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 December 31, 2011
OR
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: 001-34858
___________________________________________________
CHINA DIGITAL VENTURES CORPORATION
(Exact name of registrant as specified in its charter)
___________________________________________________
| Nevada | 98-0568076 | ||
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) | ||
13520 Oriental St. Rockville, MD | 20853 | ||
| (Address of principal executive offices) | (Zip Code) |
(202) 536-5191
(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 issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x No o
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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer o | Accelerated Filer o |
Non-Accelerated Filer o | 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 x No o
As of February 3, 2012 the registrant had 15,228,000 shares of its Common Stock, $0.001 par value, outstanding.
CHINA DIGITAL VENTURES CORPORATION
FORM 10-Q
DECEMBER 31, 2011
INDEX
| PART I -- FINANCIAL INFORMATION | Page | |
| Item 1. | Financial Statements | 3 |
| Balance Sheets as of December 31, 2011 (unaudited) and September 30, 2011 | 3 | |
| Statements of Operations for the Three Months Ended December 31, 2011 and 2010 and for the Period March 26, 2007 (Inception) to December 31, 2011 (unaudited) | 4 | |
| Statement of Stockholders’ Deficit for the Period March 26, 2007 (Inception) to December 31, 2011 (unaudited) | 5 | |
| Statements of Cash Flows for the Three Months Ended December 31, 2011 and 2010 and for the Period March 26, 2007 (Inception) to December 31, 2011 (unaudited) | 6 | |
| Notes to Financial Statements (unaudited) | 8 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 13 |
| Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 16 |
| Item 4. | Controls and Procedures | 16 |
| PART II -- OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 16 |
| Item 1.A. | Risk Factors | 16 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 16 |
| Item 3. | Defaults Upon Senior Securities | 16 |
| Item 4. | (Removed & Reserved) | 17 |
| Item 5. | Other Information | 17 |
| Item 6. | Exhibits | 17 |
| SIGNATURE | 18 | |
2
Item 1. Financial Statements
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Balance Sheets
| December 31, | September 30, | |||||||
| 2011 | 2011 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | - | $ | - | ||||
| Total assets | $ | - | $ | - | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 299 | $ | 379 | ||||
| Accrued expenses | 16,750 | 12,000 | ||||||
| Amount due to shareholder | 57,541 | 57,162 | ||||||
| Total liabilities | 74,590 | 69,541 | ||||||
| Stockholders' deficit: | ||||||||
Common stock, $.001 par value, 75,000,000 shares authorized, 15,228,000 shares issued and outstanding | 15,228 | 15,228 | ||||||
| Additional paid-in capital | 69,332 | 69,332 | ||||||
| Deficit accumulated during the development stage | (159,150 | ) | (154,101 | ) | ||||
| Total stockholders' deficit | (74,590 | ) | (69,541 | ) | ||||
| Total liabilities and stockholders' deficit | $ | - | $ | - | ||||
See accompanying notes to financial statements.
3
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Statements of Operations
(unaudited)
| For the Period | ||||||||||||
| March 26, 2007 | ||||||||||||
| For the Three Months Ended | (Inception) to | |||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2011 | 2010 | 2011 | ||||||||||
| Net revenue | $ | - | $ | - | $ | 31,912 | ||||||
| Cost of revenue | - | - | 15,731 | |||||||||
| Gross profit | - | - | 16,181 | |||||||||
| General and administrative expenses | 5,049 | 11,920 | 318,008 | |||||||||
| Loss from operations | (5,049 | ) | (11,920 | ) | (301,827 | ) | ||||||
| Other income (expense): | ||||||||||||
| Gain on disposal of subsidiaries | - | - | 118,193 | |||||||||
| Exchange gain | - | - | 1,028 | |||||||||
| Interest income | - | - | 293 | |||||||||
| Other income | - | - | 903 | |||||||||
| Interest expense | - | - | (2,170 | ) | ||||||||
| Total other income (expense) | - | - | 118,247 | |||||||||
| Loss before income taxes | (5,049 | ) | (11,920 | ) | (183,580 | ) | ||||||
| Provision for income taxes | - | - | - | |||||||||
| Net loss | (5,049 | ) | (11,920 | ) | (183,580 | ) | ||||||
| Net loss attributable to noncontrolling interest | - | - | 24,430 | |||||||||
Net loss attibutable to China Digital Ventures Corporation | $ | (5,049 | ) | $ | (11,920 | ) | $ | (159,150 | ) | |||
| Net loss per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | ||||||
Weighted average number of shares outstanding - Basic and Diluted | 15,228,000 | 15,228,000 | ||||||||||
See accompanying notes to financial statements.
