   XBRL Taxonomy Label Linkbase
     
101.PRE   XBRL Taxonomy Presentation Linkbase

 

+In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.

 

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.

 

  CHINA NETWORK MEDIA, INC.
     
Dated: August 14, 2015 By: /s/ HuiAn Peng
    HuiAn Peng
    Chief Executive Officer and Chief Financial Officer
    (Principal Executive Officer and Principal Accounting and
Financial Officer)

 

19 

EX-31.1 2 v417958_ex31-1.htm EXHIBIT 31.1

 

Exhibit 31.1

 

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, HuiAn Peng, certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of China Network Media, Inc. (the “Registrant”):

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;

 

4. The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13-a13a-15(f) and 15d-15(f)) for the Registrant and have:

 

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures; and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

 

5. The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

 

Dated: August 14, 2015 By: /s/ HuiAn Peng
    HuiAn Peng
    Chief Executive Officer & Interim Chief
Financial Officer
(Principal Executive & Financial Officer)

 

 

EX-32.1 3 v417958_ex32-1.htm EXHIBIT 32.1

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U. S. C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of China Network Media, Inc. (the “Company”) on Form 10-Q for the period ended June 30, 2015 (the “Report”), I, HuiAn Peng, Chief Executive Officer and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, that:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: August 14, 2015 By: /s/ HuiAn Peng
    HuiAn Peng
    Chief Executive Officer & Interim Chief
Financial Officer
(Principal Executive & Financial Officer)

 

 

 

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This payable is due on demand, is non-interest bearing and has no maturity date.</font></p> </div> 287873 -140394 65507311 61855549 0.004 -0.002 15246 38752 37380 -11072 <div id='EdgarSAA123457890000' style="font-family : 'Times New Roman';"> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify;"><font style="font-family: 'times new roman', times; font-size: 10pt;"><b>NOTE 5.&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;EARNINGS (LOSS) PER SHARE</b></font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in;"><font style="font-family: 'times new roman', times; font-size: 10pt;">&#160;</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0; text-align: justify;"><font style="font-family: 'times new roman', times; font-size: 10pt;">The FASB's accounting standard for earnings (loss) per share requires presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share. 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roman', times; font-size: 10pt;">&#160;</font></td> <td style="font-family: 'times new roman'; padding: 0px; white-space: nowrap; padding-right: 5px; padding-left: 5px;"><font style="font-family: 'times new roman', times; font-size: 10pt;">&#160;</font></td> <td style="text-align: left; font-family: 'times new roman'; border-bottom: #000000 2.80pt double !important; padding: 0px; vertical-align: bottom; padding-right: 10px; white-space: nowrap;"><font style="font-family: 'times new roman', times; font-size: 10pt;">$</font></td> <td style="text-align: right; font-family: 'times new roman'; border-bottom: #000000 2.80pt double !important; padding: 0px; vertical-align: bottom; white-space: nowrap;"><font><font style="font-family: 'times new roman', times; font-size: 10pt;">996,754</font></font></td> <td style="text-align: left; font-family: 'times new roman'; padding: 0px; white-space: nowrap;"><font style="font-family: 'times new roman', times; font-size: 10pt;">&#160;</font></td> </tr> 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PREPAID EXPENSES AND OTHER CURRENT ASSETS (Details) - USD ($)
Jun. 30, 2015
Dec. 31, 2014
PREPAID EXPENSES AND OTHER CURRENT ASSETS [Abstract]    
Prepaid rental, phone and to other vendors $ 99 $ 5,199
Prepayment to advertisement and internet resources providers 8,768 18,428
Other current assets 15,445 17,607
Total $ 24,312 $ 41,234
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COMMITMENTS (Details) - USD ($)
Jun. 30, 2015
Dec. 31, 2014
COMMITMENTS [Abstract]    
Operating lease commitment payable in one year $ 45,636 $ 25,883
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SHAREHOLDERS' DEFICIT AND STATUTORY RESERVES (Details) - Science & Technology Media [Member] - shares
Jun. 30, 2015
Oct. 29, 2012
Schedule of Equity Method Investments [Line Items]    
Ownership percentage 100.00%  
Shares issued   50,000,000
Percent of diluted outstanding shares held   95.02%
XML 14 R33.htm IDEA: XBRL DOCUMENT v3.2.0.727
VARIABLE INTEREST ENTITIES (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2014
VARIABLE INTEREST ENTITIES [Abstract]          
Total assets $ 652,226   $ 652,226   $ 1,063,768
Total liabilities 527,354   527,354   $ 1,247,265
Revenues 391,385 $ 318,691 788,661 $ 600,903  
Net income (loss) $ 147,399 $ (76,520) $ 287,873 $ (140,394)  
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EARNINGS (LOSS) PER SHARE (Tables)
6 Months Ended
Jun. 30, 2015
EARNINGS (LOSS) PER SHARE [Abstract]  
Schedule of Reconciliation of Basic and Diluted Earnings (Loss) Per Share Computations
For Six Months Ended June 30,
2015   2014  
(Unaudited)   (Unaudited)   
Net income (loss) for basic and diluted earnings (loss) per share $ 287,873     $ (140,394 )
                 
Weighted average shares used in basic and diluted computation               65,507,311       61,855,549  
Earnings (loss) per share:                
Basic and diluted   $ 0.004     $ (0.002 )
XML 17 R42.htm IDEA: XBRL DOCUMENT v3.2.0.727
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE (Details) - USD ($)
Jun. 30, 2015
Dec. 31, 2014
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE [Abstract]    
Advance from a customer $ 16,424 $ 32,502
Deferred revenue, current 302,483 964,252
Total $ 318,907 $ 996,754
XML 18 R37.htm IDEA: XBRL DOCUMENT v3.2.0.727
EARNINGS (LOSS) PER SHARE (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
EARNINGS (LOSS) PER SHARE [Abstract]        
Net income (loss) for basic and diluted earnings (loss) per share $ 147,399 $ (76,520) $ 287,873 $ (140,394)
Weighted average shares used in basic and diluted computation 65,604,533 63,302,963 65,507,311 61,855,549
Earnings (loss) per share:        
Basic and diluted $ 0.002 $ (0.001) $ 0.004 $ (0.002)
XML 19 R47.htm IDEA: XBRL DOCUMENT v3.2.0.727
SHARES GRANTED AND ISSUED TO EMPLOYEES (Details) - USD ($)
Feb. 10, 2015
Dec. 14, 2014
Sep. 17, 2014
Apr. 08, 2014
Feb. 25, 2014
Jun. 30, 2015
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Price per share           $ 0.04945
13 part-time consultants [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Stock issued for services, (shares)     373,200      
Stock issued for services     $ 10,538      
1 consultant [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Cancellation of shares, share         10,000  
Cancellation of shares         $ 40  
10 part-time consultants and 53 employees [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Stock issued for services       $ 90,305    
10 part-time consultants [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Stock issued for services, (shares)       2,377,950    
53 employees [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Stock issued for services, (shares)       820,354    
9 part-time consultants [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Stock issued for services, (shares)   1,218,000        
Stock issued for services   $ 60,234        
2 part-time consultants and 46 employees [Member]            
Employee Stock Ownership Plan (ESOP) Disclosures [Line Items]            
Stock issued for services, (shares) 429,200          
Stock issued for services $ 21,224          
XML 20 R9.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES
6 Months Ended
Jun. 30, 2015
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 4.      SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES

 

  a. Basis of preparation

 

The accompanying consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements as of June 30, 2015 and for the six months and three months periods ended June 30, 2015 and 2014 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with United States generally accepted accounting principles (U.S. GAAP), have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, previously filed with the SEC.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company's consolidated financial position as of June 30, 2015, its consolidated results of operations and cash flows for the six months and three months periods ended June 30, 2015 and 2014, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

  b. Principles of consolidation

 

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries and VIEs. Upon consolidation, all balances and transactions between the Company and its subsidiaries and VIEs have been eliminated.

 

  c. Use of estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets.

 

  d. Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, cash on deposit with various financial institutions in PRC and all highly-liquid investments with original maturities of three months or less at the time of purchase. Cash accounts are not insured or otherwise protected. Should any bank or trust company holding cash deposits become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash on deposits with that particular bank or other financial institutions.

 

  e. Property and equipment

 

Property and equipment mainly comprise computer equipment, hardware and office furniture. Property and equipment are recorded at cost less accumulated depreciation with no residual value.

 

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

 

Office and other equipment 5 years
   
Computers 3 years

 

Depreciation expense is allocated among Research and development expenses, Selling and marketing expenses and General and administrative expenses.

 

When office equipment and electronic devices are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon.  Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

 

  f. Impairment of long-lived assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount of the asset and its fair value. There were no impairment losses for the six months ended June 30, 2015 and 2014, respectively.

 

  g. Revenue recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenues are recognized when the four of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured. The recognition of revenue involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.

 

Online Membership Revenue

 

Online membership revenue includes revenue from members for brand advertising services as well as others services.

 

The Company has the arrangements with nonrefundable up-front fees model (“the Model”) to recognize revenue for the online membership business. We apply the Model, where a contract is signed to establish a fixed price for our services to be provided for a period of time as a membership enrollment, for a majority of our online membership revenue. Revenue is recognized ratably over the membership periods on a straight line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer. The Company provides advertisement placements to our advertising customers on our different Website channels and in different formats, which can include, among other things, banners, links, logos, buttons, rich media, pre-roll and post-roll video screens, pause video screens and content integration, as specified in the contracts with the members. The members can choose various on line services from the membership contracts based on their yearly membership.

