V Media 10Q 2011 Q1 Quarterly report

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 September 30, 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: 000-53027

CHINA NEW MEDIA CORP.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	33-0944402
(State or Other jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

Dalian Vastitude Media Group 8th Floor, Golden Name Commercial Tower 68 Renmin Road, Zhongshan District Dalian, P.R. China	116001
(Address of Principal Executive Offices)	(Zip Code)

86-0411-8272-8168

(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 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 o 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. See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

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 o No x

As of November 9, 2010, the Company had outstanding 27,550,001 shares of common stock, $0.0001 par value.

INDEX

	Page
PART I FINANCIAL INFORMATION	1

Item 1. Condensed Consolidated Financial Statements (Unaudited).	1

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	27

Item 4T. Controls and Procedures.	28

PART II OTHER INFORMATION	29

Item 1. Legal Proceedings.	29

Item 1A. Risk Factors.	29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	34

Item 3. Defaults Upon Senior Securities.	34

Item 4. Reserved.	34

Item 5. Other Information.	34

Item 6. Exhibits.	35

Signatures	36

INTRODUCTION

Use of Certain Defined Terms

In this Form 10-Q, unless indicated otherwise, references to:

·	“We,” “us,” “our” and the “Company” refers to China New Media Corp. and its subsidiaries.

·	“Securities Act” refers to the Securities Act of 1933, as amended, and “Exchange Act” refer to the Securities Exchange Act of 1934, as amended;

·	“China” and “PRC” refer to the People's Republic of China;

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

“U.S. dollar,” “$” and “US$” refer to the legal currency of the United States. For all U.S. dollar amounts reported, the dollar amount has been calculated on the basis that $1 = RMB 6.82633 for September 30, 2009, and $1 = RMB 6.69116 for September 30, 2010, which were determined based on the currency conversion rate at the end of each respective period. The conversion rates of $1 = RMB 6.8309 is used for the condensed consolidated statement of income and other comprehensive income and consolidated statement of cash flows for the three months ended September 30, 2009, and $1= RMB 6.7696 is used for the condensed consolidated statement of income and other comprehensive income and consolidated statement of cash flows for the three months ended September 30, 2010; both of which were based on the average currency conv ersion rate for each respective quarter.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information contained in this report includes some statements that are not purely historical fact and that are “forward-looking statements” as defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements are contained principally in the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events, including, but not limited to: our future financial performance; the continuation of historical trends; the sufficiency of our cash balances for future needs; our future operations; our sales and revenue levels and gross margins, costs and expenses; new product introduction, entry and expansion into new markets and utilization of new sales channels and sales agents; improvements in, and the relative quality of, our technologies and the ability of our competitors to copy such technologies; our competitive technological advantages over our competitors; brand image, customer loyalty and expanding our client base; the sufficiency of our resources in funding our operations; and our liquidity and capital nee ds.

Our forward-looking statements are based on our current expectations and beliefs concerning future developments, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

iii

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA NEW MEDIA CORP.

(FORMERLY GOLDEN KEY INTERNATIONAL INC.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

(UNAUDITED)


	As of
	September 30,		June 30,
	2010		2010
ASSETS

Current assets
Cash and cash equivalents	$	1,778,195	$	1,672,017
Accounts receivable, net of allowance for bad debt
$63,480 and $62,635		3,831,694		3,388,247
Advance to suppliers		1,251,105		1,050,567
Advance to employee		136,992		144,361
Other current assets		532,367		138,257
Deferred tax assets		43,517		34,790
Total current assets		7,573,870		6,428,239

Property, equipment and construction in progress, net		14,450,848		13,120,233

Other assets
Security deposits		1,885,058		1,874,363
Intangible asset, net		102,394		93,903
Billboards use right, net		4,663,358		2,172,894
Investment advance		-		1,887,505
Total other assets		6,650,810		6,028,665

Total Assets	$	28,675,528	$	25,577,137

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities
Short term loans	$	8,488,812	$	7,196,112
Long term loans-current		747,255		737,307
Accounts payable, accrued expenses and other payables		252,633		154,808
Deferred revenues		1,971,845		1,628,911
Taxes payable		1,183,611		1,395,209
Due to related parties		264,122		437,121
Total current liabilities		12,908,278		11,549,468

Long term loans		448,353		442,384

Total Liabilities		13,356,631		11,991,852

Commitments and Contingencies

Stockholders' equity
Series A Preferred Stock, $0.0001 par value, 20,000,000 shares authorized,
1,000,000 shares issued and outstanding		100		100
Common stock, $0.0001 Par value; 80,000,000 shares authorized;
27,550,701 shares issued and outstanding		2,755		2,755
Additional paid-in-capital		6,746,071		6,746,071
Accumulated other comprehensive income		199,989		94,571
Retained earnings		6,937,360		5,852,218
Total stockholders' equity		13,886,275		12,695,715
Noncontrolling interest		1,432,622		889,570
Total stockholders' equity		15,318,897		13,585,285

Total Liabilities and Stockholders' Equity	$	28,675,528	$	25,577,137

The accompanying notes are an integral part of these condensed consolidated financial statements

CHINA NEW MEDIA CORP.

(FORMERLY GOLDEN KEY INTERNATIONAL INC.)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(IN US DOLLARS)

(UNAUDITED)


				For the three months ended September 30,
				2010			2009

Revenues				$	4,120,750		$	3,167,334

Cost of revenue					(1,733,202	)		(1,192,967	)

Gross profit					2,387,548			1,974,367

Selling, general and administrative expenses					(765,138	)		(581,270	)

Income from operations					1,622,410			1,393,097

Other income (expenses)
	Interest income				1,502			7,778
	Interest expense				(156,330	)		(69,359	)
	Other income				65,288			-
	Other expenses				(136	)		(12,274	)

			Total Other income (expenses)		(89,676	)		(73,855	)

Income before income taxes					1,532,734			1,319,242

Income tax provision (benefit)
		-	Current		403,558			329,810
		-	Deferred		(8,162	)		-
					395,396			329,810

Net income					1,137,338			989,432

	Less: net income attribute to the noncontrolling interest				52,196			81,867

Net income attributable to China New Media Corp.					1,085,142			907,565

Other comprehensive income
	Foreign currency translation gain				105,418			3,347

Comprehensive income				$	1,190,560		$	910,912

Earnings per share
	Basic				0.04			0.03
	Diluted				0.04			0.03
Weighted average number of common shares
	Basic				27,550,701			26,398,634
	Diluted				29,274,676			26,398,634

The accompanying notes are an integral part of these condensed consolidated financial statements

CHINA NEW MEDIA CORP.

(FORMERLY GOLDEN KEY INTERNATIONAL INC.)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS)

(UNAUDITED)


	For the three months ended September 30,
	2010			2009

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,137,338		$	989,432
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		377,619			149,381
Deferred tax benefit		(8,162	)		-
Changes in operating assets and liabilities
Accounts receivable		(393,121	)		(1,289,994	)
Restricted cash		-			(65,877	)
Other current assets		(518,205	)		(32,900	)
Advance to employee		9,209			-
Security deposit		14,426			15,740
Advance to suppliers		(184,204	)		327,517
Accounts payable, accrued expenses and other payables		152,730			498,783
Advances from customers		-			353,179
Deferred revenues		317,235			-
Taxes payable		(227,752	)		303,994

Net cash provided by operating activities		677,113			1,249,255

CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of intangible asset		(11,817	)		-
Acquisition of billboards use right		(541,821	)		33,050
Acquisition of property and equipment		(1,513,159	)		(1,851,922	)

Net cash used in investing activities		(2,066,797	)		(1,818,872	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from capital contributions		472,699			292,788
Net proceeds from short-term bank loans		1,477,185			219,591
Proceeds from related party loans		-			44,757
Repayment of related party loans		(178,823	)		-
Repayments of long-term bank loans		(295,437	)		-

Net cash provided by financing activities		1,475,624			557,136

EFFECT OF EXCHANGE RATE CHANGE ON
CASH AND CASH EQUIVALENTS		20,238			86

NET INCREASE IN CASH AND CASH EQUIVALENTS		106,178			(12,395	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,672,017			147,366

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,778,195		$	134,971

SUPPLEMENTAL CASH FLOW DISCLOSURE
Income taxes paid	$	692,274		$	73,607
Interest paid	$	156,330		$	66,815

The accompanying notes are an integral part of these condensed consolidated financial statements

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 1- ORGANIZATION AND BASIS OF PRESENTAION

China New Media Corp., (“the Company”), formerly known as Golden Key International Inc., is a corporation organized under the laws of the State of Delaware in 1999.