4
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Statement of Stockholders' Deficit
For the period March 26, 2007 (Inception) through December 31, 2011
(unaudited)
| Deficit | ||||||||||||||||||||||||||||
| accumulated | Accumulated | |||||||||||||||||||||||||||
| Common stock | Additional | during the | other | Total | ||||||||||||||||||||||||
| paid-in | development | comprehensive | Noncontrolling | stockholders' | ||||||||||||||||||||||||
| Shares | Amount | capital | stage | income (loss) | interest | deficit | ||||||||||||||||||||||
| Common stock issued to founders for cash at $.001 per share | 10,000,000 | $ | 10,000 | $ | - | $ | - | $ | - | $ | - | $ | 10,000 | |||||||||||||||
| Common stock issued for cash at $0.01 per share | 3,000,000 | 3,000 | 27,000 | - | - | - | 30,000 | |||||||||||||||||||||
| Net loss for the period March 26, 2007 (inception) to September 30, 2007 | - | - | - | (38,799 | ) | - | - | (38,799 | ) | |||||||||||||||||||
| Balance, September 30, 2007 | 13,000,000 | 13,000 | 27,000 | (38,799 | ) | - | - | 1,201 | ||||||||||||||||||||
| Common stock issued for cash at $0.02 per share | 208,000 | 208 | 3,952 | - | - | - | 4,160 | |||||||||||||||||||||
| Common stock issued for services at $0.02 per share | 20,000 | 20 | 380 | - | - | - | 400 | |||||||||||||||||||||
| Net loss for the year ended September 30, 2008 | - | - | - | (49,952 | ) | - | - | (49,952 | ) | |||||||||||||||||||
| Balance, September 30, 2008 | 13,228,000 | 13,228 | 31,332 | (88,751 | ) | - | - | (44,191 | ) | |||||||||||||||||||
| Shares issued for acquisition of subsidiary | 2,000,000 | 2,000 | 38,000 | - | - | - | 40,000 | |||||||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | (920 | ) | - | (920 | ) | |||||||||||||||||||
| Net loss for the year ended September 30, 2009 | - | - | - | (63,258 | ) | - | (2,091 | ) | (65,349 | ) | ||||||||||||||||||
| Balance, September 30, 2009 | 15,228,000 | 15,228 | 69,332 | (152,009 | ) | (920 | ) | (2,091 | ) | (70,460 | ) | |||||||||||||||||
| Foreign currency translation adjustment | - | - | - | - | 920 | - | 920 | |||||||||||||||||||||
| Disposal of subsidiary | - | - | - | - | - | 16,546 | 16,546 | |||||||||||||||||||||
| Net income for year ended September 30, 2010 | - | - | - | 45,666 | - | (14,455 | ) | 31,211 | ||||||||||||||||||||
| Balance, September 30, 2010 | 15,228,000 | 15,228 | 69,332 | (106,343 | ) | - | - | (21,783 | ) | |||||||||||||||||||
| Net loss for the year ended September 30, 2011 | - | - | - | (47,758 | ) | - | - | (47,758 | ) | |||||||||||||||||||
| Balance, September 30, 2011 | 15,228,000 | 15,228 | 69,332 | (154,101 | ) | - | - | (69,541 | ) | |||||||||||||||||||
| Net loss for the three months ended December 31, 2011 (unaudited) | - | - | - | (5,049 | ) | (5,049 | ) | |||||||||||||||||||||
| Balance, December 31, 2011 | 15,228,000 | $ | 15,228 | $ | 69,332 | $ | (159,150 | ) | $ | - | $ | - | $ | (74,590 | ) | |||||||||||||
See accompanying notes to financial statements.