 

For online membership revenue recognition, the Company recognizes revenue when all revenue recognition criteria are met.

 

Others Revenues

 

Other revenues are primarily generated from online advertisement planning services which introduce our customer's profile, product, and awareness promotion for their executive officers to build a better brand name for non-member companies. We follow the guidance of the FASB Accounting Standards Codification No. 605 for revenue recognition for others revenues. The Company recognize others revenue when they are realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable, the services are rendered and collectability is reasonably assured.

 

  h. Related parties

 

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

 

  i. Earnings (loss) per common share

 

Basic earnings (loss) per share is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for all periods.  Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of shares outstanding, increased by common stock equivalents. Common stock equivalents represent incremental shares issuable upon exercise of outstanding warrants. The Company has no such warrants. However, potential common shares are not included in the denominator of the diluted earnings (loss) per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

 

  j. Foreign currency transactions and translations

 

An entity's functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management's judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The reporting currency of the Company is United States dollars (“U.S. dollars” or “$”), and the functional currency of HK Science & Technology is Hong Kong dollars (“HK dollar”).  The functional currency of the Company's PRC subsidiary and VIEs is the Renminbi (“RMB'), and PRC is the primary economic environment in which the Company operates. The reporting currency of these consolidated financial statements is the United States dollar.

 

For financial reporting purposes, the financial statements of the Company's PRC subsidiary and VIEs, which are prepared using the RMB, are translated into the Company's reporting currency, the United States dollar. The financial statements of HK Science & Technology, which are prepared using the HK dollar, are translated into the Company's reporting currency, the United States dollar. Assets and liabilities are translated using the exchange rate at each balance sheet date.  Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders' equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in owners' equity.

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions.  The resulting exchange differences are included in the determination of net income (loss) of the consolidated financial statements for the respective periods.

 

The exchange rates used for foreign currency translation were as follows:

 

    June 30,
2015
    December 31,
2014
 
(US$1 = RMB)
Balance sheet items, except for equity accounts
    6.0888       6.1535  
(US$1 = HKD)                
Balance sheet items, except for equity accounts     7.7525       7.7580  

 

Six Months Ended June 30,
2015

2014  
(US$1 = RMB)
Items in the statements of income and comprehensive income, and statements of cash flows
6.1128
    6.1199  
(US$1 = HKD)
Items in the statements of income and comprehensive income, and statements of cash flows
7.7538       7.7579  

 

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

 

Translations adjustments resulting from this process are included in accumulated other comprehensive loss in the shareholder's deficit were $57,573 at June 30, 2015 and $56,845 at December 31, 2014, respectively.

 

  k. Fair Value Measurements

 

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements.  ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

There were no transfers between level 1, level 2 or level 3 measurements for the three months ended June 30, 2015 and 2014, respectively.

 

As of June 30, 2015 the Company used Level 2 to measure the fair value of the shares that the Company issued to employees and part-time consultants for the service rendered. As the Company's shares were still not active on OTCBB, no quoted price for those shares.

 

The carrying values of the Company's financial assets and liabilities, including accounts receivables, other current assets, and accrued expenses and other current liabilities, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.

 

  l. Share-Based Compensation

 

Pursuant to ASC Topic 718, Compensation - Stock Compensation, the Company measures the cost of employee services received in exchange for an award of stock-based compensation based on the grant-date fair value of the award. The cost is recognized over the requisite service period, except for awards granted to employees for past services, which are fully expensed by the grant date.

 

  m. Recently adopted accounting pronouncements

 

The Company does not believe other recently issued but not yet effective accounting standards from ASU 2015-01 to ASU 2015-11, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.

XML 21 R43.htm IDEA: XBRL DOCUMENT v3.2.0.727
OTHER CURRENT LIABILITIES (Details) - USD ($)
Jun. 30, 2015
Dec. 31, 2014
OTHER CURRENT LIABILITIES [Abstract]    
Payroll payable $ 17,739 $ 21,103
Other payable 10,016 11,126
Total $ 27,755 $ 32,229
XML 22 R29.htm IDEA: XBRL DOCUMENT v3.2.0.727
OTHER CURRENT LIABILITIES (Tables)
6 Months Ended
Jun. 30, 2015
OTHER CURRENT LIABILITIES [Abstract]  
Schedule of Other Current Liabilities
    June 30, 2015     December 31, 2014  
    (Unaudited)        
Payroll payable                   $ 17,739     $ 21,103  
Other payable     10,016       11,126  
Total   $ 27,755     $ 32,229  
XML 23 R28.htm IDEA: XBRL DOCUMENT v3.2.0.727
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE (Tables)
6 Months Ended
Jun. 30, 2015
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE [Abstract]  
Schedule of Advanced from Customers and Deferred Revenue
June 30, 2015     December 31, 2014   
(Unaudited)        
Advance from customers $ 16,424     $ 32,502  
Deferred revenue, current             302,483       964,252  
Total   $ 318,907     $ 996,754  
XML 24 R44.htm IDEA: XBRL DOCUMENT v3.2.0.727
TAXATION (Narrative) (Details)
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
TAXATION [Abstract]    
Effective tax rate 31.00% 27.00%
Statutory rate 34.00% 35.00%
XML 25 R30.htm IDEA: XBRL DOCUMENT v3.2.0.727
TAXATION (Tables)
6 Months Ended
Jun. 30, 2015
TAXATION [Abstract]  
Schedule of Effective Income Tax Rate Reconciliation
June 30, 2015     June 30, 2014  
Unaudited
  Unaudited   
US federal rate   34 %     35 %
Taxable income (losses)   415,328       (110,721 )
Computed expected income tax (expense) benefit     (141,212 )     38,752  
Reconciliation items:            
 
Rate differential for domestic earnings     37,380       (11,072 )
Non-deductible expenses     (199 )     (774 )
Valuation allowance on deferred tax assets       (23,424 )     (56,579 )
Effective income tax expense   $ (127,455 )   $ (29,673 )
XML 26 R31.htm IDEA: XBRL DOCUMENT v3.2.0.727
DESCRIPTION OF BUSINESS AND ORGANIZATION (Details) - shares
1 Months Ended
Oct. 29, 2012
Jan. 21, 2012
Jun. 30, 2015
Dec. 31, 2014
Schedule of Equity Method Investments [Line Items]        
Common stock, shares outstanding     65,604,533 65,175,333
Science & Technology Media [Member]        
Schedule of Equity Method Investments [Line Items]        
Ownership percentage     100.00%  
Shares cancelled 10,000,000      
Shares issued 50,000,000      
Percent of diluted outstanding shares held 95.02%      
Common stock, shares outstanding 52,620,030      
Dalian [Member]        
Schedule of Equity Method Investments [Line Items]        
Percentage of net profit collected   85.00%    
Remaining equity interest percentage   15.00%    
XML 27 R8.htm IDEA: XBRL DOCUMENT v3.2.0.727
VARIABLE INTEREST ENTITIES
6 Months Ended
Jun. 30, 2015
VARIABLE INTEREST ENTITIES [Abstract]  
VARIABLE INTEREST ENTITIES

NOTE 3.      VARIABLE INTEREST ENTITIES

 

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its Variable Interest Entities (“VIEs”).

 

Risks in Relation to the VIE Structure:

 

The Ministry of Commerce of PRC (“MOFCOM”) published a discussion draft of the proposed Foreign Investment Law (the “Draft”) in January 2015 aiming to, upon its enactment, replace the trio of existing laws regulating foreign investment in China. The Draft embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments.

 

The MOFCOM is currently soliciting comments on the Draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The Draft, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations. The Draft expands the definition of foreign investment and introduces the principle of "actual control" in determining whether a company is considered a Foreign Investment Enterprise (“FIE”).

 

Under the Draft, Variable Interest Entities (“VIEs”) that are controlled via contractual arrangement would be deemed as FIEs, if they are ultimately "controlled" by foreign investors. Therefore, for any companies with a VIE structure in an industry category that falls under restricted to foreign investment or prohibited from foreign investment, the VIE structure may be deemed legitimate only if the ultimate controlling persons) is/are of PRC nationality (either PRC companies or PRC citizens). Conversely, if the actual controlling person(s) is/are of foreign nationalities, then the VIEs will be treated as FIEs and any operation in the industry category falls under restricted to foreign investment or prohibited from foreign investment, without market entry clearance may be considered as illegal. Moreover, for the enterprises which are not incorporated under the laws of China (foreign investors) but are "controlled" by Chinese investors, they may submit documentary evidence to apply for identifying their investment as the investment by Chinese investors when they applying for the market entry clearance to engage in any investment as set out in industries restricted to foreign investment or prohibited from foreign investment in China. The competent authorities of foreign investment will grant the review opinion on whether the said investment is identified as the investment by Chinese investors.

 

In conclusion, if the Draft enacted as proposed, it is possible that the Company's conduct of certain of its operations and businesses through the VIEs could be found by PRC authorities to be in violation of PRC laws and regulations prohibiting or restricting foreign ownership of companies that engage in such operations and businesses. If such a finding were made, regulatory authorities with jurisdiction over the licensing and operation of such businesses would have broad discretion in dealing with such a violation, including levying fines, confiscating the Company's income, revoking the business or operating licenses of the affected businesses, requiring the Company to restructure its ownership structure or operations, or requiring the Company to discontinue all or any portion of its operations. Any of these actions could cause significant disruption to the Company's business operations, and have a material adverse impact on the Company's cash flows, financial position and operating performance. The Company's management considers the possibility of such a finding by PRC regulatory authorities to be remote.