On December 8, 2009, Golden Key International Inc. acquired all of the outstanding capital stock of HongKong Fortune-Rich Investment Co., Ltd., a Hong Kong corporation (“Fortune-Rich ”), through China New Media Corp., a Delaware corporation (the “Merger Sub”) wholly owned by the Company. Fortune-Rich is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Dalian Guo-Heng Management & Consultation Co., Ltd. (“Dalian Guo-Heng”), a limited liability company organized under the laws of the People’s Republic of China. Substantially all of the Fortune-Rich’s operations are conducted in China though Dalian Guo-Heng, and through contractual arrangements with several of Dalian Guo-Heng’s consolidated affiliated entities in Ch ina, including Dalian Vastitude Media Group Co., Ltd. (“V-Media”) and its subsidiaries. V-Media is a fast-growing out-door advertising company with dominant operation in Dalian, the commercial center of Northeastern China. As a result of these contractual arrangements, which obligate the Company to absorb a majority of the risk of loss from V-Media’s activities and entitle it to receive a majority of its residual returns. In addition, V-Media Group 's shareholders have pledged their equity interest in V-Media Group to Dalian Guo-Heng, irrevocably granted Dalian Guo-Heng an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in V-Media Group and agreed to entrust all the rights to exercise their voting power to the person(s) appointed by Dalian Guo-Heng. Through these contractual arrangements, the Company and Dalian Guo-Heng hold all the variable interests of V-Media Group, and the Company and Dalian Guo-Heng have been determined to be the most closely associated with V-Media Group. Therefore, the Company is the primary beneficiary of V-Media Group. Based on these contractual arrangements, the Company believes that V-Media Group should be considered as a Variable Interest Entity (“VIE”) under Accounting Standards Codification (“ASC”) 810, because the equity investors in V-Media Group do not have the characteristics of a controlling financial interest and the Company through Dalian Guo-heng is the primary beneficiary of V-Media Group.

In connection with the acquisition, Merger Sub issued 10 shares of the common stock of the Merger Sub which constituted no more than 10% ownership interest in the Merger Sub and 1,000,000 shares of Series A Preferred Stock of the Company to the shareholders of Fortune-Rich, in exchange for all the shares of the capital stock of Fortune-Rich (the “Share Exchange” or “Merger”). The 10 shares of the common stock of the Merger Sub were converted into approximately 26,398,634 shares of the common stock of the Company so that upon completion of the Merger, the shareholders of Fortune-Rich own approximately 96 % of the common stock of the Company.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 1- BASIS OF PRESENTAION (Continued)

As a result of the above-mentioned transactions, the shareholders of Fortune-Rich and persons affiliated with V-Media now own securities that represent 96% of the equity in the Company.

The acquisition was accounted for as a reverse merger under the purchase method of accounting since there was a change of control. Accordingly, Hong Kong Fortune-Rich Investment Co., Ltd. and its subsidiaries will be treated as the continuing entity for accounting purposes.

As part of the merger, the Company’s name was changed from “Golden Key International, Inc.” to “China New Media Corp.” to more effectively reflect our business and communicate our brand identity to customers.

The Company, along with its subsidiaries and VIEs, is engaging in sales, construction and operations of outdoor advertising displays and other alternative media business.

The condensed interim financial statements contain unaudited information as of September 30, 2010 and June 30, 2010 and for the three months ended September 30, 2010 and 2009. The unaudited condensed consolidated financial statements of China New Media Corp., (the “Company”) have been prepared by the company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The accompanying unaudited condensed financial statements do not include complete footnotes and financial statement presentations. As a result, these unaudited condensed financial statements should be read along with the audited financial statements and notes thereto for the year ended June 30, 2010, included in our form 10-K filed with the SEC. In our opinion, the unaudited condensed financial statements reflect al l adjustments, including normal recurring adjustments, necessary for a fair presentation of the financial position, results of operations and cash flows for those periods presented. The preparation of financial statements in conformity with United States (U.S.) generally accepted accounting principles requires management to make estimates and assumptions that affect reported assets, liabilities, revenues and expenses, as well as disclosure of contingent assets and liabilities. Actual results could differ from those estimates and assumptions. Moreover, the results of operations for the interim periods presented are not necessarily indicative of the results that may be expected for the entire year.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the financial statements of China New Media Corp., its subsidiary, Fortune-Rich and its wholly-owned subsidiary Dalian Guo-Heng, as well as Dalian Guo-Heng’s variable interest entity, V-Media Group.

China New Media Corp. established a new subsidiary Shanghai Vastitude Advertising & Media Co., Ltd on July 5, 2010. V-Media Group holds 80% of the new subsidiary’s equity, and Ni, Huiwei holds 20% of its equity.

The noncontrolling interests represent the minority stockholders’ interest in V-Media Group’s majority owned subsidiaries.

All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. Significant estimates, required by management, include the recoverability of long-lived assets and the valuation of outstanding warrants and accrual of allowance of doubtful accounts. Actual results could differ from those estimates.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand and demand deposits with a bank with an original maturity of less than three months.

Accounts Receivables

Accounts receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible amounts, as needed.

The Company uses the aging method to estimate the allowance for anticipated uncollectible receivable balances. Under the aging method, bad debt percentages determined by management based on historical experience as well as current economic climate are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The allowance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that the allowance provided requires an adjustment, then the adjustment will be classified as a change in estimate.

Property, Equipment and Construction in Progress, net

Property and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred while additions, renewals and betterments are capitalized. When the asset property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property, plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:

	Estimated Useful Life	Residual value
Advertising equipment	4-15 years	0.05
Automobile	7 years	0.05
Computer, office equipment and furniture	5 years	0.05
Corporate Boats	7 years	0.05

Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Advance to suppliers

The Company periodically makes advances to certain vendors for purchases of advertising materials and equipments and records those advances as advance to suppliers.

Intangible asset

The Company reviews intangible assets and billboards use right for impairment in accordance with the provisions of ASC 360-10, “Impairment or Disposal of Long-Lived Assets.”

There was no impairment of intangible assets and billboards use right at the balance sheet dates. Although management believes the assumptions used in testing for impairment are reasonable, changes in any one of the assumptions could produce a significantly different result.

Deferred revenues

Deferred revenues represent cash received in advance from customers according to the contracts for advertising service fees, advertisement production and sponsorship fees. These advances are usually refundable to the customers if the Company is unable to deliver the advertising services. Deferred revenues are recognized as income when services are provided based on the terms of the contracts.

Impairment of long-lived assets

Long-lived assets, which include property, plant and equipment and intangible 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 an asset to the estimated undiscounted future cash flows expected to be generated by the assets. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. No impairment loss has been recorded for the quarters ended September 30, 2010 and 2009.

Revenue recognition

The Company recognizes revenues when advertisements are posted over respective contractual terms based on the schedules agreed with customers and collections are reasonably assured. Payments received in advance of services provided are recorded as deferred revenues.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cost of revenues

Cost of advertising services consists primarily of media costs payable under exclusive advertising agreements, depreciation of advertising equipments and amortization of billboards use right, business taxes and surcharge and other direct operating costs. Media costs are expensed as incurred.

Selling, General and administrative Costs

Selling, general and administrative costs consist primarily of salaries and commissions for sales representatives, salaries for administrative staffs, rent expenses, office supplies, depreciation expense and employee benefits for administrative staffs.

Foreign currency translation

The Company and Fortune-Rich use the United States dollar (“US Dollars”) for financial reporting purposes. The Company, Dalian Guo-Heng and Dalian Vastitute Group maintain their books and records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.

For financial reporting purposes, RMB has been translated into United States dollars ("USD") as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income". Gains and losses resulting from foreign currency translations are included in accumulated other comprehensive income. There is no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.

Income Taxes

The Company recognized deferred tax assets and liabilities based upon 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, whenever necessary, against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments

The Company adopted the provisions of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:

Level 1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 2-Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.

Level 3-Inputs are unobservable inputs which reflect managements’ own assumptions based on the best available information.

The carrying amounts of certain financial instruments, including accounts receivable, advances to vendors, other receivables, accounts payable, advance from customers, taxes payable, other payables and accrued liabilities, approximate their fair value due the short-term nature of these items. The Company uses Level 3 method to measure fair value of its long-term assets and liabilities. The carrying amount of the Company’s bank loans approximates the fair value based on the Company's expected borrowing rate with similar remaining maturities and comparable risk in market.

Stock-Based Compensation

The Company measures compensation expense for its non-employee stock-based compensation under ASC 718, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with services”. The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings per Share

The Company computes earnings per share (“EPS’) in accordance with ASC 260, “Earnings per share.” ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

NOTE 3 - MAJOR SUPPLIERS

During the three months ended September 30, 2010, one major supplier provided approximately 13% of the Company’s purchase of raw materials. For the three months ended September 30, 2009, two major suppliers provided approximately 84% of the Company’s purchase of raw materials, with each supplier individually accounting for 39% and 45%, respectively.

NOTE 4–PROPERTY, EQUIPMENT AND CONSTRUCTION IN PROGRESS, NET

Property, equipment and construction in progress consist of the following as of September 30, 2010 and June 30, 2010:

	September 30, 2010			June 30, 2010
Advertising equipment	$	15,298,322		$	14,857,020
Office equipment and furniture		252,774			234,428
Automobiles		605,766			597,701
Corporate boats		318,633			314,392
Subtotal		16,475,495			16,003,541
Less: Accumulated depreciation		(4,798,174	)		(4,362,006	)
Construction in progress		2,773,527			1,478,698

Total	$	14,450,848		$	13,120,233

Depreciation expenses for the three months ended September 30, 2010 and 2009 were $372,941 and $146,418, respectively.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 6 –SECURITY DEPOSIT

Security deposit mainly comprised of deposits made to third parties to guaranty the Company’s outstanding loans (see Note 10 and 11). As of September 30, 2010 and June 30, 2010, the Company has security deposit balances of $1,885,058 and $1,874,363, respectively.