5
(A Development Stage Company)
Statements of Cash Flows
(unaudited)
| For the Period | ||||||||||||
| March 26, 2007 | ||||||||||||
| For the Three Months Ended | (Inception) to | |||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2011 | 2010 | 2011 | ||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net loss | $ | (5,049 | ) | $ | (11,920 | ) | $ | (159,150 | ) | |||
| Adjustments to reconcile net loss to net cash used in operations: | ||||||||||||
| Depreciation | - | - | 2,914 | |||||||||
| Noncontrolling interest | - | - | (24,430 | ) | ||||||||
| Gain on disposal of subsidiaries | - | - | (118,193 | ) | ||||||||
| Common stock issued for services | - | - | 400 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | - | - | (859 | ) | ||||||||
| Other receivable | - | - | 1,812 | |||||||||
| Loan receivable | - | - | 12,822 | |||||||||
| Due from related party | - | - | (19,443 | ) | ||||||||
| Deposit | - | - | (5,871 | ) | ||||||||
| Inventory | - | - | (1,897 | ) | ||||||||
| Accounts payable | 299 | 2,920 | 83,419 | |||||||||
| Accrued expenses | 4,750 | 1,500 | 19,210 | |||||||||
| Net cash used in operating activities | - | (7,500 | ) | (209,266 | ) | |||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of subsidiary, net of cash | - | - | 75,650 | |||||||||
| Disposal of subsidiary, net of cash | - | - | 39,742 | |||||||||
| Capital expenditures | - | - | (12,511 | ) | ||||||||
| Net cash provided by investing activities | - | - | 102,881 | |||||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from loan payable | - | - | 6,793 | |||||||||
| Amounts due shareholder | - | 7,500 | 54,482 | |||||||||
| Amounts due directors | - | - | 4,860 | |||||||||
| Proceeds from sale of common stock | - | - | 44,160 | |||||||||
| Net cash provided by financing activities | - | 7,500 | 110,295 | |||||||||
| Effect of exchange rate fluctuations on cash | - | - | (3,910 | ) | ||||||||
| Net increase (decrease) in cash | - | - | - | |||||||||
| Cash and cash equivalents at beginning of period | - | - | - | |||||||||
| Cash and cash equivalents at end of period | $ | - | $ | - | $ | - | ||||||
See accompanying notes to financial statements.
Continued
6
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Statements of Cash Flows (Continued)
(unaudited)
| For the Period | ||||||||||||
| March 26, 2007 | ||||||||||||
| For the Three Months Ended | (Inception) to | |||||||||||
| December 31, | December 31, | December 31, | ||||||||||
| 2011 | 2010 | 2011 | ||||||||||
| Supplemental disclosure of cash flow information: | ||||||||||||
| Cash paid for interest | $ | - | $ | - | $ | 2,170 | ||||||
| Cash paid for taxes | $ | - | $ | - | $ | - | ||||||
| Supplemental disclosure of non-cash financing activities: | ||||||||||||
| Amounts due to director paid by shareholder | $ | - | $ | - | $ | 180 | ||||||
| Accounts payable paid by shareholder | $ | 379 | $ | - | $ | 379 | ||||||
| Accrued expenses paid by shareholder | $ | - | $ | 2,000 | $ | 2,500 | ||||||
See accompanying notes to financial statements.
7
CHINA DIGITAL VENTURES CORPORATION
Notes to Financial Statements
December 31, 2011
(unaudited)
Note 1 – Nature of Business, Presentation and Going Concern
Organization
China Digital Ventures Corporation (the "Company") was incorporated in Nevada on March 26, 2007. The principal business of the Company was its web based telecom and IPTV businesses, both of which were disposed of during the year ended September 30, 2010. As of the date hereof, the Company has no operations.