 

These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company's ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event that the Company is unable to enforce any of these agreements, the Company would not be able to exert effective control over the affected VIEs and consequently, the results of operations, assets and liabilities of the affected VIEs and their subsidiaries would not be included in the Company's consolidated financial statements. If such were the case, the Company's cash flows, financial position and operating performance would be materially adversely affected.

 

The Company's agreements with respect to its consolidated VIEs are approved and in place. The Company's management believes that such agreements are enforceable, and considers it a remote possibility that PRC regulatory authorities with jurisdiction over the Company's operations and contractual relationships would find the agreements to be unenforceable under existing laws.

 

The significant terms of the VIE Agreements are summarized below:

 

Exclusive Technical Consulting Service Agreement: During the term of this Agreement, Science & Technology Trading shall provide the following technical consulting services to Dalian Tianyi and Science & Technology (Dalian) in accordance with this Agreement: (i) Provision of advanced management skills to offer a framework for the construction of a new management platform; (ii) Provision of technology information and materials related to Dalian Tianyi and Science & Technology (Dalian)'s business development and operation. The content of the technology information and documents may be enhanced or diminished during the performance of this Agreement and upon mutual agreement to address each Party's requirements; and (iii) Training of technical and managerial personnel for Dalian Tianyi and Science & Technology (Dalian) and provision of required training documents. Science & Technology Trading will send technologists and managerial personnel to Dalian Tianyi and Science & Technology (Dalian) to provide related technology and training services as necessary. Dalian Tianyi and Science & Technology (Dalian) hereby agrees to accept the technical consulting services provided by Science & Technology Trading. Dalian Tianyi and Science & Technology (Dalian) further agrees that, during the term of this Agreement, it shall not accept technical consulting and services from any other party without the prior written consent of Science & Technology Trading. Science & Technology Trading shall be the sole and exclusive owner of all right, title and interests to any and all intellectual property rights arising from the performance of this Agreement, including but not limited to, copyrights, patent, know-how and commercial secrets, whether such intellectual property is developed by Science & Technology Trading or Dalian Tianyi and Science & Technology (Dalian).

 

Exclusive Equity Interest Purchase Agreement: Under the Exclusive Option Agreements entered into by and among Science & Technology Trading, each of the PRC Shareholders irrevocably granted to Science & Technology Trading the exclusive right to purchase or designate one or more persons to purchase all or any portion of the Equity Interest from the PRC Shareholders subject to compliance with legal restrictions under applicable PRC laws. The PRC Shareholders shall not sell or transfer all or any portion of the Equity Interest to any party other than Science & Technology Trading and/or the Specified Person.

 

Equity Interest Pledge Agreement: Under the Equity Pledge Agreements entered into by and among Science& Technology Trading, the PRC Operating Entities and each of the PRC Shareholders, the PRC Shareholders pledged all of their equity interests in the PRC Operating Entities as security to ensure that Science& Technology Trading collects the Consulting Fee under the Service Agreement. The Pledge shall be effective as of the date that the Pledge is recorded in the register of shareholders of Dalian Tianyi and Science & Technology (Dalian) and shall remain effective so long as this Agreement remains in effect. During the Term of the Pledge, Science& Technology Trading shall be entitled to foreclose on the Pledge in accordance with this Agreement in the event that Dalian Tianyi and Science & Technology (Dalian) fail to pay the Consulting Fees in accordance with the Service Agreement. Science& Technology Trading shall be entitled to exercise, dispose of or assign the Pledge in accordance with this Agreement.

 

Powers of Attorney: The PRC Shareholders have each executed an irrevocable power of attorney to appoint Science& Technology Trading as their sole representative with full authority to perform and exercise any and all shareholder's rights associated with the Equity Interest, including but not limited to, the right to attend shareholders' meetings, the right to execute shareholders' resolutions, the right to sell, assign, transfer or pledge any or all of the Equity Interest and the right to vote the Equity Interest for all matters, including but not limited to, the appointment of legal representatives, board members, executive directors, inspectors, chief managers and other senior management officers and the submission of all the Company's related documentations to the competent authorities. The term of each power of attorney is valid so long as such shareholder is a shareholder of the respective PRC Operating Entity.

 

As a result of these VIE Agreements, the Company through its wholly-owned subsidiary, Science& Technology Trading, was granted with unconstrained decision making rights and power over key strategic and operational functions that would significantly impact the PRC Operating Entities or the VIEs' economic performance, which includes, but is not limited to, the development and execution of the overall business strategy; important and material decision making; decision making for merger and acquisition targets and execution of merger and acquisition plans; business partnership strategy development and execution; government liaison; operation management and review; and human resources recruitment and compensation and incentive strategy development and execution. Science& Technology Trading also provides comprehensive services to the VIEs for their daily operations, such as operational technical support, OA technical support, accounting support, general administration support and technical support for products and services. As a result of the Exclusive Business Cooperation Agreements, the Equity Pledge Agreements and the Exclusive Option Agreements, the Company will bear all of the VIEs' operating costs in exchange for 100% of the net income of the VIEs. Under these agreements, the Company has the absolute and exclusive right to enjoy economic benefits similar to equity ownership through the VIE Agreements with our PRC Operating Entities and their shareholders.

 

These contractual arrangements may not be as effective in providing the Company with control over the VIEs as direct ownership. Due to its VIE structure, the Company has to rely on contractual rights to effect control and management of the VIEs, which exposes it to the risk of potential breach of contract by the shareholders of the VIEs for a number of reasons. For example, their interests as shareholders of the VIEs and the interests of the Company may conflict and the Company may fail to resolve such conflicts; the shareholders may believe that breaching the contracts will lead to greater economic benefit for them; or the shareholders may otherwise act in bad faith. If any of the foregoing were to happen, the Company may have to rely on legal or arbitral proceedings to enforce its contractual rights, including specific performance or injunctive relief, and claiming damages. Such arbitral and legal proceedings may cost substantial financial and other resources, and result in a disruption of its business, and the Company cannot assure that the outcome will be in its favor. Apart from the above risks, there are no significant judgments or assumptions regarding enforceability of the contracts.

 

In addition, as all of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC, they would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could further limit the Company's ability to enforce these contractual arrangements. Furthermore, these contracts may not be enforceable in China if PRC government authorities or courts take a view that such contracts contravene PRC laws and regulations or are otherwise not enforceable for public policy reasons. In the event the Company is unable to enforce these contractual arrangements, it may not be able to exert effective control over the VIEs, and its ability to conduct its business may be materially and adversely affected.

 

The assets of the variable interest entities (the “VIEs”) can be used to settle obligations of the consolidated entities. Conversely, liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company's general assets.

 

Most of our operations are conducted through our affiliated companies which the Company controls through contractual agreements in the form of variable interest entities. Current regulations in China permit our PRC subsidiaries to pay dividends to us only out of its accumulated distributable profits, if any, determined in accordance with their articles of association and PRC accounting standards and regulations. The ability of these Chinese affiliates to make dividends and other payments to us may be restricted by factors that include changes in applicable foreign exchange and other laws and regulations.

 

  A. Under PRC law, our subsidiary may only pay dividends after 10% of its after-tax profits have been set aside as reserve funds, unless such reserves have reached at least 50% of its registered capital. Such cash reserve may not be distributed as cash dividends.

 

  B. The PRC Income Tax Law also imposes a 10% withholding income tax on dividends generated on or after January 1, 2008 and distributed by a resident enterprise to its foreign investors, if such foreign investors are considered as non-resident enterprise without any establishment or place within China or if the received dividends have no connection with such foreign investors' establishment or place within China, unless such foreign investors' jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

 

As of June 30, 2015, there were no such retained earnings available for distribution.

 

The following financial statement amounts and balances of the VIEs were included in the accompanying consolidated financial statements as of and for the six months and three months ended June 30, 2015 and 2014, respectively:

 

June 30,
2015
  December 31,
2014

(Unaudited)      
         
Total assets $ 652,226     $ 1,063,768  
                 
Total liabilities             $ 527,354     $ 1,247,265  

 

Six Months Ended June 30,
2015
2014
(Unaudited)
(Unaudited)
         

 
Revenues $ 788,661

$ 600,903
       

   
Net income (loss)           $ 287,873

$ (140,394 )

 

For Three Months Ended June 30,
2015   2014
(Unaudited)   (Unaudited)
Revenues $ 391,385     $ 318,691  
                 
Net income (loss)           $ 147,399     $ (76,520 )

 

All of our current revenue is generated in PRC currency Renminbi (“RMB”). Any future restrictions on currency exchanges may limit our ability to use net revenues generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

 

Foreign currency exchange regulation in China is primarily governed by the following rules:

 

  Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

 

  Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

Under the Administration Rules, RMB is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (“SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like ours that need foreign exchange for the distribution of profits to their shareholders may affect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.