NOTE 7 - INTANGIBLE ASSETS

Intangible assets consist of computer software acquired. The Company amortizes the intangible assets on a straight-line basis over the useful terms 3 to 10 years. Amortization expense for the three months ended September 30, 2010 and 2009 amounted to $4,638 and $2,963, respectively.

The projected amortization expense attributed to future periods is as follows:

The year ending September 30,	Expense
2011	$	20,146
2012		17,262
2013		8,668
2014		8,668
2015		8,668
Thereafter		38,982
	$	102,394

NOTE 8 - BILLBOARDS USE RIGHT

The Company makes advance payments for the right to construct advertising equipments and post advertisements in certain locations based on long-term contracts with local government authorities or other business entities. These payments are recorded as billboards use right and amortized on a straight-line basis over the contract terms 2 to 15 years.

Amortization of billboards use right for the three months ended September 30, 2010 and 2009 was $204,231 and $ 13,955, respectively.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 8 – BILLBOARDS USE RIGHT (Continued)

The projected amortization expense attributed to future periods is as follows:

Period ending September 30,	Expense
2011	$	841,814
2012		825,604
2013		564,448
2014		491,647
2015		473,880
Thereafter		1,465,965
		4,663,358

NOTE 9 - TAXES

a) Corporate Income Tax

United States

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

China New Media Corp., a Delaware corporation, has incurred a net operating loss for income tax purposes for the year ended June 30, 2010. The Company had loss carry forwards of approximately $125,000 for U.S. income tax purposes available for offset against future taxable U.S. income expiring in 2030. Management believes that the realization of the benefits from these losses appears uncertain due to the Company's limited operating history. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded for US operation. The valuation allowance as of September 30, 2010 was $42,500.

Hong Kong

Fortune-Rich was incorporated in Hong Kong and is not subject to income taxes under the current laws of Hong Kong.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 9 – TAXES (Continued)

PRC

Dalian Guo-heng and V-Media Group are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are currently subject to tax at a statutory rate of 25% on net income reported after appropriated tax adjustments. Because of different tax jurisdictions’ restriction, V-Media Group’s subsidiaries of Beijing, Tianjin and Network have loss carryovers that can only be used to offset their own future taxable income. The loss carry forward for those subsidiaries amounted $172,050 as of September 30, 2010.

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation of future income, the carryforward periods available for tax reporting purposes, and other relevant factors. For the three months ended September 30, 2010, management concluded that it was more likely than not those additional deferred tax assets would be realized. This determination was based upon actual and projected future operating results in our business. Accordingly, the Company recorded a non-cash income tax benefit of $8,612 for the three months ended September 30, 2010.

Significant components of the income tax provision were as follows for the three months ended September 30, 2010 and 2009:

	For three months ended September 30,
	2010			2009
Current tax provision
Federal	$	-		$	-
State		-			-
Foreign		403,558			329,810

		403,558			329,810

Deferred tax provision, net
Federal		-			-
State		-			-
Foreign		(8,162	)		-

		(8,162	)		-

Income tax provision	$	395,396		$	329,810

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 9 – TAXES (Continued)

Income from continuing operations before income taxes were allocated between the United States and Foreign components for the three months ended September 30, 2010 and 2009 as follows:

	For three months ended September 30,
	2010		2009
United States	$	-	$	-
Foreign		1,532,734		1,319,242

	$	1,532,734	$	1,319,242

b) Business Tax

Dalian Guo-heng, Dalian Vastitude Media Group Co., Ltd. and its five subsidiaries are also subject to 5% business tax and related surcharges levied on advertising services in China, which are approximately 3% on our revenues from providing advertising services. Dalian V-Media’s another subsidiary is only subject to 3% business tax. Total business tax expense for the three months ended September 30, 2010 and 2009 was $329,393 and $215,240, respectively.

c) Taxes payable as of September 30, 2010 and June 30, 2010 consisted of the following:

	As at September 30,		As of June 30,
	2010		2010
Business tax payable	$	127,548	$	187,826
Corporate income tax payable		932,501		1,199,227
Other		123,562		8,156

Total taxes payable	$	1,183,611	$	1,395,209

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 9 – TAXES (Continued)

The Company recognizes interest and penalties accrued related to unrecognized tax benefits and penalties, if any, as income tax expense. The Company files income tax returns with U.S. Federal Government, as well as Delaware State and the Company files returns in foreign jurisdictions of Hongkong and PRC China. With few exceptions, the Company is subject to U.S. federal and state income tax examinations by tax authorities for years on or after 1999.

The Company’s foreign subsidiaries and VIEs also file income tax returns with both the National Tax Bureau and the Local Tax Bureaus. The Company is subject to income tax examinations by these foreign tax authorities. The Company has passed all tax examinations by both National and Local tax authorities since the inception of the Company in 2000.

NOTE 10 - SHORT TERM LOANS

The short term loans include the following:

	September 30, 2010		June 30, 2010
a) Loan payable to Harbin Bank	$	896,706	$	884,768

b) Loan payable to Shanghai Pudong Development Bank		1,046,156		884,768

c) Loan payable to Dalian Bank Xigang Branch		1,494,509		1,474,613

d) Loan payable to Industrial and Commercial Bank of China		269,012		265,430

e) Loan payable to Jinzhou Bank		2,241,764		2,211,920

f) Loan payable to Xinye Bank		2,540,666		1,474,613

Total short term loans	$	8,488,812	$	7,196,112

a) Loan payable to Harbin Bank had an original one-year term from April 14, 2009 to April 13, 2010 at a fixed interest rate of 5.31% per year. The loan has been renewed for another year from April 27, 2010 to April 26, 2011 at a fixed interest rate of 6.37% per year. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company.

b) Loan payable to Shanghai Pudong Development bank consists of two loans. One loan had an original one-year term from November 10, 2008 to November 10, 2009 with the amount of RMB 6,000,000 (approximately $897 thousand) at a fixed interest rate of 7.99% per year. This loan has been renewed for another year from November 12, 2009 to November 12, 2010 at a fixed interest rate of 6.37% per year. The other loan is a one-year term loan from July 1, 2010 to June 17, 2011 with the amount of RMB 1,000,000 (approximately $147 thousand) at a fixed interest rate of 6.37% per year. Both loans have been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma using their personal properties as collaterals.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 10 - SHORT TERM LOANS (Continued)

c) Loan payable to Dalian Bank Xigang Branch had an original one-year term from January 6, 2009 to January 6, 2010 at the fixed interest rate of 6.90% per year. This loan has been repaid and a new loan has been borrowed with one year term from Febuary 9, 2010 to February 8, 2011 at a fixed interest rate of 6.90% per year. This loan has been guaranteed by an unrelated company, Dalian Huanbohai Development Credit Guaranty Company. In the guaranty contract, the Company pledged part of its advertising equipment with the approximate value of RMB13, 000,000 (approximately $1.9 million) to Dalian Huanbohai Development Credit Guaranty Company.

d) Loan payable to Industrial and Commercial Bank of China had an original one-year term from July 20, 2009 to July 5, 2010 at a fixed interest rate of 6.93% per year. This loan is guaranteed by an unrelated company, Dalian Baifute Xianlan Manufacture Company. The loan was renewed from July 6, 2010 to June 21, 2011 at a fixed interest rate of 6.903% per year.

e) Loan payable to Jinzhou Bank is a one-year term loan from April 21, 2010 to April 20, 2011 at a fixed interest rate of 6.90% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma. The Company pledged part of its advertising equipment with the value of RMB17,000,000 (approximately $2.5 million).

f) Loan payable to Xinye Bank consists of two loans. One loan is a one-year term loan from June 25, 2010 to June 24, 2011 with the amount of RMB 10,000,000 (approximately $1.5 million) at a fixed interest rate of 6.10% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma. The other loan is a one-year term loan from July 20, 2010 to July 19, 2011 with the amount of RMB 7,000,000 (approximately $1.0 million) at a fixed interest rate of 6.10% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma and also has been guaranteed by an unrelated company, Union Chuangye Guaranty Company.