On July 23, 2010, the Company experienced a change in control. Canton Investments Ltd (“CIL”) acquired a majority of the issued and outstanding common stock of the Company in accordance with stock purchase agreements by and between CIL and Wireless One International Limited (“Wireless One”), Bing HE and Ning HE, the Company’s former directors, and other various shareholders. On the closing date, July 23, 2010, pursuant to the terms of the Stock Purchase Agreement, CIL purchased from Wireless One and Bing HE and Ning HE 11,500,000 shares of the Company’s outstanding common stock for $205,750. Also on July 23, 2010, CIL purchased 2,440,000 shares of the Company’s outstanding common stock for $36,600 from various shareholders. As a result of the change in control, CIL owns a total of 13,940,000 shares of the Company’s common stock representing 91.54%.
Basis of Presentation
The accompanying unaudited financial statements have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) for interim financial statement presentation and in accordance with Form 10-Q. Accordingly, they do not include all of the information and footnotes required in annual financial statements. In the opinion of management, the unaudited financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the financial position and results of operations and cash flows. The results of operations presented are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
These unaudited financial statements should be read in conjunction with our 2011 annual financial statements included in our Form 10-K, filed with the U.S. Securities and Exchange Commission (“SEC”) on January 12, 2012.
Going Concern
The accompanying unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of $5,049 for the three months ended December 31, 2011 and has incurred cumulative losses since inception of $159,150. The Company has a stockholders’ deficit of $74,590 at December 31, 2011. These conditions raise substantial doubt about the ability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its abilities to generate revenues, to continue to raise investment capital, and develop and implement its business plan. No assurance can be given that the Company will be successful in these efforts.
The unaudited financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. No assurance can be given that the Company will be successful in these efforts.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
8
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 2011
(unaudited)
Note 2 – Summary of Significant Accounting Policies (Continued)
Principles of Consolidation
The unaudited financial statements include the accounts of the Company and its former wholly-owned and majority-owned subsidiaries. The results of the subsidiaries acquired or disposed of during the period are consolidated from their effective dates of acquisition and through their effective dates of disposition. All significant inter-company balances and transactions have been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2011 and September 30, 2011, respectively, the Company had no cash equivalents.
Revenue Recognition
The Company recognized revenue on arrangements in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, “Revenue Recognition” (“ASC 605”). Under ASC 605, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. Revenue is recognized when products are received and accepted by the customer and is recorded net of estimated product returns, which is based upon the Company's return policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends, changes in customer composition and historical experience.
Stock Based Compensation
The Company accounts for Stock-Based Compensation under ASC Topic 718-10 (“ASC 718-10”), which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 is a revision to SFAS No. 123, "Accounting for Stock-Based Compensation," and supersedes Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. ASC 718-10 requires measurement of the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized. The Company has not adopted a stock option plan and has not granted any stock options.
The Company accounts for equity-based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. When the equity instrument is utilized for measurement, the fair value of (i) common stock issued for payments to non-employees is measured at the market price on the date of grant; (ii) equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, we recognize an asset or expense in the same manner as if it is to receive cash for the goods or services instead of paying with or using the equity instrument.
Income Taxes
The Company accounts for income taxes under ASC Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations.
9
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 2011
(unaudited)
Note 2 – Summary of Significant Accounting Policies (Continued)
Earnings (Loss) Per Share
In accordance with ASC Topic 260, “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per share are computed using the weighted average number of common and dilutive common stock equivalent shares outstanding during the period. Dilutive common stock equivalent shares consist of preferred stock, convertible debentures, stock options and warrant common stock equivalent shares. Diluted earnings (loss) per share excludes all potentially dilutive shares if their effect is anti-dilutive. As of December 31, 2011 and 2010, respectively, there were no common share equivalents outstanding.
Fair Value of Financial Instruments
ASC 825 "Financial Instruments" codified Statement of Financial Accounting Standard No. 107, Disclosures about fair value of financial instruments, requires that the Company disclose estimated fair values of financial instruments. Unless otherwise indicated, the fair values of all reported assets and liabilities, which represent financial instruments, none of which are held for trading purposes, approximate the carrying values of such amounts.
Dividends
The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid during the periods shown.
Development Stage Enterprise
The Company is a development stage enterprise, as defined in ASC Topic 915 “Development Stage Entities”. The Company's planned principal operations have not fully commenced.