XML 28 R32.htm IDEA: XBRL DOCUMENT v3.2.0.727
GOING CONCERN AND LIQUIDITY (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2014
Dec. 31, 2013
Related Party Transaction [Line Items]            
Accumulated deficit $ 1,226,782   $ 1,226,782   $ 1,514,655  
Net income (loss) 147,399 $ (76,520) 287,873 $ (140,394)    
Cash and cash equivalents $ 531,591 $ 116,809 $ 531,591 $ 116,809 $ 909,922 $ 135,465
XML 29 R40.htm IDEA: XBRL DOCUMENT v3.2.0.727
PROPERTY AND EQUIPMENT (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2014
Property, Plant and Equipment [Line Items]          
Property and equipment, cost $ 162,170   $ 162,170   $ 160,466
Less: accumulated depreciation (153,521)   (153,521)   (139,981)
Property and equipment, net 8,649   8,649   20,485
Depreciation expense 5,195 $ 7,470 12,007 $ 15,246  
Office and other equipment [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, cost 97,042   97,042   96,022
Computers [Member]          
Property, Plant and Equipment [Line Items]          
Property and equipment, cost $ 65,128   $ 65,128   $ 64,444
XML 30 R2.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Balance Sheets - USD ($)
Jun. 30, 2015
Dec. 31, 2014
Current assets    
Cash and cash equivalents $ 531,591 $ 909,922
Prepaid taxes 87,674 92,127
Prepaid expenses and other current assets 24,312 41,234
Total current assets 643,577 1,043,283
Property and equipment, net 8,649 20,485
Total assets 652,226 1,063,768
Current Liabilities    
Deferred revenue 302,483 964,252
Due to related parties 85,561 84,662
Advance from customers 16,424 32,502
Income tax payable 95,131 133,620
Other current liabilities 27,755 32,229
Total current liabilities 527,354 1,247,265
Total liabilities 527,354 1,247,265
Shareholders' equity (deficit)    
Common stock ($0.001 par value,100,000,000 shares authorized; 65,604,533 and 65,175,333 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively) 65,604 65,175
Additional paid in capital 1,343,623 1,322,828
Accumulated deficit (1,226,782) (1,514,655)
Accumulated other comprehensive loss (57,573) (56,845)
Total shareholders' equity (deficit) 124,872 (183,497)
Total liabilities and shareholders' equity $ 652,226 $ 1,063,768
XML 31 R45.htm IDEA: XBRL DOCUMENT v3.2.0.727
TAXATION (Schedule of Effective Tax Rate Reconciliation) (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
TAXATION [Abstract]        
Statutory rate     34.00% 35.00%
Taxable income(losses) $ 208,903 $ (52,462) $ 415,328 $ (110,721)
Computed expected income tax (expense) benefit     (141,212) 38,752
Reconciliation items:        
Rate differential for domestic earnings     37,380 (11,072)
Non-deductible expenses     (199) (774)
Valuation allowance on deferred tax assets     (23,424) (56,579)
Effective income tax expense $ (127,455) $ (29,673) $ (127,455) $ (29,673)
XML 32 R6.htm IDEA: XBRL DOCUMENT v3.2.0.727
DESCRIPTION OF BUSINESS AND ORGANIZATION
6 Months Ended
Jun. 30, 2015
DESCRIPTION OF BUSINESS AND ORGANIZATION [Abstract]  
DESCRIPTION OF BUSINESS AND ORGANIZATION

NOTE 1.     DESCRIPTION OF BUSINESS AND ORGANIZATION

 

China Network Media Inc. (formerly known as Metha Energy Solutions Inc.) was incorporated on April 18, 2008 under the laws of the State of Delaware.

 

Science & Technology World Website Media Holding Co., Ltd. (“Science & Technology Holding”) was organized under the laws of the British Virgin Island on February 15, 2011.

 

Science & Technology World Website Media Group Co., Ltd. (“Science & Technology Media”) was organized under the laws of the British Virgin Island on February 15, 2011 to serve as a holding company for the People's Republic of China (the "PRC") operations. On September 16, 2011, Science & Technology Media established Science & Technology World Website Hong Kong Media Holding Co., Ltd. (“HK Science & Technology”) in Hong Kong to serve as an intermediate holding company.

 

On January 20, 2012, HK Science and Technology established Science& Technology World Website Trade (Dalian) Co., Ltd (the “WFOE” or “Science & Technology Trading”) in the PRC. Its purposes are, among others, a platform for online B2B service.

 

HK Science and Technology and the WFOE are considered foreign investor and foreign invested enterprise respectively under PRC law. As a result, HK Science & Technology and the WFOE are subject to limitations under PRC law on foreign ownership of Chinese companies. According to the Catalogue of Industries for Guiding Foreign Investment (2011 Revision) (the “Catalogue”), there are four kinds of industries which are encouraged, permitted, restricted and prohibited for foreign investment. The primary business of Dalian Tianyi Culture Development Co., Ltd (“Dalian Tianyi”) and Science & Technology World Network (Dalian) Co., Ltd (“Science & Technology (Dalian)”) are within the category in which foreign investment is currently restricted.

 

On January 21, 2012, the WFOE respectively entered into a series of agreements with Dalian Tianyi, Science & Technology (Dalian) and their respective shareholders (“Contractual Arrangements”). The relationship with Dalian Tianyi, Science & Technology (Dalian) and their respective shareholders are governed by the Contractual Arrangements. The Contractual Arrangements is comprised of a series of agreements, including Exclusive Technical Consulting Service Agreements and Operating Agreements, through which WFOE has the right to advise, consult, manage and operate Dalian Tianyi and Science & Technology (Dalian), and collect 85% of their respective net profits. The shareholders of Dalian Tianyi and Science & Technology (Dalian) have granted WFOE, under the Exclusive Equity Interest Purchase Agreement, the exclusive right and option to acquire all of their equity interests respectively in Dalian Tianyi and Science & Technology (Dalian). Furthermore, the shareholders of Dalian Tianyi and Science & Technology (Dalian) is under the procedure of pledging all of their equity interests respectively in Dalian Tianyi and Science & Technology (Dalian) to WFOE under the Exclusive Equity Interest Pledge Agreement, and through the Exclusive Equity Interest Pledge Agreement, WFOE can collect the remaining 15% of Dalian Tianyi and Science & Technology (Dalian)'s respective net profits.

 

According to the Power of Attorney executed by the shareholders of Dalian Tianyi and Science & Technology (Dalian), they exclusively authorized WFOE to perform and exercise any and all of the shareholder's rights in Dalian Tianyi and Science & Technology (Dalian).

 

As a result of the Contractual Arrangements, under generally accepted accounting principles in the United States, or U.S. GAAP, Science & Technology Media is considered the primary beneficiary of Dalian Tianyi and Science & Technology (Dalian) (“VIEs”) On October 29, 2012, Science & Technology Media entered into a Share Exchange Agreement by and among (i) Science & Technology Holding, (ii) the principal shareholders of China Network Media Inc., (iii) China Network Media Inc., (iv) the shareholders of Science & Technology Holding and (v) Science & Technology Media.

 

The acquisition was accounted for as a “reverse merger,” and Science & Technology Media was deemed to be the accounting acquirer in the reverse merger. Consequently, the assets and liabilities and the historical operations that would be reflected in the financial statements prior to the acquisition would be those of Science &Technology Media and its wholly owned subsidiaries and VIEs, and would be recorded at the historical cost, and the consolidated financial statements after completion of the acquisition would include the assets, liabilities and operation of China Network Media Inc., Science & Technology Media and its wholly owned subsidiaries and VIEs from the closing date of the acquisition. As a result of the issuance of the shares of common stock pursuant to the Exchange Agreement, a change in control of occurred as a result of the acquisition.

 

In connection with the closing of the Exchange Agreement, Toft ApS, China Network Media Inc.' principal shareholder, agreed to cancel its 10,000,000 shares of the common stock that it owned in China Network Media Inc. and to issue 50,000,000 shares to shareholders of Science & Technology Holding, who acquired a majority interest in China Network Media Inc., in October 2012 for the purpose of the reverse acquisition of Science & Technology Media. Additionally, the existing officers and directors from China Network Media Inc. resigned from its board of directors and all officer positions effective immediately after the closing of the reverse merger. Accordingly, China Network Media Inc. appointed Mr. Jiang Wei, the former major shareholder of Science & Technology Holding as the Chairman of the Board and appointed Mr. Peng HuiAn, the former major shareholder of Science & Technology Holding as the Chief Executive Officer. The shareholders of Science & Technology Media shareholder were issued common stock of China Network Media Inc. constituting approximately 95.02% of the fully diluted outstanding shares. After the RTO, 52,620,030 common stock were outstanding.

 

China Network Media Inc.'s directors approved the Exchange Agreement and the transactions contemplated thereby. Simultaneously, the directors of Science & Technology Media also approved the Exchange Agreement and the transactions contemplated thereby.

 

As a result of the Exchange Agreement, China Network Media Inc. acquired 100% of the processing and production operations of Science & Technology Media and its subsidiaries, the business and operations of which now constitutes its primary business and operations.

 

On March 19, 2013, the Company submitted dissolution application for Science & Technology Holding which was approved on April 2, 2013.

 

China Network Media Inc., its wholly-owned subsidiaries and VIEs are collectively referred as “the Company”, “we”, “us”, “our” for the purposes of these notes.

 

We operate a multi-languages portal website that serves to the technology industry and provide advertising opportunities to the companies through our diverse business network in China. The Company currently operates its website through different versions in China.