NOTE 11 - LONG TERM LOANS

The long term loans include the following:

	September 30, 2010		June 30, 2010
a) Loan payable to China Development Bank	$	298,902	$	294,923

b) Loan payable to Dalian Bank		896,706		884,768

Total long term loans		1,195,607		1,179,691

Less: current portion		747,255		737,307

Total long term loans noncurrent portion	$	448,353	$	442,384

a) Loan payable to China Development Bank has a four-year term from December 28, 2006 to December 27, 2010 at a fixed interest rate of 7.13% per year. Repayments of equal amounts of RMB 2,000,000 (approximately $292,000) are required on January 18, 2008, November 19, 2008, November 19, 2009 and December 27, 2010. This loan has been guaranteed by the majority Stockholder, Mr. Guojun Wang, and an unrelated company, Dalian Liuhe Guaranty Company. In the guaranty contract, the Company pledged certain advertising equipment with the value of RMB 12.2 million (approximately $1.78 million) to Dalian Liuhe Guaranty Company.

b) Loan payable to Dalian Bank has a three-year term from May 31, 2009 to June 25, 2012 at a fixed interest rate of 5.94% per year. Repayment of RMB 2,000,000 (approximately $292,000) is required on June 23, 2010 and repayments of equal amount of RMB 3,000,000 (approximately $439,000) are required on June 23, 2011 and June 25, 2012. This loan has been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Company.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

NOTE 12 - RELATED PARTY TRANSACTIONS

Amounts due to related parties are as follows:

	September 30,		June 30,
	2010		2010

Ma, Ming	$	-	$	97,562
Modern Trailer Company		179,341		309,669
Wang, Mingyi		2,043		-
Meng, Zhaohui		1,806		-
Wang, Guojun		80,932		29,890
Total	$	264,122	$	437,121

Meng, Zhaohui is an employee of the company and all other individuals are stockholders of the Company. Modern Trailer Company is the minority stockholder of Dalian Vastitude Modern Transit Media Co., Ltd., which is one of Dalian V-Media’s subsidiaries. The stockholders provide funds for the Company’s operations for advertising material and equipment purchase purposes. These amounts due are generally unsecured, non-interest bearing and due upon demand.

Note 13 - STOCKHOLDERS’ EQUITY

(1) Issuance of Stocks

Prior to the Merger, the Company had 10,862,067 shares of common stock issued and outstanding. The Company cancelled 9,760,000 shares of common stock issued to former stockholders of the Company to spin-off the Company’s previous subsidiary, Deep Rooted Inc. In connection with the Merger on December 9, 2009, Merger Sub issued 10 shares of the common stock of the Merger Sub which consisted of no more than a 10% ownership interest in the Merger Sub and 1,000,000 shares of Series A Preferred Stock of the Company to the shareholders of Fortune-Rich, in exchange for all the shares of the capital stock of Fortune-Rich (the “Share Exchange” or “Merger”). The 10 shares of the common stock of the Merger Sub were converted into approximately 26,398,634 shares of the common stock of the Company so that upon completion of the Merger, the stockholders of Fortune-Rich own approximately 96 % of the common stock of the Company.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

Note 13 - STOCKHOLDERS’ EQUITY (Continued)

On November 23, 2009, prior to and in conjunction with the Merger, Fortune-Rich entered into a Securities Purchase Agreement (“SPA”) with an institutional investor and pursuant to the SPA, Fortune-Rich agreed to issue 10,415,000 shares of its common stock in exchange for $3,500,000 in cash. These shares of Fortune-Rich were convertible into 5,497,933 shares of the common stock of the Company upon completion of the Merger mentioned above. In addition, the investor was entitled to receive 6,249,000 warrants of Fortune-Rich, which were exchanged for 3,298,760 warrants of the Company upon the completion of the Merger. These warrants are exercisable immediately for the same number of common shares of the Company. The Warrants, which were assumed by the Company upon the Merger, expire in four years.

In January 2010, the Company issued 50,000 common shares to several consultants for their services provided. The fair value of the common shares evaluated at the grant date was $125,000.

(2) Warrants

The warrants issued in connection with the Merger meet the conditions for equity classification pursuant to ASC 815, “Derivatives and Hedging”; therefore, these warrants were classified as equity and included in Additional Paid-in Capital. The fair value of the warrants was calculated using the Black-Scholes options pricing model using the following assumptions: volatility 100%, risk free interest rate 1.74% (no dividend yield) and expected term of four years. The fair value of those warrants at the grant date was calculated at $5,000,954.

Note 14 – EARNINGS PER SHARE

As of September 30, 2010, the Company had 1,000,000 shares of preferred stock, that has not been included in diluted weighted average shares calculation because pursuant to the Merger agreement, no preferred shares can be converted to any securities as of September 30, 2010.

The Company has outstanding warrants to acquire 3,298,760 shares of common stock. All the outstanding warrants were considered dilutive and were included in the weighted average shares-diluted calculation using the treasury stock method.

CHINA NEW MEDIA CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENT

(UNAUDITED)

The following table sets forth earnings per share calculation for three months ended September 30, 2010 and 2009:

	For three months ended
	September 30,
	2010		2009
Basic earning per share
Net income attributable to China New Media Corp.		1,085,142		907,565

Weighted average number of common shares outstanding - Basic		27,550,701		26,398,634

Earnings per share-Basic	$	0.04	$	0.03

Diluted earnings per share
Net income attributable to China New Media Corp.		1,085,142		907,565

Weighted average number of common shares outstanding -Basic		27,550,701		26,398,634
Effect of diluted securities-warrant		1,723,975		-
Weighted average number of common shares outstanding - Diluted		29,274,676		26,398,634

Earnings per share-Diluted	$	0.04	$	0.03

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

OVERVIEW

We are a leading outdoor advertising company in China. We provide a full range of integrated outdoor advertising services, including art design, advertising publishing, daily maintenance and technical upgrading. We believe our well-diversified outdoor advertising media network and our ability to provide advertising services on an integrated basis allow us to target and satisfy client needs at all different levels. Founded in 2000, we have grown steadily and expanded our media network into Shenyang, Tianjin, Beijing and Shanghai from our headquarters in Dalian.

Our principal executive offices are located at Golden Name Commercial Tower 8th floor, 68 Renmin Road, Zhongshan District, Dalian, P.R. China. Our telephone number is 86-411-8272-8168.

Our Corporate History

We were originally incorporated as Golden Key International, Inc. under the laws of the State of Delaware on February 18, 1999. Prior to a reverse merger transaction effected on December 8, 2009, we were a development stage company with no revenues or profits. We had nominal assets and no operations other than maintaining our public company status and searching for a suitable party with which to execute a reverse merger transaction, in which a previously private company takes on our public company status. Management felt it was in the best interests of the Company to abandon our original business plan of becoming a leading cross-platform community portal provider and pursue a direction for the Company that would provide the best return on stockholder investmen t.

On December 8, 2009, we acquired all of the outstanding capital stock of Hongkong Fortune-Rich Investment Co., Limited, a Hong Kong corporation (“Fortune-Rich”), through China New Media Corp., a Delaware corporation (the “Merger Sub”) wholly owned by us. Fortune-Rich is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Dalian Guo-Heng Management and Consultation Co., Ltd. (“Dalian Guo-Heng”), a limited liability company organized under the laws of the People’s Republic of China. Substantially all of Fortune-Rich’s operations are conducted in China through Dalian Guo-Heng, and through contractual arrangements with several of Dalian Guo-Heng’s consolidated affiliated entities in China, including Dalian Vastitude Media Group Co., Ltd. (“V-Media”) and its subsidiaries. V-Media is a fast-growing outdoor advertising company with major operations in Dalian, the commercial center of Northeastern China. In connection with the acquisition, the Merger Sub issued 10 shares of the common stock of the Merger Sub, which constituted no more than 10% ownership interest in the Merger Sub, and 1,000,000 shares of Series A Preferred Stock of the Company to the shareholders of Fortune-Rich in exchange for all of the shares of capital stock of Fortune-Rich (the “Share Exchange” or “Merger”). The 10 shares of the common stock of the Merger Sub were converted into approximately 26,398,634 shares of the common stock of the Company, so that upon completion of the Merger, the shareholders of Fortune-Rich owned approximately 96% of the common stock of the Company. Effective December 28, 2009, our trading symbol on the OTC Bulletin Board is CMDI.OB.

Through contractual arrangements between Dalian Guo-Heng and V-Media, we operate one of the largest outdoor advertising networks in northeast China with strong market presence in Dalian and Shenyang, the two most popular commercial cities in Northeast China. We provide clients with advertising opportunities through our diverse media platforms, which include four major proprietary channels: (1) Street Fixture and Display Network, which includes bus and taxi shelters; (2) Mobile Advertisement displayed on mass city transit systems, which includes displays on city buses, metro-trains and train stations; (3) Billboard and Large LED displays along the city��s streets and highways; and (4) our proprietary and patented multi-media system, “City Naviga tor.”

We have experienced sustainable business growth in recent years. The size of our network has grown significantly over the years since the commercial launch of our advertising network. From June 30, 2010 to September 30, 2010, the number of bus and taxi shelters on which we operate and carry our advertisements increased from 764 to 777. We currently maintain 320 mobile advertisements on buses and 28 mobile displays on Dalian metro-trains. We also operate 52 City Navigators; 3 mega-screen LED screens (approximately 1,356 square feet to 4,306 square feet) and 7 metal billboards across the Dalian urban area; 1 mega-screen LED screen (approximately 947 square feet) in the business district in Shenyang; 1 indoor LED screen (approximately 237 square feet) in Tianjin Railway Station; and 5 billboards in Shanghai.