Accounting Standards Codification
In September 2009, the FASB issued ASC 105, formerly FASB Statement No. 168, the FASB Accounting Standards Codification (“Codification”) and the Hierarchy of Generally Accepted Accounting Principles (“GAAP”), a replacement of FASB Statement No. 168 (“SFAS 168”). SFAS 168 establishes the Codification as the single source of authoritative GAAP in the United States, other than rules and interpretive releases issued by the SEC. The Codification is a reorganization of current GAAP into a topical format that eliminates the current GAAP hierarchy and establishes instead two levels of guidance — authoritative and non-authoritative. All non-grandfathered, non-SEC accounting literature that is not included in the Codification will become non-authoritative. The FASB’s primary goal in developing the Codification is to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular accounting topic in one place. The Codification was effective for interim and annual periods ending after September 15, 2009. As the Codification was not intended to change or alter existing GAAP, it did not have a material impact on the Company’s financial statements.
Recent Accounting Pronouncements
Management does not believe any recently issued but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s present or future financial statements.
10
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 2011
(unaudited)
Note 2 – Summary of Significant Accounting Policies (Continued)
Subsequent Events
The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the consolidated financial statements.
Note 3 – Related Party Transactions
In connection with the change in control which occurred on July 23, 2010, Canton Investments Ltd (“Canton”), the Company’s principal shareholder, assumed an outstanding loan from the former shareholders of the Company of $19,103. During the year ended September 30, 2011, Canton paid an additional $37,879 of expenses in connection with the Company’s operations, as well as the $180 liability due to a director, resulting in an amount due to Canton of $57,162 at September 30, 2011.
During the three months ended December 31, 2011, Canton paid an additional $379 of expenses in connection with the Company’s operations, resulting in an amount due to Canton of $57,541 at December 31, 2011. The loan is unsecured, non-interest bearing and there is no repayment date.
Note 4 – Stockholders’ Deficit
The Company has authorized 75,000,000 shares of Common Stock, $0.001 par value. As of December 31 and September 30, 2011 the Company had 15,228,000 shares of Common Stock issued and outstanding.
During the period from March 26, 2007 (date of inception) to September 30, 2007, the Company issued 10,000,000 shares of its common stock to founders of the Company for $10,000 cash or $0.001 per share.
During the period from March 26, 2007 (date of inception) to September 30, 2007, the Company issued 3,000,000 shares of its common stock for $30,000 cash or $0.01 per share.
During the year ended September 30, 2008, the Company issued 208,000 restricted shares of its common stock for $4,160 cash or $0.02 per share.
During the year ended September 30, 2008, the Company issued 20,000 restricted shares of its common stock for services rendered aggregating $400 as stock based compensation.
On July 6, 2009, the Company issued 2,000,000 shares of its Common Stock to the then current major shareholder of the Company for the acquisition of 19,200,000 shares in China Integrated Media Corporation Limited.
Note 5 – Income Taxes
No provision was made for income taxes for the period from March 26, 2007 (Inception) to December 31, 2011 as the Company had cumulative operating losses. For the three months ended December 31, 2011 and 2010, the Company realized net losses for tax purposes of $5,049 and $11,920, respectively. Total net operating loss carried forward at December 31, 2011 is approximately $50,000. If not utilized, they will start to expire in 2030.