 

As our main target, we provide online platform to business entrepreneurs and corporations with a B2B marketplace that can help our customers:

 

  Set their brand image through multiple languages online magazine, online corporate multimedia advertisement, executives interviews, institutional alliances and flexible membership package that tailor made based on what our customers need;

  

  Set up customer's online exhibition to introduce their products to the public, where they have our tailor-made corporate introduction with 3D product description and factory facilities online show room ;

 

  Develop intelligent leisure retirement industry through building a unique international intelligent technology health leisure endowment industrial district including residential area, holiday resort, spa area etc. ;

 

  Develop an e-commercial platform to combine the online sales business with above intelligent leisure district and all the branches over the world to provide elderly products and also exclusive products provided by our agents;

 

  B2B product purchase platform for companies and end-users;

 

  Online job opportunity section for corporate clients; and

 

  Corporate blogs.

 

We currently derive a substantial portion of our revenues from online advertising membership services. Our advertising membership solutions present corporate users with attractive opportunities to combine the visual impact and engagement of traditional television-like multimedia advertisements and online magazines with the interactivity and precise targeting capabilities of the Internet. We strive to promote a novel and unique advertising environment on our website to attract technology enterprises.

XML 33 R35.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Exchange Rates for Foreign Currency Translation) (Details)
6 Months Ended
Jun. 30, 2015
USD ($)
Jun. 30, 2014
Dec. 31, 2014
USD ($)
Exchange Rates Used for Foreign Currency Translation [Line Items]      
Accumulated other comprehensive loss - translation adjustments $ 57,573   $ 56,845
RMB [Member]      
Exchange Rates Used for Foreign Currency Translation [Line Items]      
Foreign currency translation, Balance sheet items, except for equity accounts 6.0888   6.1535
Foreign currency translation, Items in the statements of income and comprehensive income, and statements of cash flows 6.1128 6.1199  
HKD [Member]      
Exchange Rates Used for Foreign Currency Translation [Line Items]      
Foreign currency translation, Balance sheet items, except for equity accounts 7.7525   7.7580
Foreign currency translation, Items in the statements of income and comprehensive income, and statements of cash flows 7.7538 7.7579  
XML 34 R22.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
6 Months Ended
Jun. 30, 2015
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
Basis of preparation
  a. Basis of preparation

 

The accompanying consolidated balance sheet as of December 31, 2014, which has been derived from audited financial statements, and the unaudited interim consolidated financial statements as of June 30, 2015 and for the six months and three months periods ended June 30, 2015 and 2014 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in financial statements prepared in accordance with United States generally accepted accounting principles (U.S. GAAP), have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to provide for fair presentation. The interim financial information should be read in conjunction with the Financial Statements and the notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2014, previously filed with the SEC.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company's consolidated financial position as of June 30, 2015, its consolidated results of operations and cash flows for the six months and three months periods ended June 30, 2015 and 2014, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Principles of consolidation
  b. Principles of consolidation

 

The consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiaries and VIEs. Upon consolidation, all balances and transactions between the Company and its subsidiaries and VIEs have been eliminated.

Use of estimates
  c. Use of estimates

 

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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. Management makes these estimates using the best information available at the time the estimates are made; however actual results could differ from those estimates. Significant items subject to such estimates and assumptions include valuation allowances for receivables and recoverability of carrying amount and the estimated useful lives of long-lived assets.

Cash and cash equivalents
  d. Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, cash on deposit with various financial institutions in PRC and all highly-liquid investments with original maturities of three months or less at the time of purchase. Cash accounts are not insured or otherwise protected. Should any bank or trust company holding cash deposits become insolvent, or if the Company is otherwise unable to withdraw funds, the Company would lose the cash on deposits with that particular bank or other financial institutions.

Property and equipment
  e. Property and equipment

 

Property and equipment mainly comprise computer equipment, hardware and office furniture. Property and equipment are recorded at cost less accumulated depreciation with no residual value.

 

Depreciation for financial reporting purposes is provided using the straight-line method over the estimated useful lives of the assets:

 

Office and other equipment 5 years
   
Computers 3 years

 

Depreciation expense is allocated among Research and development expenses, Selling and marketing expenses and General and administrative expenses.

 

When office equipment and electronic devices are retired or otherwise disposed of, resulting gain or loss is included in net income or loss in the year of disposition for the difference between the net book value and proceeds received thereon.  Maintenance and repairs which do not improve or extend the expected useful lives of the assets are charged to expenses as incurred.

Impairment of long-lived assets
  f. Impairment of long-lived assets

 

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of the asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount of the asset and its fair value. There were no impairment losses for the six months ended June 30, 2015 and 2014, respectively.

Revenue recognition
  g. Revenue recognition

 

The Company recognizes revenue in accordance with ASC 605, Revenue Recognition. Revenues are recognized when the four of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees are fixed or determinable, and (iv) collectability is reasonably assured. The recognition of revenue involves certain management judgments. The amount and timing of our revenues could be materially different for any period if management made different judgments or utilized different estimates.

 

Online Membership Revenue

 

Online membership revenue includes revenue from members for brand advertising services as well as others services.

 

The Company has the arrangements with nonrefundable up-front fees model (“the Model”) to recognize revenue for the online membership business. We apply the Model, where a contract is signed to establish a fixed price for our services to be provided for a period of time as a membership enrollment, for a majority of our online membership revenue. Revenue is recognized ratably over the membership periods on a straight line basis, unless evidence suggests that the revenue is earned or obligations are fulfilled in a different pattern, over the contractual term of the arrangement or the expected period during which those specified services will be performed, whichever is longer. The Company provides advertisement placements to our advertising customers on our different Website channels and in different formats, which can include, among other things, banners, links, logos, buttons, rich media, pre-roll and post-roll video screens, pause video screens and content integration, as specified in the contracts with the members. The members can choose various on line services from the membership contracts based on their yearly membership.

 

For online membership revenue recognition, the Company recognizes revenue when all revenue recognition criteria are met.

 

Others Revenues

 

Other revenues are primarily generated from online advertisement planning services which introduce our customer's profile, product, and awareness promotion for their executive officers to build a better brand name for non-member companies. We follow the guidance of the FASB Accounting Standards Codification No. 605 for revenue recognition for others revenues. The Company recognize others revenue when they are realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable, the services are rendered and collectability is reasonably assured.

Related parties
  h. Related parties

 

A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.

Earnings (loss) per common share
  i. Earnings (loss) per common share

 

Basic earnings (loss) per share is computed by dividing income attributable to common shareholders by the weighted average number of common shares outstanding for all periods.  Diluted earnings (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of shares outstanding, increased by common stock equivalents. Common stock equivalents represent incremental shares issuable upon exercise of outstanding warrants. The Company has no such warrants. However, potential common shares are not included in the denominator of the diluted earnings (loss) per share calculation when inclusion of such shares would be anti-dilutive, such as in a period in which a net loss is recorded.

Foreign currency transactions and translations
  j. Foreign currency transactions and translations

 

An entity's functional currency is the currency of the primary economic environment in which it operates, normally that is the currency of the environment in which the entity primarily generates and expends cash. Management's judgment is essential to determine the functional currency by assessing various indicators, such as cash flows, sales price and market, expenses, financing and inter-company transactions and arrangements. The reporting currency of the Company is United States dollars (“U.S. dollars” or “$”), and the functional currency of HK Science & Technology is Hong Kong dollars (“HK dollar”).  The functional currency of the Company's PRC subsidiary and VIEs is the Renminbi (“RMB'), and PRC is the primary economic environment in which the Company operates. The reporting currency of these consolidated financial statements is the United States dollar.

 

For financial reporting purposes, the financial statements of the Company's PRC subsidiary and VIEs, which are prepared using the RMB, are translated into the Company's reporting currency, the United States dollar. The financial statements of HK Science & Technology, which are prepared using the HK dollar, are translated into the Company's reporting currency, the United States dollar. Assets and liabilities are translated using the exchange rate at each balance sheet date.  Revenue and expenses are translated using average rates prevailing during each reporting period, and shareholders' equity is translated at historical exchange rates. Adjustments resulting from the translation are recorded as a separate component of accumulated other comprehensive income in owners' equity.

 

Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchange rates prevailing at the dates of the transactions.  The resulting exchange differences are included in the determination of net income (loss) of the consolidated financial statements for the respective periods.

 

The exchange rates used for foreign currency translation were as follows:

 

    June 30,
2015
    December 31,
2014
 
(US$1 = RMB)
Balance sheet items, except for equity accounts
    6.0888       6.1535  
(US$1 = HKD)                
Balance sheet items, except for equity accounts     7.7525       7.7580  

 

Six Months Ended June 30,
2015

2014  
(US$1 = RMB)
Items in the statements of income and comprehensive income, and statements of cash flows
6.1128
    6.1199  
(US$1 = HKD)
Items in the statements of income and comprehensive income, and statements of cash flows
7.7538       7.7579  

 

No representation is made that the RMB amounts could have been, or could be, converted into U.S. dollars at the rates used in translation.

 

Translations adjustments resulting from this process are included in accumulated other comprehensive loss in the shareholder's deficit were $57,573 at June 30, 2015 and $56,845 at December 31, 2014, respectively.

Fair Value Measurements
  k. Fair Value Measurements

 

The Company applies the provisions of ASC Subtopic 820-10, Fair Value Measurements, for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements.  ASC 820 also establishes a framework for measuring fair value and expands disclosures about fair value measurements.

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

 

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes three levels of inputs that may be used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:

 

  Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

 

  Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

 

  Level 3 inputs to the valuation methodology are unobservable and significant to the fair value.