Subsidiaries of V-Media

The following table sets forth information concerning V-Media’s subsidiaries:

	V-Media’s Ownership Percentage	Region of Operations	Primary Business
Shenyang Vastitude Media Co., Ltd.	100%	Shenyang	Advertising company
Tianjin Vastitude AD Media Co., Ltd.	100%	Tianjin	Advertising company
Dalian Vastitude Network Technology Co., Ltd.	60%	Dalian	Computer exploitation, technical service, domestic advertisement
Dalian Vastitude Engineering & Design Co., Ltd.	83%	Dalian	Engineering, design, construction
Dalian Vastitude & Modern Transit Media Co., Ltd.	70%	Dalian	Advertising company
Vastitude (Beijing) Technology Co.	60%	Beijing	Advertising company
Shanghai Vastitude Advertising & Media Co., Ltd.	80%	Shanghai	Advertising company

Factors Affecting Our Results of Operations

The increase in our operating results during the period included in the accompanying unaudited financial statements is attributable to a number of factors, including the expansion of our outdoor media network in Tianjin and Shanghai, two of the largest cities in China, and our technical innovation and large-scale media system upgrading. We expect our business to continue to be driven by the following factors:

Increasing Domestic Spending in Outdoor Advertising

The demand for our advertising time slots is directly related to the outdoor advertising spending in northeast China. The increase in advertising spending is largely determined by the economic conditions in our region. According to the “Statistical Communiqué of the PRC on 2008 National Economic and Social Development” released by National Bureau of Statistics of China on Feb. 26, 2009, China’s economy has experienced rapid growth in the last five years. The annual growth rate has been in the range of 9% to 13%. The domestic retail sales have been growing even faster than any other sectors, with an average annual growth rate of 15.5% in the last 5 years. The latest government’s economic stimulus plan is aimed at building a domestic consumer-driven economy, which, we believe, is going to generate mo re demand for outdoor advertising. We expect the outdoor advertising spending in our regional market will maintain its double-digit growth in the years to come.

Expansion of Our Market Presence by Launching City Navigator ® Networks in Other Major Commercial Cities

We believe our proprietary multi-media advertising system – City Navigator ® Network is one of the most advanced outdoor advertising platforms available in China. This system combines the latest LED displaying technology, internet and WI-FI technology, and has proven to be very effective in our competition to get access to top tier cities such as Shanghai and Beijing.

By using wireless access technology, our LED displays at bus and taxi shelters are able to display real time programs at the control of our centralized computer systems. It consists of a Wi-Fi receiver, large-screen LED display, and web-based touch-screen kiosk which provide the public with information on all aspects of the city life, including travel, traffic, restaurants, shopping, hotels, business, medical and education. In addition, every City Navigator is equipped with Bluetooth, wireless access and printing technology. Users can either print the information or send the information to their cell phones or computers. As City Navigator® Network adopts Wi-Fi technology; users can enjoy its service from any area covered by its Wi-Fi signals. We intend to aggressively expand our media platform by launching City Navigator ® Networks in our target cities, such as, Tianjin, Qingdao and Shanghai, to create our own cross-region advertising network and enhance our advertising distribution capacity.

Promotion of Our Brand Name to Attract a Wider Client Base and Increase Revenues

We plan to promote our brand name, [国域无疆] TM, through both our own media channels and public channels in North China. We believe that the enhancement of public awareness to our brand name will help to broaden our client base, especially in the new marketplace such as Shenyang and Tianjin. As we expand our advertising client base and promote public’s awareness to our brand, demand for time slots and advertising space on our network will continue to grow.

Upgrade of Our Outdoor Billboard Network with New Digital Display Technology

We intend to capitalize recent advances in digital display technology, especially mega-screen LED displays, to meet major institutional clients’ needs. Because the LED displays can be linked through centralized computer systems to instantaneously change static advertisements, and it is highly visible even during bright daylight, it improves the advertising effectiveness and efficiency markedly. We plan to build more mega-screen LED displays (approximately 1,076 square feet to 5,382 square feet) at premier locations in our marketplace.

As we continue to expand our network, we expect to face a number of challenges. We have expanded our network rapidly, and we, as well as our competitors, have occupied many of the most desirable locations in Dalian. In order to continue expanding our network in a manner that is attractive to potential advertising clients, we must continue to identify and occupy desirable locations and to provide effective channels for advertisers. In addition, we must react to continuing technological innovations in the use of wireless and broadband technology in our network, and changes in the regulatory environment, such as the regulations allowing 100% foreign ownership of PRC advertising companies and new regulations governing cross-border investment by PRC persons.

We believe that our business model and success in our regional market give us a considerable advantage over our competitors. Our future growth will depend primarily on the following factors:

·	Overall economic growth in China, which we expect to contribute to an increase in advertising spending in major urban areas in China where consumer spending is concentrated;

·	Our ability to expand our network into new locations and additional cities;

·	Our ability to expand our sales force and engage in increased sales and marketing efforts;

·	Our ability to expand our client base through promotion of our services; and

·	Our ability to expand our new systems, including large-screen LED display networks and City Navigator® Networks.

RESULTS OF OPERATIONS

Comparison of Three-Month Periods ended September 30, 2010 and September 30, 2009

The following table shows the operations of the Company on a consolidated basis for the three months ended September 30, 2010 and 2009:

REVENUES	3 Months Ended September 30,
	2010		2009		Difference		% Change
Dalian District
Street Fixture and Display network	$	1,343,057	$	1,165,232	$	177,825		15.26	%
City Transit system Display network		845,562		693,826		151,736		21.87	%
Outdoor Billboards		938,327		792,789		145,538		18.36	%
City Navigator		292,704		109,746		182,958		166.71	%
Other service income (a)		205,428		347,744		-142,316		-40.93	%
Subtotal for Dalian District	$	3,625,078	$	3,109,337	$	515,741		16.59	%

Shenyang District
Street Fixture and Display network	$	59,608	$	48,236	$	11,372		23.58	%
Outdoor Billboards		116,993		9,761		107,232		10.99	%
Other service income(a)		9,158		-		9,158		100	%
Subtotal for Shenyang District	$	185,759	$	57,997	$	127,762		220.29	%

Tianjin District
Outdoor Billboards	$	14,476	$	�� -	$	14,476		100	%
Subtotal for Tianjing District	$	14,476	$	-	$	14,476		100	%

Shanghai District
Outdoor Billboards	$	295,437	$	-	$	295,437		100	%
Subtotal for Shanghai District	$	295,437	$	-	$	295,437		100	%

Total Revenues	$	4,120,750	$	3,167,334	$	953,416		30.10	%

(a) Other service income generated by construction & design services and technical services provided by Dalian Vastitude Engineering & Design Co., Ltd. to outside customers.

Sales revenue

During the three months ended September 30, 2010, we had revenues of $4,120,750 as compared to revenues of $3,167,334 during the three months ended September 30, 2009, an increase of $953,416, or 30.1%. The increase was a result of our increased and expanded sales to existing and new customers and the rapid expansion of the scope of our advertising network. We have secured more desirable locations in Dalian, established a Shanghai operation, created new advertising media platforms and continued our efforts to expand our client base in Shenyang and Tianjin.

Cost of revenues

Our cost of revenues for the three months ended September 30, 2010 increased by $540,234 to $1,733,202 from $1,192,967 for the three months ended September 30, 2009, representing an increase of 45.3%. The increase mainly resulted from our increased sales during the period. Cost of revenue as a percentage of sales revenue for the three months ended September 30, 2010 and 2009 were 42.1% and 37.7%, respectively. The increase was largely due to price increase of advertising materials and a one-time billboards maintenance cost associated with our newly established Shanghai subsidiary. The breakdown of the cost of revenue is as follows:

COST OF REVENUES	3 Months Ended September 30,
	2010		2009		Difference		% Change
Dalian District
Street Fixture and Display network	$	525,249	$	417,300	$	107,949		25.87	%
City Transit system Display network		366,079		274,621		91,458		33.30	%
Outdoor Billboards		349,199		317,007		32,192		10.16	%
City Navigator		83,500		52,013		31,487		60.54	%
Other service cost (b)		175,139		105,661		69,478		65.76	%
Subtotal for Dalian District	$	1,499,166	$	1,166,602	$	332,564		28.51	%

Shenyang District
Street Fixture and Display network	$	9,898	$	21,928	$	-12,030		-54.86	%
Outdoor Billboards		19,426		4,437		14,989		337.82	%
Other service cost (b)		1,520		0		1,520		100	%
Subtotal for Shenyang District	$	30,844	$	26,365	$	4,479		16.99	%

Beijing District
Outdoor Billboards	$	15,399	$	-	$	15,399		100	%
Subtotal for Beijing District	$	15,399	$	-	$	15,399		100	%

Tianjing District
Outdoor Billboards	$	11,860	$	-	$	11,860		100	%
Subtotal for Tianjing District	$	11,860	$	-	$	11,860		100	%

Shanghai District
Outdoor Billboards	$	175,933	$	-	$	175,933		100	%
Subtotal for Shanghai District	$	175,933	$	-	$	175,933		100	%

Total Cost of Revenues	$	1,733,202	$	1,192,967	$	540,235		45.29	%

(b) Other service cost attributed to Dalian Vastitude Engineering & Design Co., Ltd. and to Dalian Vastitude Network Technology Co., Ltd. when they provide construction & design services and technical services to outside customers, respectively.

