- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2010

o 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: 333-150952

China Media Inc.

(Exact name of registrant as specified in its charter)

Nevada		46-0521269
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

12/F, Block D, Chang An Guo Ji

No. 88 Nan Guan Zheng Street

Beilin District, Xi'an City, Shaan'xi Province

China - 710068

(Address of principal executive offices)

(86) 298765-1114

( Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ

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 o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of May 14, 2010 , the registrant had 39,750,000 shares of common stock.

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION	2
Item 1. Financial Statements.	2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Item 3. Quantitative and Qualitative Disclosures About Market Risk	6
Item 4. Controls and Procedures	6
PART II – OTHER INFORMATION	7
Item 1. Legal Proceedings	7
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	7
Item 3. Defaults Upon Senior Securities	7
Item 4. [Removed and Reserved]	7
Item 5. Other Information	7
Item 6. Exhibits	7
SIGNATURES	8

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

The unaudited interim consolidated financial statements of China Media Inc. (the “Company”, “China Media”, “we”, “our”, “us”) follow. All currency references in this report are to U.S. dollars unless otherwise noted.

China Media Inc.

March 31, 2010

(Unaudited )

Financial Statement Index

Consolidated Balance Sheets as of March 31, 2010 and June 30, 2009 (Unaudited)	F-1
Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended March 31, 2010 and 2009 (Unaudited)	F-2
Consolidated Statements of Cash Flows for the nine months ended March 31, 2010 and 2009 (Unaudited)	F-3
Notes to the Consolidated Financial Statements (Unaudited)	F-4

CHINA MEDIA, INC .

Consolidated Balance Sheets

March 31, 2010

(Unaudited)

	March 31, 2010		June 30, 2009
Assets
Current assets:
Cash	$	31,216	$	3,375,449
Accounts receivable, net of allowance of $35,724 and $35,724 , respectively		1,535,264		1,526,497
Prepaid and other current assets		-		-

Total current assets		1,566,480		4,901,946

Fixed assets, net		73,766		109,213
Intangible assets, net		58,513		67,404
Assets held for sale		-		1,172,240
Film costs		5,099,911		668,177

Total assets	$	6,798,670	$	6,918,980

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	182,474	$	171,097
Accrued liabilities		4,334		5,003
Short term debt		-		117,224
Due to related parties		204,454		67,887

Total current liabilities		391,262		361,211

Stockholders’ equity
Common stock, $0.00001 par value – authorized, 180,000,000 shares; issued 39,750,000 and 39,743,000; outstanding 39,750,000 and 39,743,000		398		397
Additional paid-in capital		8,756,111		8,747,335
Accumulated other comprehensive income		738,749		749,609
Accumulated deficit		(5,205,298)		(5,109,180)
Non-controlling interest		2,117,448		2,169,608
Total stockholders’ equity		6,407,408		6,557,769

Total liabilities and stockholders’ equity	$	6,798,670	$	6,918,980

The accompanying notes are an integral part of these financial statements.

F-1

CHINA MEDIA INC.

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	Three Months Ended March 31,				Nine Months Ended March 31,
	2010		2009		2010		2009
Revenue	$	38,810	$	-	$	1,211,877	$	-
Cost of revenues		34,615		-		1,207,682		-
Gross profit		4,195		-		4,195		-

Selling, general and administrative		20,931		23,857		157,472		131,291
Depreciation and amortization expense		15,573		18,397		46,794		55,200
Total operating expenses		36,504		42,254		204,266		186,491

Other income:
Interest income		44,467		-		44,467		-
Government subsidies / grants		7,326		-		7,326		-

Net income (loss)		19,484		(42,254)		(148,278)		(186,491)

Less: Net( income) loss attributable to non-controlling interest		(7,285)		15,799		52,160		67,678

Net income (loss) attributable to common stock shareholders		12,199		(26,455)		(96,118)		(118,813)

Other comprehensive income (loss):
Net income (loss)		19,484		(42,254)		(148,278)		(186,491)
Foreign currency translation		(16,202)		2,617		(10,860)		3,276

Comprehensive income (loss)		3,282		(39,637)		(159,138)		(183,215)

Less: comprehensive (income) loss attributable to non-controlling interest		(1,227)		14,820		59,502		68,504
Comprehensive loss attributable to common stock shareholders	$	2,055	$	(24,817)	$	(99,636)	$	(114,711)

Net income (loss) per common share – basic and diluted	$	0.00	$	(0.00)	$	(0.00)	$	(0.00)
Weighted average number of shares outstanding – basic and diluted		39,750,000		39,743,00		39,750,000		39,743,000

The accompanying notes are an integral part of these financial statements.