11
CHINA DIGITAL VENTURES CORPORATION
(A Development Stage Company)
Notes to Financial Statements
December 31, 2011
(unaudited)
Note 5 – Income Taxes (Continued)
The income tax expense (benefit) differs from the amount computed by applying the United States Statutory corporate income tax rate as follows:
| For the Three Months Ended | ||||||||
| December 31, | ||||||||
| 2011 | 2010 | |||||||
| United States statutory corporate income tax rate | 34.0% | 34.0% | ||||||
| Change in valuation allowance on deferred tax assets | -34.0% | -34.0% | ||||||
| Provision for income tax | -% | -% | ||||||
Deferred income taxes reflect the tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. The components of the net deferred income tax assets are approximately as follows:
| December 31, | September 30, | |||||||
| 2011 | 2011 | |||||||
| Deferred income tax assets: | ||||||||
| Net operating loss carry forwards | $ | 18,870 | $ | 17,150 | ||||
| Valuation allowance | (18,870 | ) | (17,150 | ) | ||||
| Net deferred income tax assets | $ | - | $ | - | ||||
The Company has established a full valuation allowance on our deferred tax asset because of a lack of sufficient positive evidence to support its realization. The valuation allowance increased by $1,720 for the three months ended December 31, 2011 and by $16,240 for the year ended September 30, 2011.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This quarterly report on Form 10-Q and other reports filed by China Digital Ventures Corporation from time to time with the U.S. Securities and Exchange Commission contain or may contain forward-looking statements and information that are based upon beliefs of, and information currently available to, the Company’s management as well as estimates and assumptions made by Company’s management. Readers are cautioned not to place undue reliance on these forward-looking statements, which are only predictions and speak only as of the date hereof. When used in the filings, the words “anticipate,” “believe,” “estimate,” “expect,” “future,” “intend,” “plan,” or the negative of these terms and similar expressions as they relate to the Company or the Company’s management identify forward-looking statements. Such statements reflect the current view of the Company with respect to future events and are subject to risks, uncertainties, assumptions, and other factors. Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from those anticipated, believed, estimated, expected, intended, or planned.
Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, or achievements. Except as required by applicable law, including the securities laws of the United States, the Company does not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States. These accounting principles require us to make certain estimates, judgments, and assumptions. We believe that the estimates, judgments, and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments, and assumptions are made. These estimates, judgments, and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements as well as the reported amounts of revenues and expenses during the periods presented. Our financial statements would be affected to the extent there are material differences between these estimates.
Company Overview
The Company was incorporated in Nevada on March 26, 2007 and was in the web based telecom services business in China. The Company's mission was to acquire, own and manage a portfolio of "technology", "media" and "telecommunication" assets in China. During the periods presented, all revenue was derived from the telecom business sector.
In July 2009, the Company acquired a 76.8% interest in China Integrated Media Corporation Limited ("CIMC"), a public company in Australia.
In February 2010, the Company decided to divest from its investment in CIMC due to its inability to raise the capital necessary to pursue this investment on a timely manner and concerns on its internal liquidity. On April 30, 2010 the Company disposed of CIMC.
On June 20, 2010, the Company disposed of its subsidiary company, Lead Concept Limited, which operated its web based VOIP business as the Company was no longer competitive in this market segment. After the disposal, the Company had no operations. The Company is currently a development stage enterprise.
On July 23, 2010, the Company experienced a change in control. Canton Investments Ltd (“CIL”) acquired a majority of the issued and outstanding common stock of the Company in accordance with stock purchase agreements by and between CIL and Wireless One International Limited (“Wireless One”), Bing HE and Ning HE, the Company’s former directors, and other various shareholders. On the closing date, July 23, 2010, pursuant to the terms of the Stock Purchase Agreement, CIL purchased from Wireless One and Bing HE and Ning HE 11,500,000 shares of the Company’s outstanding common stock for $205,750. Also on July 23, 2010, CIL purchased 2,440,000 shares of the Company’s outstanding common stock for $36,600 from various shareholders. As a result of the change in control, CIL owns a total of 13,940,000 shares of the Company’s common stock representing 91.54%.
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Plan of Operation
Management is currently assessing and evaluating new strategic opportunities as it remains in its development stage.
Results of Operations
For the Three Months Ended December 31, 2011 and 2010 and For the Period March 26, 2007 (Inception) to December 31, 2011
Revenues
The Company had no revenue for the three months ended December 31, 2011 and 2010.
For the period from March 26, 2007 (date of inception) to December 31, 2011, the Company realized revenue of $31,912, incurred a cost of revenue of $15,731 and achieved a gross profit of $16,181. All revenue was derived from the telecom business and reflects the disposal of the Company’s operating subsidiaries during the 2010 fiscal year.
Operating Expenses
For the three months ended December 31, 2011 our total operating expenses were $5,049 compared to $11,920 for the three months ended December 31, 2010 resulting in a decrease of $6,871.