Gross Profit

Our gross profit for the three months ended September 30, 2010 grew by $413,181 or 20.9% to $2,387,548 from $1,974,367 for the same period in 2009. The increase in gross profit was in line with our growth in revenue as we acquired more advertising contracts in 2010 due to the high demand of our outdoor advertising platforms as the Chinese economy transitions toward developing domestic demand. Our gross margin during the three months ended September 30, 2010 and 2009 were 57.9% and 62.3%, respectively. The decrease is mainly due to a one-time billboards maintenance cost associated with our newly established Shanghai subsidiary.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $765,138 during the three months ended September 30, 2010, an increase of $183,869 or 31.6%, compared to $581,270 for the same period ended September 30, 2009. Our selling, general and administrative expenses were consistent with growth in revenue and during this quarter as we experienced a modest increase in our operating expenses, which was mainly attributed to an increase in our payroll and administrative costs.

Other Expense

Total other expense for the three months ended September 30, 2010 increased $15,821 or 21.4% to $89,676 from $73,855 during the same period of 2009. The increase in other expense was mainly due to the $86,971 increase in interest expense during the period.

Interest Expense

Total interest expense on our bank loans for the three months ended September 30, 2010 and 2009 amounted to $156,330 and $69,359, respectively.

Net Income Attributable to the Company

Net income attributable to the Company was $1,085,142 for the three months ended September 30, 2010 as compared to $907,565 during the three months ended September 30, 2009, representing an increase of 19.6%. The increase in net income was mainly attributed to our increase in revenue and our efforts to control costs.

LIQUIDITY AND CAPITAL RESOURCES

We have historically funded our working capital needs from operations, advance payments from customers, bank borrowings and capital from stockholders. Presently, our principal sources of liquidity were generated from our operations and through bank loans. Our working capital requirements are influenced by the level of our operations, the numerical and dollar volume of our sales contracts, the progress of our contract execution and the timing of accounts receivable collections.

Based on our current operating plan, we believe that our existing resources, including cash generated from operations as well as the bank loans, will be sufficient to meet our working capital requirement for our current operations. In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our stockholders or from outside sources.

As of September 30, 2010, cash and cash equivalents were $1,778,195, an increase of $106,178 from $1,672,017 as of June 30, 2010.

Cash Flow from Operating Activities

Net cash provided by operating activities was $677,113 for the three months ended September 30, 2010, while net cash provided by operating activities was $1,249,255 for the three months ended September 30, 2009. The major components of cash provided in operations were related to an increased operating net income offset by an increase in other current assets, increase in account receivables and advance to suppliers, and a decrease in taxes payable.

Cash Used in Investing Activities

Cash used in investing activities was $2,066,797 for the three months ended September 30, 2010 as compared to net cash used in investing activities of $1,818,872 for the three months ended September 30, 2009. The increase was mainly due to the acquisition of billboards use right in Shanghai subsidiary.

Cash Provided by Financing Activities

For the three months ended September 30, 2010, net cash provided by financing activities was $1,475,624 as compared to cash provided by financing of $557,136 for the same period ended September 30, 2009, representing an increase of 164.9%. The increase was primarily due to an increase in short-term bank loans.

Loan Facilities

Short-Term Loans

a) Loan payable to Harbin Bank had an original one-year term from April 14, 2009 to April 13, 2010 at a fixed interest rate of 5.31% per year. The loan has been renewed for another year from April 27, 2010 to April 26, 2011 at a fixed interest rate of 6.37% per year. This loan is guaranteed by an unrelated company, Union Chuangye Guaranty Company.

b) Loan payable to Shanghai Pudong Development bank consists of two loans. One loan had an original one-year term from November 10, 2008 to November 10, 2009 for RMB 6,000,000 (approximately $897,000) at a fixed interest rate of 7.99% per year. This loan has been renewed for another year from November 12, 2009 to November 12, 2010 at a fixed interest rate of 6.37% per year. The other loan is a one-year term loan from July 1, 2010 to June 17, 2011 for RMB 1,000,000 (approximately $147,000) at a fixed interest rate of 6.37% per year. Both loans are guaranteed by the Company’s major stockholders, Mr. Guojun Wang and Ms. Ming Ma, using their personal properties as collateral.

c) Loan payable to Dalian Bank Xigang Branch had an original one-year term from January 6, 2009 to January 6, 2010 at a fixed interest rate of 6.90% per year. This loan has been repaid and a new loan was obtained with a one-year term from February 9, 2010 to February 8, 2011 at a fixed interest rate of 6.90% per year. This loan is guaranteed by an unrelated company, Dalian Huanbohai Development Credit Guaranty Company. In the guaranty contract, the Company pledged part of its advertising equipment with an approximate value of RMB 13,000,000 (approximately $1.9 million) to Dalian Huanbohai Development Credit Guaranty Company.

e) Loan payable to Jinzhou Bank is a one-year term loan from April 21, 2010 to April 20, 2011 at a fixed interest rate of 6.90% per year. This loan is guaranteed by the Company’s major stockholders, Mr. Guojun Wang and Ms. Ming Ma. The Company pledged part of its advertising equipment with an approximate value of RMB17,000,000 (approximately $2.5 million).

f) Loan payable to Xinye Bank consists of two loans. One loan is a one-year term loan from June 25, 2010 to June 24, 2011 for RMB 10,000,000 (approximately $1.5 million) at a fixed interest rate of 6.10% per year. This loan is guaranteed by the Company’s major stockholders, Mr. Guojun Wang and Ms. Ming Ma. The other loan is a one-year term loan from July 20, 2010 to July 19, 2011 for RMB 7,000,000 (approximately $1.0 million) at a fixed interest rate of 6.10% per year. This loan is guaranteed by the Company’s major stockholders, Mr. Guojun Wang and Ms. Ming Ma, and an unrelated company, Union Chuangye Guaranty Company.

Long-Term Loans

a) Loan payable to China Development Bank has a four-year term from December 28, 2006 to December 27, 2010 at a fixed interest rate of 7.13% per year. Repayments of equal amounts of RMB 2,000,000 (approximately $292,000) are required on January 18, 2008, November 19, 2008, November 19, 2009 and December 27, 2010. This loan is guaranteed by our majority stockholder, Mr. Guojun Wang, and an unrelated company, Dalian Liuhe Guaranty Company. In the guaranty contract, the Company pledged certain advertising equipment with an approximate value of RMB 12.2 million (approximately $1.78 million) to Dalian Liuhe Guaranty Company.

b) Loan payable to Dalian Bank has a three-year term from May 31, 2009 to June 25, 2012 at a fixed interest rate of 5.94% per year. Repayment of RMB 2,000,000 (approximately $292,000) is required on June 23, 2010 and repayments of equal amount of RMB 3,000,000 (approximately $439,000) are required on June 23, 2011 and June 25, 2012. This loan is guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Company.

Income Tax

The Company utilizes ASC 740, “Accounting for Income Taxes,” which requires 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, whenever necessary, against net deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.

China New Media Corp., a Delaware corporation, is subject to income taxes under the current laws of United States.

Fortune-Rich was incorporated in Hong Kong and is not subject to income taxes under the current laws of Hong Kong.

Dalian Guo-Heng and V-Media are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are currently subject to tax at a statutory rate of 25% on net income reported after appropriated tax adjustments.

Critical Accounting Policies

While our significant accounting policies are more fully described in Note 2 to our consolidated financial statements, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating this “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Use of Estimates

Accounts Receivables

Accounts receivables are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible amounts, as needed.

Property, Equipment and Construction in Progress, net

	Estimated Useful Life	Residual value
Advertising equipment	4-15 years	0.05
Automobile	7 years	0.05
Computer, office equipment and furniture	5 years	0.05
Corporate Boats	7 years	0.05

Intangible asset

The Company reviews intangible assets and billboards use right for impairment in accordance with the provisions of ASC 360-10, “Impairment or Disposal of Long-Lived Assets.”

Revenue recognition

Income Taxes

Fair Value of Financial Instruments

Level 1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.

Level 3-Inputs are unobservable inputs which reflect managements’ own assumptions based on the best available information.

Stock-Based Compensation

Impact of Accounting Pronouncements

None.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition or results of operations.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a “smaller reporting company,” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

ITEM 4. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). The evaluation of our disclosure controls and procedures included a review of our processes and the effect on the information generated for use in this Quarterly Report on Form 10-Q. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures and to confirm that any necessary corrective action, including process improvemen ts, was taken. The purpose of this evaluation is to determine if, as of the Evaluation Date, our disclosure controls and procedures were operating effectively such that the information, required to be disclosed in our reports with the Securities and Exchange Commission (“SEC”) (i) was recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures. Because of the inherent limitations i n all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Based upon, and as of the Evaluation Date, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures contained significant deficiencies and material weaknesses. Therefore, our management concluded that our disclosure controls and procedures were not effective. We believe that the deficiencies and weaknesses in our disclosure controls and procedures result from weaknesses in our internal control over financial reporting, which are described under Item 9A – “Controls and Procedures – Management’s Annual Report on Internal Control Over Financial Reporting” in the Company’s Annual Report on Form 10-K filed with the SEC on October 13, 2010.

Changes in Internal Control over Financial Reporting

During the three months ended September 30, 2010, the Company continued to implement and monitor the following changes to its internal control over financial reporting which have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

·	We evaluated the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal auditing staff in China to test and monitor the implementation of our accounting and internal control procedures.

·	We are continuing with the process of completing a review and revision of the documentation of the Company’s internal control procedures and policies.

