V Media 10-Q 2013 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, 2012

OR

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

For the transition period from _______________to ________________

Commission File Number: 000-53027

V MEDIA CORPORATION

(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 x          No o

    Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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 14, 2012, the Company had outstanding 27,590,701 shares of common stock, $0.0001 par value.

INDEX

	Page
PART I    FINANCIAL INFORMATION	3
Item 1. Condensed Consolidated Financial Statements.(Unaudited)	3
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	22
Item 3. Quantitative and Qualitative Disclosures About Market Risk.	29
Item 4. Controls and Procedures.	29
PART II  OTHER INFORMATION	30
Item 1. Legal Proceedings	30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.	30
Item 6. Exhibits.	30
Signatures	31

1

INTRODUCTION

Use of Certain Defined Terms

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

●   “We,” “us,” “our” and the “Company” refers to V Media Corporation 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 6.3532 for June 30, 2012, and $1 = RMB 6.2857 for September 30, 2012, which were determined based on the currency conversion rate at the end of each respective period. The conversion rates of $1 = RMB 6.4168 is used for the condensed consolidated statement of operations and other comprehensive income (loss) and condensed consolidated statement of cash flows for the three months ended September 30, 2011, and $1= RMB6.3524 is used for the condensed consolidated statement of operation and other comprehensive income (loss) and condensed consolidated statement of cash flows for the three months ended September 30, 2012; both of which were based on the average currency conversion 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 needs.

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.

2

PART I

FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS.

 V MEDIA CORP. AND SUBSIDIARIES

 (FORMERLY CHINA NEW MEDIA CORPORTATION)

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

 (IN US DOLLARS)

	As of September 30		As of June 30
	2012		2012
ASSETS
Current assets
Cash and cash equivalents	$	880,338	$	1,526,604
Restricted cash		2,980,302		-
Accounts receivable, net of allowance $606,737 and $ 488,723		5,560,984		4,960,911
Advance to suppliers		779,449		413,883
Loans receivable		2,570,762		2,099,493
Other current assets		1,173,000		113,129
Deferred tax assets		645,344		396,961
Total current assets		14,590,179		9,510,981
Property, equipment and construction in progress, net		23,381,559		23,204,841
Other assets
Billboards use right, net		4,044,832		4,798,745
Security deposits		2,091,643		2,043,750
Equity investment		76,814		82,572
Total other assets		6,213,289		6,925,067
Total Assets	$	44,185,027	$	39,640,889
LIABILITIES AND EQUITY
Current liabilities
Short term loans	$	12,059,118	$	11,035,314
Current portion of long term loan		606,689		590,370
Accounts payable		1,936,356		2,274,736
Notes payable		3,862,736		-
Other payables		2,445,486		1,902,658
Accrued expenses		21,533		21,533
Deferred revenues		3,581,558		2,649,472
Taxes payable		468,082		507,145
Due to related parties		276,626		594,774
Total current liabilities		25,258,184		19,576,002
Long term loan-non current portion		211,497		363,060
Total  Liabilities		25,469,681		19,939,062
Commitments and contingencies
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;
27,590,701 shares issued and outstanding		2,759		2,759
Additional paid-in-capital		6,820,820		6,820,820
Accumulated other comprehensive income		913,441		786,806
Retained earnings		9,370,267		10,774,956
Total V Media Corp. equity		17,107,387		18,385,441
Noncontrolling interest		1,607,959		1,316,386
Total equity		18,715,346		19,701,827
Total Liabilities and Equity	$	44,185,027	$	39,640,889

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

3

 V MEDIA CORP. AND SUBSIDIARIES

 (FORMERLY CHINA NEW MEDIA CORPORTATION)