 

There were no transfers between level 1, level 2 or level 3 measurements for the three months ended June 30, 2015 and 2014, respectively.

 

As of June 30, 2015 the Company used Level 2 to measure the fair value of the shares that the Company issued to employees and part-time consultants for the service rendered. As the Company's shares were still not active on OTCBB, no quoted price for those shares.

 

The carrying values of the Company's financial assets and liabilities, including accounts receivables, other current assets, and accrued expenses and other current liabilities, are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and if applicable, their stated interest rate approximates current rates available.

Share-Based Compensation
  l. Share-Based Compensation

 

Pursuant to ASC Topic 718, Compensation - Stock Compensation, the Company measures the cost of employee services received in exchange for an award of stock-based compensation based on the grant-date fair value of the award. The cost is recognized over the requisite service period, except for awards granted to employees for past services, which are fully expensed by the grant date.

Recently adopted accounting pronouncements
  m. Recently adopted accounting pronouncements

 

The Company does not believe other recently issued but not yet effective accounting standards from ASU 2015-01 to ASU 2015-11, if currently adopted, would have a material effect of the consolidated financial position, results of operation and cash flows.

XML 35 R36.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details) - USD ($)
None in scaling factor is -9223372036854775296, None in scaling factor is -9223372036854775296
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Earnings (loss) per common share      
Incremental shares issuable upon exercise of outstanding warrants      
Fair Value Measurements      
Assets transfer from level 1 to level 2      
Assets transfer from level 2 to level 1      
Liabilities transfer from level 1 to level 2      
Liabilities transfer from level 2 to level 1      
Assets transfer into level 3      
Assets transfer out of level 3      
Liabilities transfer into level 3      
Liabilities transfer out of level 3      
XML 36 R24.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
6 Months Ended
Jun. 30, 2015
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES [Abstract]  
Schedule of Depreciation of Property and Equipment
Office and other equipment 5 years
   
Computers 3 years
Schedule of Exchange Rates for Foreign Currency Translation
    June 30,
2015
    December 31,
2014
 
(US$1 = RMB)
Balance sheet items, except for equity accounts
    6.0888       6.1535  
(US$1 = HKD)                
Balance sheet items, except for equity accounts     7.7525       7.7580  

 

Six Months Ended June 30,
2015

2014  
(US$1 = RMB)
Items in the statements of income and comprehensive income, and statements of cash flows
6.1128
    6.1199  
(US$1 = HKD)
Items in the statements of income and comprehensive income, and statements of cash flows
7.7538       7.7579  
XML 37 Show.js IDEA: XBRL DOCUMENT /** * Rivet Software Inc. * * @copyright Copyright (c) 2006-2011 Rivet Software, Inc. All rights reserved. * Version 2.4.0.3 * */ var Show = {}; Show.LastAR = null, Show.hideAR = function(){ Show.LastAR.style.display = 'none'; }; Show.showAR = function ( link, id, win ){ if( Show.LastAR ){ Show.hideAR(); } var ref = link; do { ref = ref.nextSibling; } while (ref && ref.nodeName != 'TABLE'); if (!ref || ref.nodeName != 'TABLE') { var tmp = win ? win.document.getElementById(id) : document.getElementById(id); if( tmp ){ ref = tmp.cloneNode(true); ref.id = ''; link.parentNode.appendChild(ref); } } if( ref ){ ref.style.display = 'block'; Show.LastAR = ref; } }; Show.toggleNext = function( link ){ var ref = link; do{ ref = ref.nextSibling; }while( ref.nodeName != 'DIV' ); if( ref.style && ref.style.display && ref.style.display == 'none' ){ ref.style.display = 'block'; if( link.textContent ){ link.textContent = link.textContent.replace( '+', '-' ); }else{ link.innerText = link.innerText.replace( '+', '-' ); } }else{ ref.style.display = 'none'; if( link.textContent ){ link.textContent = link.textContent.replace( '-', '+' ); }else{ link.innerText = link.innerText.replace( '-', '+' ); } } }; XML 38 R7.htm IDEA: XBRL DOCUMENT v3.2.0.727
GOING CONCERN AND LIQUIDITY
6 Months Ended
Jun. 30, 2015
GOING CONCERN AND LIQUIDITY [Abstract]  
GOING CONCERN AND LIQUIDITY
NOTE 2.     GOING CONCERN AND LIQUIDITY

 

The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company currently has limited revenue and has accumulated deficit of $1,226,782 and $1,514,655 as of June 30, 2015 and December 31, 2014 and net income of 287,873 and net losses of $140,394 for the six months ended June 30, 2015 and 2014, respectively. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management plans to fund continuing operations through new financing from related parties and equity financing arrangements. The Company's continuation as a going concern is dependent on its ability to meet its obligations, to obtain additional financing as may be required until 2015 when it can generate sources of recurring revenues and to ultimately attain profitability. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

The principal sources of liquidity are cash and cash equivalents, short-term investments, loans from shareholders, as well as the cash flows generated from our operations.

 

As of June 30, 2015, the Company had cash and cash equivalents of approximately $531,591. As of December 31, 2014, the Company had cash and cash equivalents of approximately $909,922. Cash and cash equivalents include cash on hand, deposits in banks with maturities of three months or less, and all highly liquid investments which are unrestricted as to withdrawal or use, and which have original maturities of three months or less at the time of purchase.

 

The Company believes that the current cash and cash equivalents combined with proceeds that it expect to generate from operating activities are sufficient to meet anticipated working capital needs, commitments and capital expenditures over the next twelve months. It may, however, require additional cash resources due to changes in business conditions and other future developments, or changes in general economic conditions. The management also promised to provide economic supports to the Company for operation need including provide loans to the Company.

XML 39 R3.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2015
Dec. 31, 2014
Consolidated Balance Sheets [Abstract]    
Common stock, par value $ 0.001 $ 0.001
Common stock, shares authorized 100,000,000 100,000,000
Common stock, shares issued 65,604,533 65,175,333
Common stock, shares outstanding 65,604,533 65,175,333
XML 40 R17.htm IDEA: XBRL DOCUMENT v3.2.0.727
TAXATION
6 Months Ended
Jun. 30, 2015
TAXATION [Abstract]  
TAXATION

NOTE 12.        TAXATION

 

  A) Income Tax

 

Science & Technology Trading and our combined VIEs are established in Dalian, Province, PRC, and governed by the Income Tax Law of the PRC concerning privately-held enterprises, which are generally subject to tax at a statutory rate of 25% on income reported in the statutory financial statements after appropriate tax adjustments in 2015 and 2014.

 

The effective tax rate for the Company for the six months ended June 30, 2015 and 2014 was 31% and 27% respectively.

 

A reconciliation of the provision for income taxes determined at the U.S. federal corporate income tax rate to the Company's effective income tax rate is as follows: 

 

June 30, 2015     June 30, 2014  
Unaudited
  Unaudited   
US federal rate   34 %     35 %
Taxable income (losses)   415,328       (110,721 )
Computed expected income tax (expense) benefit     (141,212 )     38,752  
Reconciliation items:            
 
Rate differential for domestic earnings     37,380       (11,072 )
Non-deductible expenses     (199 )     (774 )
Valuation allowance on deferred tax assets       (23,424 )     (56,579 )
Effective income tax expense   $ (127,455 )   $ (29,673 )

  

Realization of the net deferred tax assets is dependent on factors including future reversals of existing taxable temporary differences and adequate future taxable income, exclusive of reversing deductible temporary differences and tax loss or credit carry forwards. The Company evaluates the potential realization of deferred tax assets on an entity-by-entity basis. As of June 30, 2015, valuation allowances were provided against deferred tax assets in entities where it was determined it was more likely than not that the benefits of the deferred tax assets will not be realized. The Company had deferred tax assets which consisted of tax loss carry-forwards, which can be carried forward to offset future taxable income for five years from the year the loss occurred. The management determines it is more likely than not that these deferred tax assets could not be recognized, so full allowances were provided as of June 30, 2015 and December 31, 2014. The deferred tax assets arising from net operating losses will expire from 2019 if not utilized.

 

The Company adopted ASC 740-10-25, which provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax position. The Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. Our estimated liability for unrecognized tax benefits, may be affected by changing interpretations of laws, rulings by tax authorities, changes and/or developments with respect to tax audits, and expiration of the statute of limitations. The outcome for a particular audit cannot be determined with certainty prior to the conclusion of the audit and, in some cases, appeal or litigation process. The actual benefits ultimately realized may differ from our estimates. As each audit is concluded, adjustments, if any, are recorded in our financial statements. Additionally, in future periods, changes in facts, circumstances, and new information may require us to adjust the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recognized in the period in which the changes occur. The Company has elected to classify interest and penalties related to an uncertain tax position, if and when required, as part of income tax expense in the combined statements of operations. The Company did not recognize any additional liabilities for uncertain tax positions as a result of the implementation of ASC 740-10-25.

 

  B) Value Added Tax and relevant surcharge

 

Revenue of our membership and advertising planning services are subject to 6% value added tax (“VAT”) and 0.72% total surcharge of the gross service income for the business incurred on and after November 1, 2014. 

 

The Company pays the VAT when the invoices are issued to customers and estimates the income tax as the full received amounts had been recognized as revenue. The prepaid VAT and income tax are deductible in the following years.