We began the preliminary implementation of an initiative and training in China to ensure that the importance of internal controls and compliance with established policies and procedures are fully understood throughout the organization and plan to provide additional US GAAP training to all employees involved to ensure the performance of and compliance with those procedures and policies.

The remedial measures being undertaken may not be fully effectuated or may be insufficient to address the significant deficiencies we identified, and there can be no assurance that significant deficiencies or material weaknesses in our internal control over financial reporting will not be identified or occur in the future. If additional significant deficiencies (or if material weaknesses) in our internal controls are discovered or occur in the future, among other similar or related effects: (i) the Company may fail to meet future reporting obligations on a timely basis, (ii) the Company’s consolidated financial statements may contain material misstatements and (iii) the Company’s business and operating results may be harmed.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.

ITEM 1A. RISK FACTORS.

Investing in our common stock involves a high degree of risk. The risks we have described are not the only ones facing our Company. Additional risks not presently known to us or that we currently deem immaterial may also affect our business operations. Any of these risks could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of our common stock. You should not invest in our securities unless you can afford to lose all of your investment.

RISKS RELATED TO OUR BUSINESS

We have limited experience operating an advertising company and we rely heavily on our sales and marketing staff.

Because we have a limited operating history in the outdoor advertising business, it is difficult to forecast accurately our future revenues and expenses related to this business. Additionally, we will continue to be subject to risks inherent in the establishment of a new business, including, among other things, efficiently deploying our capital, developing our product and service offerings, developing and implementing our marketing campaigns and strategies and developing awareness and acceptance of our products. Our ability to generate future revenues from our operations will be dependent on a number of factors, many of which are beyond our control. To be successful, we must, among other things, establish market recognition in this business. This will require us to expend significant resources, including capital a nd management time.

In addition, we will need to further increase the size of our sales and marketing staff if our business continues to grow. We may not be able to hire, retain, integrate or motivate our current or new marketing personnel, which would cause short-term disruptions of our operations, restrict our sales efforts and negatively affect our advertising service revenue.

We depend on the availability of additional human resources for future growth.

We have recently experienced a period of significant growth in our sales volume. We believe that continued expansion is essential for us to remain competitive and to capitalize on the growth potential of our business. Such expansion may place a significant strain on our management and operations and financial resources. As our operations continue to grow, we will have to continually improve our management, operational and financial systems, procedures and controls, and other resources infrastructure and expand our workforce. There can be no assurance that our existing or future management, operating and financial systems, procedures and controls will be adequate to support our operations, or that we will be able to recruit, retain and motivate our personnel. Furthe r, there can be no assurance that we will be able to establish, develop or maintain the business relationships beneficial to our operations, or to do so or to implement any of the above activities in a timely manner. Failure to manage our growth effectively could have a material adverse effect on our business and the results of our operations and financial condition.

Our results could be adversely impacted by product quality and performance.

We install our products based on specific requirements of each of our customers. We believe that future orders of our products or services will depend on our ability to maintain the performance, reliability and quality standards required by our customers. If our products or services have performance, reliability or quality problems, we may experience delays in the collection of accounts receivables, higher manufacturing or installation costs, additional warranty and service expense, and reduced, cancelled or discontinued orders. Additionally, performance, reliability or quality claims from our customers, with or without merit, could result in costly and time-consuming litigation that could require significant time and attention of management and involve significant monetary damages.

We may require additional capital in the future, which may not be available on favorable terms or at all.

Our future capital requirements will depend on many factors, including industry and market conditions, our ability to successfully implement our branding and marketing initiatives and expansion of our production capabilities. We may need to raise additional funds in order to grow our business and implement our business strategy. We anticipate that any such additional funds would be raised through equity or debt financings. In addition, we may enter into a revolving credit facility or a term loan facility with one or more syndicates of lenders. Any equity or debt financing, if available at all, may be on terms that are not favorable to us. Even if we are able to raise capital through equity or debt financings, as to which there can be no assurance, the interest of existing stockholders in our Company may be diluted, and the securities we issue may have rights, preferences and privileges that are senior to those of our common stock or may otherwise materially and adversely affect the holdings or rights of our existing stockholders. If we cannot obtain adequate capital, we may not be able to fully implement our business strategy, and our business, results of operations and financial condition would be adversely affected. In addition, if we raise additional capital through private placements or registered offerings, it is likely that broker-dealers will be engaged. The activities of such broker-dealers are highly regulated and we cannot assure that the activities of such broker-dealers will not violate relevant regulations and generate liabilities despite our expectation otherwise.

Our success depends on our management team and other key personnel, the loss of any of whom could disrupt our business operations.

Our future success will depend in substantial part on the continued service of our senior management, including Mr. Guojun Wang, our Chief Executive Officer and Chairman. The loss of the services of one or more of our key personnel could impede implementation of our business plan and result in reduced profitability. We do not carry key man life or other insurance in respect of any of our officers or employees. Our future success will also depend on the continued ability to attract, retain and motivate highly qualified technical sales and marketing customer support personnel. Because of the rapid growth of the economy in the PRC, competition for qualified personnel is intense. We cannot guarantee that we will be able to retain our key personnel or that we will be ab le to attract, assimilate or retain qualified personnel in the future.

We have limited business insurance coverage.

The insurance industry in China is at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption in comparison to the cost of the insurance are such that we do not require it at this time. Therefore, any business disruption, litigation or natural disaster might result in substantial costs and diversion of our resources.

Our management may exercise broad discretion and judgment.

Any person who invests in our common stock will do so without an opportunity to evaluate the specific merits or risks of many potential new prospective business opportunities in which we may engage. In these circumstances, investors will be entirely dependent on the broad discretion and judgment of management in connection with the selection of a prospective business. There can be no assurance that determinations made by management will guarantee that we will achieve our business objectives.

There is no active market in our common stock and none may develop or be sustained.

Our stock is currently quoted on the OTC Bulletin Board under the symbol “CMDI.OB.” There is currently no active trading market in our common stock and there is no assurance that an active trading market will develop. In the event that an active trading market commences, there can be no assurance as to the market price of the shares of common stock, whether any trading market will provide liquidity to investors, or whether any trading market will be sustained.

Payment of dividends is unlikely.

We intend to retain our earnings, if any, to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay any dividends on our common stock for the foreseeable future. The payment of dividends will be contingent upon future revenues and earnings, if any, capital requirements and overall financial conditions. The payment of any future dividends will be within the discretion of our board of directors.

We may issue additional securities.

We may issue additional shares of common stock in connection with a future financing. To the extent that additional shares of common stock are issued, our stockholders would experience dilution of their respective ownership interests in our shares. The issuance of additional shares of common stock may adversely affect the market price of our common stock, in the event that an active trading market commences, of which there can be no assurance.

Recent market events and conditions may adversely affect our access to additional capital.

Since 2006, U.S. credit markets have experienced disruption due to a deterioration in residential property values, defaults and delinquencies in the residential mortgage market (particularly, sub-prime and non-prime mortgages) and a decline in the credit quality of mortgage backed securities. These problems led to a slow-down in residential housing market transactions, declining housing prices, delinquencies in non-mortgage consumer credit and a general decline in consumer confidence. These conditions caused a loss of confidence in the broader U.S. and global credit and financial markets and resulting in the collapse of, and government intervention in, major banks, financial institutions and insurers and creating a climate of greater volatility, less liquidity, widening of credit spreads, a lack of price transparency, increas ed credit losses and tighter credit conditions. These disruptions in the current credit and financial markets have had a significant material adverse impact on a number of financial institutions and have limited access to capital and credit for many companies. These disruptions could, among other things, make it more difficult for us to obtain, or increase our cost of obtaining, capital and financing for our operations. Our access to additional capital may not be available on terms acceptable to us or at all.

General economic conditions may adversely affect our financial condition and results of operations.

The recent unprecedented events in global financial markets have had a profound impact on the global economy. Many industries are impacted by these market conditions. Some of the key impacts of the current financial market turmoil include contraction in credit markets resulting in a widening of credit risk, devaluations and high volatility in global equity, commodity and foreign exchange markets, and a lack of market liquidity. A continued or worsened slowdown in the financial markets or other economic conditions, including but not limited to, consumer spending, employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates, and tax rates may adversely affect our Company’s growth and profitability. Sp ecifically:

·	the global credit/liquidity crisis could impact the cost and availability of financing and our Company’s overall liquidity;

·	volatile energy prices, commodity and consumables prices and currency exchange rates impact potential production costs; and

·	the devaluation and volatility of global stock markets impacts the valuation of our Company’s equity securities.

These factors could have a material adverse effect on our Company’s financial condition and results of operations.

Climate change and related regulatory responses may impact our business.

To the extent that climate change increases the risk of natural disasters or other disruptive events in the areas in which we operate, we could be harmed. While we maintain business recovery plans that are intended to allow us to recover from natural disasters or other events that can be disruptive to our business, our plans may not fully protect us from all such disasters or events.

There are risks related to doing business in China given an uncertain regulatory environment.

Uncertainty in the state regulatory environment in China may expose our Company to unexpected liability exposure and possibly even penalties. China has an evolving regulatory environment as to what is permitted and often new regulations are adopted to regulate certain areas where there were no regulations before. As a result, our Company may be exposed to unforeseen risks of violating rules that did not exist. Such risks apply to all aspects of the operation of our Company. In case our Company is found to be in such violation, we could be subjected to monetary and other unexpected penalties. This may in turn have an impact on our results of operation and the value of shares of our common stock.