F-2

CHINA MEDIA INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended March 31
	2010		2009
Operating activities:
Net loss	$	(148,278)	$	(186,491)
Adjustments to reconcile net income (loss ) to net cash used in operating activities:
Depreciation expense		38,003		36,854
Amortization expense - intangible		8,791		18,346
Contributed Rent		8,791		8,762
Changes in operating assets and liabilities:
Accounts receivable		(123,604)		(215,518)
Prepaid expenses and other current assets		-		16,623
Film costs		(3,256,623)		8,089
Accounts payable		11,087		172
Accrued expenses		(677)		(2,980)
Net cash (used in) operating activities		(3,462,510)		(316,143)

Investing activities:
Collection of notes receivable		-		276,178
Cash paid for purchase of fixed assets		(2,680)		-
Net cash (used in) investing activities		(2,680)		276,178

Financing activities:
Advances from related parties		136,452		45,805
Net cash provided by financing activities		136,452		45,805

Effect of exchange rate changes on cash and cash equivalents		(15,495)		(24,699)

NET DECREASE IN CASH		(3,344,233)		(18,859)

CASH AT BEGINNING OF PERIOD		3,375,449		26,243

CASH AT END OF PERIOD	$	31,216	$	7,384

Supplemental information
Interest paid	$	-	$	-
Income taxes paid	$	-	$	-

Supplemental disclosure of non-cash investing and financing activities:
Short term debt offsets accounts receivable	$	117,026	$	-

The accompanying notes are an integral part of these financial statements

F-3

CHINA MEDIA INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization, Basis of Presentation and Significant Accounting Policies

The accompanying unaudited interim consolidated financial statements of China Media, Inc. (“We” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s annual financial statements for the years ended June 30, 2009 and 2008 included in Form 8-K filed on December 23, 2009. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the year ended June 30, 2009 included in this document have been omitted.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and Xi’An TV, which is a variable interest entity with the Company as the primary beneficiary. In accordance with United States generally accepted accounting principles (“GAAP”) regarding “Consolidation of Variable Interest Entities”, the Company identifies entities for which control is achieved through means other than through voting rights (a "variable interest entity" or "VIE") and determines when and which business enterprise, if any, should consolidate the VIE. The Company evaluated its participating interest in Xi’An TV Media and concluded it is the primary beneficiary of Xi’An TV Media, a variable interest entity. The Company consolidated Xi’An TV Media and all significant intercompany transactions and balances have been eliminated.

Revenue Recognition

Sales of Commercial Breaks

The Company’s secondary sources of revenue are the sale of commercial breaks at TV stations. Revenue is recognized when commercial are aired. Sales revenue is recorded on a gross basis in accordance with Emerging Issues Task Force Issue 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent. The Company is the primary obligor in the revenue-generating relationships with its customers; the Company separately negotiates each revenue or unit pricing contract independent of any revenue arrangements and assumes the credit risk for amounts invoiced to such customers. The Company pays the cost of air time based on separately negotiated and agreed-upon terms with each air time suppliers.

The Company recognizes revenue when 1) Persuasive evidence of an arrangement exists. 2) Commercial breaks have been aired. 3) The commercial break price is fixed, and 4) collectability is reasonably assured

Cost of Sales of Commercial Breaks

Cost of Sales of Commercial Breaks , which is cost of purchasing commercial breaks. Cost of good sold recognizes when the commercial breaks air.

Recent Accounting Developments

Effective July 1, 2009, in accordance with U.S. GAAP, the Company adopted the standard on consolidation as it relates to noncontrolling interests. The standard changed the accounting and reporting for minority interests, which were recharacterized as noncontrolling interests and classified as a component of equity. The standard requires retrospective adoption of the presentation and disclosure requirements for existing minority interests. All other requirements of the standard will be applied prospectively.

In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities, which is effective for us in fiscal 2010. The new guidance requires revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures for variable interests. The adoption of this new guidance did not have a material impact on our condensed consolidated financial statements.

F-4

2. Related Party Transactions

Mr. Dean Li, President and General Manager, had advanced approximately $7, 314 and $136,682 to the Company during the three and nine- month periods ended March 31, 2010. The shareholder loan is free of interest with no maturity date.

The Company leased an office space from a related party with a monthly rent of approximately $1,000. The contributed rent for the three month period and for the nine month period ended March 31, 2010 was approximately $3,000 and $9,000, respectively.