XML 41 R1.htm IDEA: XBRL DOCUMENT v3.2.0.727
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2015
Aug. 14, 2015
Document And Entity Information [Abstract]    
Entity Registrant Name China Network Media, Inc.  
Entity Central Index Key 0001440760  
Amendment Flag false  
Current Fiscal Year End Date --12-31  
Document Type 10-Q  
Document Period End Date Jun. 30, 2015  
Document Fiscal Year Focus 2015  
Document Fiscal Period Focus Q2  
Entity Filer Category Smaller Reporting Company  
Entity Common Stock, Shares Outstanding   65,604,533
XML 42 R18.htm IDEA: XBRL DOCUMENT v3.2.0.727
SHAREHOLDERS' DEFICIT AND STATUTORY RESERVES
6 Months Ended
Jun. 30, 2015
SHAREHOLDERS' DEFICIT AND STATUTORY RESERVES [Abstract]  
SHAREHOLDERS' DEFICIT AND STATUTORY RESERVES

NOTE 13.        SHAREHOLDERS' DEFICIT AND STATUTORY RESERVES

 

On October 29, 2012, Science & Technology Media entered into a Share Exchange Agreement by and among (i) Science & Technology Holding, (ii) the principal shareholders of China Network Media Inc. (iii) China Network Media Inc. and (iv) the shareholders of Science &Technology Holding.

 

As a result of the Exchange Agreement, China Network Media Inc. acquired 100% of the processing and production operations of Science & Technology Media and its subsidiaries, the business and operations of which now constitutes its primary business and operations. Specifically, as a result of the Exchange Agreement on October 29, 2012:

 

  China Network Media Inc. acquired and now owns 100% of the issued and outstanding shares of capital stock of Science &Technology Media, a British Virgin Islands holding company which controls Dalian Tianyi, Science &Technology (Dalian) and their telecommunications business;

 

  China Network Media Inc. issued 50,000,000 shares of common stock to the shareholders of Science & Technology Media shareholders; and

 

  Science & Technology Media were issued common stock of China Network Media Inc. constituting approximately 95.02% of the fully diluted outstanding shares.

 

As stipulated by the laws and regulations for enterprises operating in PRC, the subsidiaries of the Company are required to make annual appropriations to a statutory surplus reserve fund. Specifically, the subsidiaries of the Company are required to allocate 10% of their profits after taxes, as determined in accordance with the PRC accounting standards applicable to the subsidiaries of the Company, to a statutory surplus reserve until such reserve reaches 50% of the registered capital of the subsidiaries of the Company. The Company can use the statutory surplus reserve to offset deficits, expand its plant or increase capital when and only when the reserve balance exceeds 50% of the registered capital, and the amount capitalized should be limited to 50% of the statutory surplus reserve. The Company is not yet subject to the requirement to appropriate statutory reserves as they have not produced accumulated net earnings since inception 

XML 43 R4.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Statements of Operations and Comprehensive Income (Loss) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Revenue        
Third parties $ 391,385 $ 311,936 $ 788,661 $ 587,340
Related parties   6,755   13,563
Total Revenue $ 391,385 318,691 $ 788,661 600,903
Cost of revenue        
Third parties $ 47,829 110,394 $ 101,361 266,352
Related parties   2,296   6,151
Total cost of revenue $ 47,829 112,690 $ 101,361 272,503
Gross profit 343,556 206,001 687,300 328,400
Operating expenses:        
Research and development expenses 7,670 33,581 16,952 66,337
Selling and marketing expenses 607 11,437 1,201 19,665
General and administrative expenses 126,148 215,640 260,652 359,063
Total operating expenses 134,425 260,658 278,805 445,065
Income (Loss) from Operations 209,131 (54,657) 408,495 (116,665)
Other income (loss) (228) 2,195 6,833 5,944
Income (loss) from operations before income taxes 208,903 (52,462) 415,328 (110,721)
Provision for income taxes 61,504 24,058 127,455 29,673
Net income (loss) 147,399 (76,520) 287,873 (140,394)
Other comprehensive (Loss) income        
Foreign currency translation adjustment (375) (767) (728) 2,865
Comprehensive Income (loss) $ 147,024 $ (77,287) $ 287,145 $ (137,529)
Basic and diluted earnings (loss) per share $ 0.002 $ (0.001) $ 0.004 $ (0.002)
Weighted-average number of shares outstanding -Basic and diluted 65,604,533 63,302,963 65,507,311 61,855,549
XML 44 R12.htm IDEA: XBRL DOCUMENT v3.2.0.727
PREPAID EXPENSES AND OTHER CURRENT ASSETS
6 Months Ended
Jun. 30, 2015
PREPAID EXPENSES AND OTHER CURRENT ASSETS [Abstract]  
PREPAID EXPENSES AND OTHER CURRENT ASSETS

NOTE 7.           PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

At June 30, 2015 and December 31, 2014, prepayment and other current assets consist of:

 

June 30, 2015   December 31, 2014 
(Unaudited)      
         
Prepaid rental, phone and to other vendors $ 99     $ 5,199  
Prepayment to advertisement and internet resources providers               8,768       18,428  
Other current assets     15,445       17,607  
    $ 24,312     $ 41,234  

  

Prepayment to advertisement and internet resources providers consists of the deposits required by and made to the telecommunication platform operators for using their network services.

XML 45 R11.htm IDEA: XBRL DOCUMENT v3.2.0.727
CONCENTRATION OF RISK
6 Months Ended
Jun. 30, 2015
CONCENTRATION OF RISK [Abstract]  
CONCENTRATION OF RISK

NOTE 6.          CONCENTRATION OF RISK

 

Credit risk

 

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents. The Company places its cash and cash equivalents with financial institutions, which management believes are of high-credit ratings and quality.

 

The Company conducts credit evaluations of customers and generally does not require collateral or other security from its customers. The Company establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers.

 

Concentration of customers and suppliers

 

For the six months ended June 30, 2015, three customers accounted for 42%, 19% and 12% of the Company's sales respectively. For the six months ended June 30, 2014, two customers accounted for 13% and 12% of the Company's sales. Except for the afore-mentioned customers, there was no other single customer who accounted for more than 10% of the Company's sales for the six months ended June 30, 2015 and 2014, respectively.

 

For the three months ended June 30, 2015, three customers accounted for 43%, 20% and 12% of the Company's sales. For the three months ended June 30, 2014, two customers accounted for 23% and 12% of the Company's sales. Except for the afore-mentioned customers, there was no other single customer who accounted for more than 10% of the Company's sales for the three months ended June 30, 2015 and 2014, respectively.

 

For the six months and three months ended June 30, 2015, there was no supplier who accounted for more than 10% of the Company's purchases. For the six months and three months ended June 30, 2014, one supplier accounted for 22% and 18% of the Company's purchases. Except for the afore-mentioned, there was no other single supplier who accounted for more than 10% of the Company's cost of sales for the six and three months ended June 31, 2015 and 2014, respectively.

XML 46 R23.htm IDEA: XBRL DOCUMENT v3.2.0.727
VARIABLE INTEREST ENTITIES (Tables)
6 Months Ended
Jun. 30, 2015
VARIABLE INTEREST ENTITIES [Abstract]  
Schedule of Balances of VIEs included in Financial Statements
June 30,
2015
  December 31,
2014

(Unaudited)      
         
Total assets $ 652,226     $ 1,063,768  
                 
Total liabilities             $ 527,354     $ 1,247,265  

 

Six Months Ended June 30,
2015
2014
(Unaudited)
(Unaudited)
         

 
Revenues $ 788,661

$ 600,903
       

   
Net income (loss)           $ 287,873

$ (140,394 )

 

For Three Months Ended June 30,
2015   2014
(Unaudited)   (Unaudited)
Revenues $ 391,385     $ 318,691  
                 
Net income (loss)           $ 147,399     $ (76,520 )
XML 47 R19.htm IDEA: XBRL DOCUMENT v3.2.0.727
SHARES GRANTED AND ISSUED TO EMPLOYEES
6 Months Ended
Jun. 30, 2015
SHARES GRANTED AND ISSUED TO EMPLOYEES [Abstract]  
SHARES GRANTED AND ISSUED TO EMPLOYEES

NOTE 14.        SHARES GRANTED AND ISSUED TO EMPLOYEES

 

On February 25, 2014 the Company determined to cancel 10,000 shares which have been issued to 1 consultant, for the contract terminated. The total fair value of these shares was estimated to be $40.

 

On April 8, 2014 the Company determined to grant equity awards of 2,377,950 and 820,354 shares to 10 part-time consultants and 53 employees respectively, for the services rendered. The total fair value of these shares at the date of grant was estimated to be $90,305.

 

On September 17, 2014 the Company determined to grant equity awards of 373,200 shares to 13 part-time consultants for the services rendered. The total fair value of these shares at the date of grant was estimated to be $10,538.

 

On December 14, 2014 the Company determined to grant equity awards of 1,218,000 shares to 9 part-time consultants for the services rendered. The total fair value of these shares at the date of grant was estimated to be $60,234.

 

On February 10, 2015, the Company determined to grant equity awards of 429,200 shares to 2 part-time consultants and 46 employees for the services rendered. The total fair value of these shares at the date of grant was estimated to be $21,224.

 

The fair value of the shares granted was $0.04945 per share calculated through the application of an income approach to evaluate the future value of the operation into a present market value. This method eliminates the discrepancy in time value of money by using a discount rate to reflect all business risks including intrinsic and extrinsic uncertainties in relation to the operation.