For the period from March 26, 2007 (date of inception) to December 31, 2011, the accumulated gross profit was $16,181, the total operating expenses were $318,008 which was all selling, general and administrative expenses, had $118,193 in gain on disposal of subsidiaries, $1,028 in exchange gain, $2,170 in interest expense, $1,196 in interest income and other income and loss attributable to minority interest of $24,430, resulting in an accumulated net loss to our shareholders of $159,150.
Liquidity and Capital Resources
Overview
As of December 31, 2011, the Company had no cash and a deficit in working capital of $74,590. Since July 23, 2010, the date CIL became our majority shareholder, our operating expenses have been funded and paid by CIL.
We do not have sufficient resources to effectuate our business. As of December 31, 2011, we had no cash. We expect to incur a minimum of $50,000 in expenses during the next twelve months of operations. We estimate that this will be comprised of the following expenses: $25,000 for business planning and development, and $25,000 will be needed for general overhead expenses such as legal and accounting fees, office overhead and general expenses.
Liquidity and Capital Resources during the Three Months Ended December 31, 2011 compared to the Three Months ended December 30, 2010
We used cash for operating activities of $0 and $7,500 for the three months ended December 31, 2011, and 2010, respectively. The elements of cash flow used in operations for the three months ended December 31, 2011 included a net loss of $5,049, offset by increases in accounts payable of $299 and accrued expenses of $4,750.
We used no cash used in investing activities during the three months ended December 31, 2011 and 2010.
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Cash generated in our financing activities was $0 for the three months ended December 31, 2011, compared to cash generated of $7,500 during the comparable period in 2010. This decrease was primarily attributed to amounts due to our principal shareholder for expenses paid on our behalf by the shareholder in 2010.
We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.
Going Concern
Due to the uncertainty of our ability to meet our current operating and capital expenses, our independent auditors included an explanatory paragraph in their report on the financial statements for the year ended September 30, 2011 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Our unaudited financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our unaudited financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.
There is no assurance that our operations will be profitable. Our continued existence and plans for future growth depend on our ability to obtain the additional capital necessary to operate either through the generation of revenue or the issuance of additional debt or equity.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
Our significant accounting policies are summarized in Note 2 of our financial statements. While all of these significant accounting policies impact the Company’s financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our financial position or liquidity, results of operations or cash flows for the periods presented. We suggest that our significant accounting policies be read in conjunction with this Management's Discussion and Analysis of Financial Condition.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide information under this item.
Item 4. Controls and Procedures.
| (a) | Evaluation of Disclosure Controls and Procedures |
The Company’s management, with the participation of the Company’s principal executive officer (“PEO”) and principal financial officer (“PFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the PEO and PFO concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective to ensure that information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the PEO and PFO, as appropriate, to allow timely decisions regarding required disclosure.
| (b) | Changes in Internal Control over Financial Reporting |
There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter 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 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, threatened against or affecting our company or our common stock in which an adverse decision could have a material adverse effect.
We believe that there are no changes that constitute material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended September 30, 2011, filed with the Securities and Exchange Commission on January 12, 2012.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
There were no defaults upon senior securities during the quarter ended December 31, 2011.
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Item 4. (Removed and Reserved).
Item 5. Other Information.
None.
Item 6. Exhibits
| Exhibit 31.1 | Certification by the Principal Executive Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). * |
| Exhibit 31.2 | Certification by the Principal Financial Officer of Registrant pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rule 13a-14(a) or Rule 15d-14(a)). * |
| Exhibit 32.1 | Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * |
| Exhibit 32.2 | Certification by the Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. * |
| 101.INS | XBRL Instance Document ** |
| 101.SCH | XBRL Taxonomy Extension Schema Document ** |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document ** |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document ** |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document ** |
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document ** |
| * | Filed herewith. |
| ** | XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
| Date: February 13, 2012 | By: /s/ Robert M. Price | |
| Robert M. Price | ||
Chief Executive Officer (Principal Executive Officer) Interim Chief Financial Officer (Principal Financial Officer) |
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