3. Notes Receivable

On October 16, 2009, the Company loaned ShaanXi Geothe Business Trading Ltd. approximately $1,078,000 under a three month term note. The note matures on January 15, 2010 and has an annual interest rate of 4%. ShaanXi Geothe repaid the loan on February 25, 2010. As of March 31, 2010, all amount had been collected by the Company.

On July 12, 2009, the Company loaned ShaanXi Railroad Transportation Trading Ltd. approximately $3,370,000 under a six month term note. The note matures on January 11, 2010 and has an annual interest rate of 2%. During the period ended March 31, 2010, the Company collected approximately $3,370,000. As of March 31, 2010, all amount had been collected by the Company.

4. Assets Held for Sale

In October 2009, the Company negotiated with third party buyers to sell two of its TV series at the historical costs, the costs related to these two TV series was classified as asset held for sale on the balance sheet as of June 30, 2009. The Company sold the two TV series during quarter ended December 31, 2009. The revenues and cost of revenues were included in the accompanying consolidated statements of operations.

The Company sold the TV series are as follows:

	Period Ended March 31
	2010		2009
Desert Love Story TV series		293,026		0
Fox Hunting TV series		879,078		0
Total		1,172,104		0

F-5

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

Forward Looking Statements

This quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology including "could", "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" and the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report.

Reverse Merger

On November 30, 2009 we completed the acquisition of Vallant Pictures Entertainment Co., Ltd. (Vallant) through the issuance of 7,000 shares of our common stock in a share exchange transaction. The acquisition was accounted for as a reverse merger due to a number of transactions associated with the acquisition of Vallant, including the acquisition of 32,500,000 shares of our common stock by Fullead Overseas Limited, which resulted in a change of control and a change of business. Due to the accounting treatment of the reverse merger, this quarterly report will be the final financial statement disclosure which will reflect our financial condition prior to the closing of the acquisition of Vallant.

Starting with the periodic report for the quarter in which the share exchange was completed, we will file annual and quarterly reports based on the June 30 fiscal year end of Vallant. Such financial statements will depict the operating results of Vallant, including the acquisition of China Media Inc., from Vallants inception on May 23, 2007.

Other than as set out herein, we have not been involved in any bankruptcy, receivership or similar proceedings, nor have we been a party to any material reclassification, merger, consolidation or purchase or sale of a significant amount of assets not in the ordinary course of our business.

Results of Operations

Our results of operations are summarized below:

	Three Months Ended March 31, 2010 ($)	Three Months Ended March 31, 2009 ($)	Nine Months Ended March 31, 2010 ($)	Nine Months Ended March 31, 2009 ($)
Revenue	38,810	Nil	1,211,877	Nil
Cost of Revenue	34,615	Nil	1,207,682	Nil
Expenses	36,504	42,254	204,266	186,491
Other income	51,793	-	51,793	-
Net Income (Loss)	19,484	(42,254)	(148,278)	(186,491)
Net Income (Loss) per Share - Basic and Diluted	(0.00)	(0.00)	(0.00)	(0.00)
Weighted Average Number Shares Outstanding - Basic and Diluted	39,750,000	39,743,000	39,750,000	39,743,000

Results of Operations for the three months ended March 31, 2010 and 2009

During the three months ended March 31, 2010, we earned revenue of $38,810, compared to $Nil in the same period in 2009. The revenues were generated through commercial sales to Advertising agencies.

For the three months ended March 31, 2010 we incurred a net income of $19,484. During the same period in 2009 we incurred a net loss of $42,254. Our net income (loss) per share did not change during these periods at $Nil per share. Our total operating expenses for the three months ended March 31, 2010 were $36,504. During the same period in 2009 our operating expenses were $42,254. The decrease in net loss and expenses was the reduction of depreciation and amortization expenses.

Our general and administrative expenses consist of professional fees; management fees, transfer agent fees, investor relations expenses and general office expenses, legal, accounting and auditing fees, and our general office expenses include bank charges, office maintenance, communication expenses, courier, postage, office supplies and rent.

Results of Operations for the Nine Months Ended March 31, 2010 and 2009

During the nine months ended March 31, 2010, we generated revenues of $1, 211,877, compared to $Nil in the same period in 2009. The revenues were generated through sales of two TV series and commercial sales to Advertising agencies during period ended March 31, 2010.

For the nine months ended March 31, 2010 we incurred a net loss of $148, 278. During the same period in 2009 we incurred a net loss of $186, 491. Our total operating expenses for the nine months ended March 31, 2010 were $204,266. During the same period in 2009 our operating expenses were $186,491. Our total operating expenses consisted entirely of general and administrative expenses during these periods. The increase in net loss and expenses resulted from higher professional fees associated with the change of control and change of business transactions undertaken during the nine months ended March 31, 2010.