Capital outflow policies in the People’s Republic of China may hamper our ability to remit income to the United States.

The PRC has adopted currency and capital transfer regulations. These regulations may require us to comply with complex regulations for the movement of capital. Although our directors believe that it is currently in compliance with these regulations, should these regulations or the interpretation of them by courts or regulatory agencies change, we may not be able to remit all income earned and proceeds received in connection with our operations or from the sale of our operating subsidiary to our stockholders.

The fluctuation of the Renminbi may materially and adversely affect your investment.

The value of the Chinese Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues and financial condition. For example, to the extent that we need to convert U.S. dollars we receive from any future offerings of our common stock into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our shares of common stock or for other business purposes and the U.S. dollar appreci ates against the Renminbi, the U.S. dollar equivalent of the Renminbi we convert would be reduced. Any significant devaluation of Renminbi may reduce our operation costs in U.S. dollars but may also reduce our earnings in U.S. dollars. In addition, the depreciation of significant U.S. dollar denominated assets could result in a charge to our income statement and a reduction in the value of these assets.

Since 1994, the PRC has pegged the value of the Renminbi to the U.S. dollar. There can be no assurance that Renminbi will not be subject to appreciation. We may not be able to hedge effectively against Renminbi appreciation, so there can be no assurance that future movements in the exchange rate of Renminbi and other currencies will not have an adverse effect on our financial condition.

In addition, there can be no assurance that we will be able to obtain sufficient foreign exchange to pay dividends or satisfy other foreign exchange requirements in the future.

It may be difficult to enforce judgments or bring actions outside the United States against our Company and certain of our directors and officers.

It may be difficult to effect service of process and enforcement of legal judgments upon our Company and our officers and directors because some of them reside outside the United States. As our operations are presently based in China and some of our key directors and officers reside outside the United States, service of process on our key directors and officers may be difficult to effect within the United States. Also, substantially all of our assets are located outside the United States and any judgment obtained in the United States against us may not be enforceable outside the United States.

We may experience difficulty in establishing business controls and procedures that meet Western standards.

The PRC historically has not adopted a Western style of management and financial reporting concepts and practices, modern banking, computer or other control systems. We may have difficulty in hiring and retaining a sufficient number of qualified employees to work in the PRC. As a result of these factors, we may experience difficulty in establishing management, legal and financial controls, collecting financial data and preparing financial statements, books of account and corporate records and instituting business practices that meet Western standards.

Compliance with changing regulation of corporate governance and public disclosure will result in additional expenses and pose challenges for our management team.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated thereunder, the Sarbanes-Oxley Act and SEC regulations, have created uncertainty for public companies and significantly increased the costs and risks associated with accessing the U.S. public markets. Our management team will need to devote significant time and financial resources to comply with both existing and evolving standards for public companies, which will lead to increased general and administrative expenses and a diversion of management time and attention from revenue generating activities to compliance activities.

We may face judicial corruption in the People’s Republic of China.

Another obstacle to foreign investment in the PRC is corruption. There is no assurance that we will be able to obtain recourse, if desired, through the PRC’s poorly developed and sometimes corrupt judicial systems.

Compliance with China’s advertising laws and regulations may be difficult and could be costly, and failure to comply could subject us to government sanctions.

China’s advertising laws and regulations require advertisers, advertising operators and advertising distributors to ensure the content of the advertisements they prepare or distribute are fair and accurate and are in compliance with applicable law. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the Chinese government may revoke a violator’s license for advertising operations.

As an advertising service provider, we are obligated under China’s laws and regulations to monitor the advertising content shown on our network for compliance with applicable law. We endeavor to comply with such requirements, including by requesting relevant documents from the advertisers. However, we can provide no assurance each advertisement that an advertiser or advertising agency client provides us and which we publish is in compliance with relevant advertising laws and regulations or that the supporting documentation and government approvals provided to us by our advertising clients in connection with certain advertising content are complete. Although we review advertising content for compliance with relevant laws and regulations, the content standards in China are less certain and less clear than in those in more developed countries such as the U.S. and we can provide no assurance that we will be able to properly review the content to comply with the standards imposed on us.

We rely on contractual arrangements between Dalian Guo-Heng and V-Media for our operations in China, which may not be as effective as direct ownership in providing operational control.

We rely on contractual arrangements between Dalian Guo-Heng and V-Media to operate our advertising business. These contractual arrangements may not be as effective as direct ownership in providing us with control over our variable interest entity. Under the current contractual arrangements, if V-Media fails to perform its obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies under Chinese laws, including seeking specific performance or injunctive relief and claiming damages, and we can provide no assurance as to the effectiveness of these remedies, if available.

Many of these contractual arrangements are governed by Chinese law and provide for the resolution of disputes through either arbitration or litigation in China. Accordingly, these contracts would be interpreted in accordance with Chinese law and any disputes would be resolved in accordance with Chinese legal procedures. The legal environment in China is not as developed as in other jurisdictions, such as the U.S. As a result, uncertainties in the Chinese legal system could limit our ability to enforce these contractual arrangements, which may make it difficult to exert effective control over V-Media, and our ability to conduct our business may be materially and adversely affected.

Adverse changes in the political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and have a material adverse effect on our competitive position.

Substantially all of our assets are located in China and substantially all of our revenue is derived from our operations in China. Accordingly, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal developments in China. The Chinese economy differs from the economies of many developed countries in many respects, including:

· the amount of government involvement;

· the level of development;

· the growth rate;

· the control of foreign exchange; and

· the allocation of resources.

While the Chinese economy has experienced significant growth in the past 25 years, growth has been uneven both geographically and among various sectors of the economy. The Chinese government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by the government control over capital investments or changes in tax regulations. We cannot predict the future direction of political or economic reforms or the effects such measures may have on our business, financial position or results of operations. Any adverse change in the political o r economic conditions in China, including changes in the policies of the Chinese government or in laws and regulations in China, could have a material adverse effect on the overall economic growth of China and in the advertising industry. Such developments could have a material adverse effect on our business, lead to reduction in demand for our services and materially and adversely affect our competitive position.

The Chinese government exerts substantial influence over the manner in which we must conduct our business activities.

China only recently has permitted provincial and local economic autonomy and private economic activities, and as a result, we are dependent on our relationship with the local government in the province in which we operate our business. The Chinese government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, environmental regulations, land use rights, property and other matters. The central or local governments of these jurisdictions may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure compliance with such regulatio ns or interpretations.

RISKS RELATED TO THE MARKET FOR OUR STOCK

Our common stock is quoted on the OTC Bulletin Board which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Bulletin Board. The OTC Bulletin Board is a significantly more limited market than the New York Stock Exchange or NASDAQ system. The quotation of our shares on the OTC Bulletin Board may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

The market price of our common stock may be volatile.

The market price of our common stock has been, and will likely continue to be, highly volatile. Some of the factors that may materially affect the market price of our common stock are beyond our control, such as changes in financial estimates by industry and securities analysts and conditions or trends in the industry in which we operate. These factors may materially adversely affect the market price of our common stock, regardless of our performance. In addition, the public stock markets have experienced extreme price and trading volume volatility. This volatility has significantly affected the market prices of securities of many companies for reasons frequently unrelated to the operating performance of the specific companies. These broad market fluctuations may adversely affect the market price of our common stock. We expect the price of our common stock will be subject to continued volatility.

We are subject to penny stock regulations and restrictions.

Our shares are subject to rules applicable to “penny stock” which pertain to any equity security with a market price less than $5.00 per share or an exercise price of less than $5.00 per share. Penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. A broker-dealer must also provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer, and sales person in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that, prior to a transaction in a penn y stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in our shares.

Our Chairman and Chief Executive Officer holds a significant percentage of our outstanding voting securities.

Guojun Wang, our Chairman and Chief Executive Officer, is the beneficial owner of approximately 24.86% of our outstanding voting securities. As a result, he possesses significant influence, giving him the ability to prevent significant corporate transactions. His ownership and control may impede or delay any future change in control through merger, consolidation, takeover or other business combinations and may discourage a potential acquirer from making a tender offer.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

None.

ITEM 4. RESERVED.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS.

Exhibit Number	Description of Exhibit
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a).
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a).
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

_____________

* Filed herewith

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.

Date: November 15, 2010

	CHINA NEW MEDIA CORP.

	By:	/s/ Guojun Wang
		Name: Guojun Wang
		Title: Chief Executive Officer and Chairman
		(principal executive officer and duly authorized officer)



	By:	/s/ Hongwen Liu
		Name: Hongwen Liu
		Title: Chief Financial Officer and Treasurer
		(principal financial officer)

Exhibit Index

Exhibit Number	Description of Exhibit
31.1*	Certification of Principal Executive Officer pursuant to Rule 13a-14(a).
31.2*	Certification of Principal Financial Officer pursuant to Rule 13a-14(a).
32.1*	Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2*	Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.

_____________

* Filed herewith

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

V Media Inactive 10-Q2011 Q1 Quarterly report

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