 

Major assumptions used for measuring the fair value as follow:

 

  It is assumed that there will be no material change in the existing political, legal, technological, fiscal or economic condition which may adversely affect the business of the Company;

 

  The Company will adhere to the terms that bond with the contracts and agreements;

 

  The Company's competitive advantages and disadvantages will not change significantly during the period.
XML 48 R15.htm IDEA: XBRL DOCUMENT v3.2.0.727
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE
6 Months Ended
Jun. 30, 2015
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE [Abstract]  
ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE

NOTE 10.        ADVANCE FROM CUSTOMERS AND DEFERRED REVENUE

 

Advances from customers represent customer payments for membership contracts but membership has not started.Deferred revenue represents customer payments made in advance for membership contracts while services have not been fully provided. Membership contracts are typically billed on full basis in advance and revenue is recognized ratably over the membership period.

 

As of June 30, 2015 and December 31, 2014, advances from customers and deferred revenue consisted of the following:

 

June 30, 2015     December 31, 2014   
(Unaudited)        
Advance from customers $ 16,424     $ 32,502  
Deferred revenue, current             302,483       964,252  
Total   $ 318,907     $ 996,754  
XML 49 R13.htm IDEA: XBRL DOCUMENT v3.2.0.727
PROPERTY AND EQUIPMENT
6 Months Ended
Jun. 30, 2015
PROPERTY AND EQUIPMENT [Abstract]  
PROPERTY AND EQUIPMENT

NOTE 8.           PROPERTY AND EQUIPMENT

 

Property and equipment consists of network equipment and servers used for hosting Company's website and furniture, equipment and computers used in the office.

 

Property and equipment consists of the following:

 

June 30, 2015     December 31, 2014 
(Unaudited)        
Office and other equipment $ 97,042     $ 96,022  
Computers   65,128       64,444  
Property and equipment, cost     162,170       160,466  
Less: accumulated depreciation     (153,521 )     (139,981 )
Property and equipment, net   $ 8,649     $ 20,485  

 

Depreciation expense for the six months ended June 30, 2015 and 2014 were $12,007 and $15,246, respectively. Depreciation expense for the three months ended June 30, 2015 and 2014 were $5,195 and $7,470, respectively.

XML 50 R14.htm IDEA: XBRL DOCUMENT v3.2.0.727
RELATED PARTY TRANSACTIONS
6 Months Ended
Jun. 30, 2015
RELATED PARTY TRANSACTIONS [Abstract]  
RELATED PARTY TRANSACTIONS

NOTE 9.           RELATED PARTY TRANSACTIONS

 

At June 30, 2015 and December 31, 2014, the Company had a balance due to Xie He Si Decoration Co., Ltd, a related company owned by the Chairman, Mr. Jiang Wei, of $85,561 and $84,662, respectively, for advances made to fund operations. This payable is due on demand, is non-interest bearing and has no maturity date.

XML 51 R16.htm IDEA: XBRL DOCUMENT v3.2.0.727
OTHER CURRENT LIABILITIES
6 Months Ended
Jun. 30, 2015
OTHER CURRENT LIABILITIES [Abstract]  
OTHER CURRENT LIABILITIES

NOTE 11.        OTHER CURRENT LIABILITIES

 

Other current liabilities consist of the following:

 

    June 30, 2015     December 31, 2014  
    (Unaudited)        
Payroll payable                   $ 17,739     $ 21,103  
Other payable     10,016       11,126  
Total   $ 27,755     $ 32,229  
XML 52 R34.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUMMARIES OF SIGNIFICANT ACCOUNTING POLICIES (Schedule of Depreciation of Property and Equipment) (Details)
6 Months Ended
Jun. 30, 2015
Office and other equipment [Member]  
Summary Of Significant Accounting Policies Additional Textual [Line Items]  
Property and equipment, estimated useful lives 5 years
Computers [Member]  
Summary Of Significant Accounting Policies Additional Textual [Line Items]  
Property and equipment, estimated useful lives 3 years
XML 53 R21.htm IDEA: XBRL DOCUMENT v3.2.0.727
SUBSEQUENT EVENTS
6 Months Ended
Jun. 30, 2015
SUBSEQUENT EVENTS [Abstract]  
SUBSEQUENT EVENTS

NOTE 16.        SUBSEQUENT EVENTS

 

             There were no any significant events occurred subsequent to the balance sheet date but prior to the filing of this report that would have a material impact on our consolidated financial statements.

XML 54 R26.htm IDEA: XBRL DOCUMENT v3.2.0.727
PREPAID EXPENSES AND OTHER CURRENT ASSETS (Tables)
6 Months Ended
Jun. 30, 2015
PREPAID EXPENSES AND OTHER CURRENT ASSETS [Abstract]  
Schedule of Prepayments and Other Current Assets
June 30, 2015   December 31, 2014 
(Unaudited)      
         
Prepaid rental, phone and to other vendors $ 99     $ 5,199  
Prepayment to advertisement and internet resources providers               8,768       18,428  
Other current assets     15,445       17,607  
    $ 24,312     $ 41,234  
XML 55 R41.htm IDEA: XBRL DOCUMENT v3.2.0.727
RELATED PARTY TRANSACTIONS (Details) - USD ($)
Jun. 30, 2015
Dec. 31, 2014
Xie He Si Decoration Co., Ltd [Member]    
Related Party Transaction [Line Items]    
Amount due to affiliated company $ 85,561 $ 84,662
XML 56 R5.htm IDEA: XBRL DOCUMENT v3.2.0.727
Consolidated Statements of Cash Flows - USD ($)
6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Cash Flows From Operating Activities    
Net income (loss) $ 287,873 $ (140,394)
Adjustments to reconcile net loss to net cash used in operating activities:    
Depreciation expense 12,007 15,246
Issuance of shares to employees and part-time consultants $ 21,224 90,305
Changes in operating assets and liabilities:    
Accounts receivable   (678)
Prepaid expenses and other current assets $ 17,292 74,040
Advance from a customer (16,359) (56,965)
Deferred revenue (669,376) (171,999)
Prepaid taxes 5,410 (12,599)
Income tax payable (39,751) 29,558
Other current liabilities (4,797) 11,548
Net cash used in operating activities $ (386,477) (161,938)
Cash Flows From Investing Activities    
Purchases of property and equipment   $ (2,278)
Short term loan to an unrelated party $ (130,873)  
Cash repayment from an unrelated party $ 130,873  
Net cash used in investing activities   $ (2,278)
Cash Flows From Financing Activities    
Cash proceeds from a related party   146,482
Net cash provided by financing activities   146,482
Effect of exchange rate fluctuation on cash and cash equivalents $ 8,146 (922)
Net decrease in cash and cash equivalents (378,331) (18,656)
Cash and cash equivalents, beginning of the period 909,922 135,465
Cash and cash equivalents, end of the period 531,591 $ 116,809
Supplemental disclosure information:    
Income taxes paid $ 167,379  
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EARNINGS (LOSS) PER SHARE
6 Months Ended
Jun. 30, 2015
EARNINGS (LOSS) PER SHARE [Abstract]  
EARNINGS (LOSS) PER SHARE

NOTE 5.          EARNINGS (LOSS) PER SHARE

 

The FASB's accounting standard for earnings (loss) per share requires presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings (loss) per share. Basic earnings (loss) per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings (loss) per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock. The Company has no potential dilutive securities as of June 30, 2015.

 

The following is a reconciliation of the basic and diluted earnings (loss) per share computations for the six months ended June 30, 2015 and 2014:

 

For Six Months Ended June 30,
2015   2014  
(Unaudited)   (Unaudited)   
Net income (loss) for basic and diluted earnings (loss) per share $ 287,873     $ (140,394 )
                 
Weighted average shares used in basic and diluted computation               65,507,311       61,855,549  
Earnings (loss) per share:                
Basic and diluted   $ 0.004     $ (0.002 )

 

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PROPERTY AND EQUIPMENT (Tables)
6 Months Ended
Jun. 30, 2015
PROPERTY AND EQUIPMENT [Abstract]  
Schedule of Property and Equipment
June 30, 2015     December 31, 2014 
(Unaudited)        
Office and other equipment $ 97,042     $ 96,022  
Computers   65,128       64,444  
Property and equipment, cost     162,170       160,466  
Less: accumulated depreciation     (153,521 )     (139,981 )
Property and equipment, net   $ 8,649     $ 20,485  
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CONCENTRATION OF RISK (Details)
3 Months Ended 6 Months Ended
Jun. 30, 2015
Jun. 30, 2014
Jun. 30, 2015
Jun. 30, 2014
Sales [Member] | Customer One [Member]        
Concentration Risk [Line Items]        
Risk percentage 43.00% 23.00% 42.00% 13.00%
Sales [Member] | Customer Two [Member]        
Concentration Risk [Line Items]        
Risk percentage 20.00% 12.00% 19.00% 12.00%
Sales [Member] | Customer Three [Member]        
Concentration Risk [Line Items]        
Risk percentage 12.00%   12.00%  
Supplier [Member]        
Concentration Risk [Line Items]        
Risk percentage   18.00%   22.00%
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COMMITMENTS
6 Months Ended
Jun. 30, 2015
COMMITMENTS [Abstract]  
COMMITMENTS

NOTE 15.        COMMITMENTS

 

The Company's operating lease commitment as of June 30, 2015 and December 31, 2014 were $45,636 and $25,883, respectively. The unpaid contract amount is expected to be paid in one year.