Liquidity and Capital Resources

As of March 31, 2010 we had cash of $31,216 in our bank accounts and a working capital surplus of $1,175,218.

For the nine months ended March 31, 2010, we had net cash spending of $(3,462,510) on operating activities, compared to net cash spending of $(316,143) on operating activities during the same period in 2009. The decrease of the cash used in operating activities for the nine months ended March 31, 2010 was primarily due to additional spending in two of the film projects.

For the nine months ended March 31, 2010, we had net cash spending of $(2,680) on investing activities, compared to net cash received of $276,178 on investing activities during the same period in 2009. The change of the cash in investing activities for the nine months ended March 31, 2010 was primarily due to cash spending in fixed aseets purchases.

During the nine months ended March 31, 2010, we received net cash of $136,452 from financing activities, compared to net cash received of $45,805 from financing activities during the same period in fiscal 2009. The increase in cash from financing activities was due to the additional borrowing from a shareholder.

Our cash level decreased by $3,344,233 during the nine months ended March 31, 2010.

We anticipate that we will meet our ongoing cash requirements by retaining income as well as through equity or debt financing. We plan to cooperate with various individuals and institutions to acquire the financing required to produce and distribute our products and anticipate this will continue until we accrue sufficient capital reserves to finance all of our productions independently.

We estimate that our expenses over the next 12 months (beginning February 2010) will be approximately $11,150,000 as described in the table below. These estimates may change significantly depending on the nature of our future business activities and our ability to raise capital from shareholders or other sources.

Description	Estimated Completion Date	Estimated Expenses ($)
Legal and accounting fees	12 months	300,000
Film and television series development costs	12 months	8,500,000
Marketing and advertising	12 months	300,000
Investor relations and capital raising	12 months	150,000
Management and operating costs	12 months	250,000
Salaries and consulting fees	12 months	100,000
Fixed asset purchases	12 months	1,500,000
General and administrative expenses	12 months	50,000
Total		11,150,000

We intend to meet our cash requirements for the next 12 months through a combination of debt financing and equity financing by way of private placements. We currently do not have any arrangements in place to complete any private placement financings and there is no assurance that we will be successful in completing any private placement financings. If we are not able to successfully complete any private placement financings, we plan to cooperate with film and television producers or obtain shareholder loans to meet our cash requirements. However, there is no assurance that any such financing will be available or if available, on terms that will be acceptable to us. We may not raise sufficient funds to fully carry out our business plan.

Share Cancellations

On July 7, 2009 we entered into an agreement with Fullead Overseas Limited, a company over which Bin Li, our Director, has sole voting and investment power, to issue Fullead 32,500,000 shares of our common stock at a price of $0.002 for cash proceeds of $65,000. Pursuant to the terms of this agreement, we were required to enter into share cancellation agreements with holders of 30,800,000 shares of our issued and outstanding common stock and appoint new directors and officers to serve as our Board of Directors and management. The details of the share cancellations were disclosed in a Current Report on Form 8-K filed with the SEC on July 7, 2009.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Inflation

The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.

Audit Committee

The functions of the audit committee are currently carried out by our Board of Directors, who has determined that we do not have an audit committee financial expert on our Board of Directors to carry out the duties of the audit committee. The Board of Directors has determined that the cost of hiring a financial expert to act as a director and to be a member of the audit committee or otherwise perform audit committee functions outweighs the benefits of having a financial expert on the audit committee.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) designed to provide reasonable assurance the information required to be reported in our Exchange Act filings is recorded, processed, summarized and reported within the time periods specified and pursuant to Securities and Exchange Commission rules and forms, including controls and procedures designed to ensure that this information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, our management, with the participation of our Principal Executive Officer and Principal Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Principal Executive Officer and our Principal Financial Officer concluded our disclosure controls and procedures were (1) designed to ensure material information relating to our Company is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, in a timely manner, particularly during the period in which this report was being prepared and (2) ineffective based on the evaluation of these disclosure controls and procedures, and in light of material weakness found in our internal control in our quarterly review report for the quarter ended March 31, 2010.

Changes in Internal Control

There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) during the quarterly period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are not aware of any legal proceedings to which we are a party or of which our property is the subject. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, and affiliate or security holder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings. We are not aware of any other legal proceedings that have been threatened against us.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. [Removed and Reserved]

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Number	Exhibit Description
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

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

	China Media Inc.
	(Registrant)

	/s/ Dean Li
Date: May 14, 2010	Dean Li
	President, Chief Executive Officer
	(Principal Executive Officer)

	/s/ Ying Xu
Date: May 14, 2010	Ying Xu
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)