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

 (IN US DOLLARS

	For the three months ended September 30,
	2012			2011
Revenues	$	5,480,963		$	4,562,159
Cost of revenue		(4,645,696	)		(2,124,066	)
Gross profit		835,267			2,438,093
Selling, general and administrative expenses		(1,834,803	)		(926,290	)
Income (loss)  from operations		(999,536	)		1,511,803
Other income (expenses):
Interest income		718			1,693
Interest expense		(281,353	)		(232,866	)
Loss from equity investment		(6,575	)		-
Subsidy income		41,224			-
Other expenses		(11,433	)		(19,890	)
Total other income (expense)		(257,419	)		(251,063	)
Income (loss) before income taxes		(1,256,955	)		1,260,740
Income tax provision (benefit)
Current		180,058			372,436
Deferred		(261,185	)		(17,056	)
Total income tax provision (benefit)		(81,127	)		355,380
Net income (loss)		(1,175,828	)		905,360
Less: net income (loss) attribute to the noncontrolling interest		228,861			42,442
Net income (loss)  attributable to V Media Corp.	$	(1,404,689	)	$	862,918
Net income (loss)		(1,175,828	)		905,360
Other comprehensive income
Foreign currency translation adjustments		143,695			188,181
Comprehensive income (loss)		(1,032,133	)		1,093,541
Less: comprehensive income (loss) attributed to the noncontrolling interest		245,921			54,943
Comprehensive income (loss) attributable to V Media Corp.	$	(1,278,054	)	$	1,038,598
Earnings (loss) per share
Basic and diluted	$	(0.05	)	$	0.03
Weighted average number of common shares
Basic and diluted		27,550,701			27,550,701

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

4

 V MEDIA CORP. AND SUBSIDIARIES

 (FORMERLY CHINA NEW MEDIA CORPORTATION)

 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (IN US DOLLARS)

	For the three months ended September 30,
	2012			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(1,175,828	)	$	905,360
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization		1,940,606			914,524
Amortization of stock based compensation expense		-			7,988
Loss from equity investment		6,575			-
Provision for doubful accounts		111,578			-
Deferred tax benefit		(241,554	)		(17,056	)
Changes in operating assets and liabilities
Accounts receivable		(652,603	)		(1,021,918	)
Other current assets		(1,047,536	)		15,006
Security deposit		(25,660	)		38,763
Advance to suppliers		(357,326	)		127,050
Accounts payable		(359,011	)		152,503
Other payables		463,552			389,234
Accrued expenses		-			(365,904	)
Deferred revenues		894,127			524,133
Taxes payable		(44,044	)		116,100
Net cash provided by (used in) operating activities		(487,124	)		1,785,783
CASH FLOWS FROM INVESTING ACTIVITIES:
Loan to third party		(443,998	)		-
Repayment of loans from third party		-			59,687
Acquisition of billboards use rights		(501,412	)		(486,223	)
Purchase of property and equipment		(570,321	)		(1,681,830	)
Net cash used in investing activities		(1,515,731	)		(2,108,366	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Restricted cash		(2,949,001	)		(46,752	)
Net proceeds from capital contributions		45,652			-
Proceeds from short-term bank loans		3,589,185			280,514
Repayment of short-term bank loans		(2,172,401	)		(1,090,886	)
Net Proceeds from bank acceptance notes payable		3,822,167			-
Proceeds (repayment) from related party loans		(322,004	)		38,960
Payment of loan to unrelated parties		(521,061	)		-
Repayment of long-term bank loans		(143,961	)		-
Net cash provided by (used in) financing activities		1,348,575			(818,164	)
EFFECT OF EXCHANGE RATE CHANGE ON
CASH AND CASH EQUIVALENTS		8,014			16,500
NET DECREASE IN CASH AND CASH EQUIVALENTS		(646,266	)		(1,124,247	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,526,604			1,808,880
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	880,338		$	684,633
SUPPLEMENTAL CASH FLOW DISCLOSURES
Income taxes paid	$	57,369		$	223,817
Interest paid	$	262,402		$	232,820

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

5

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

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

Effective July 17, 2012, the Company changed its name from China New Media Corp. to V Media Corporation through a short form merger pursuant to Section 253 of the General Corporation Law of the State of Delaware by merging a wholly owned subsidiary of the Company into the Company, with the Company as the surviving corporation in the merger.

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

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 V 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 China, including Dalian Vastitude Media Group Co., Ltd. (“V-Media”) and its subsidiaries. V-Media is an out-door advertising company headquartered 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 (“Consolidation”), 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. 

6

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)

In connection with the acquisition, Merger Sub issued 10 shares of the common stock of the Merger Sub which constituted the 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. As a result of the above-mentioned transactions, the shareholders of Fortune-Rich and persons affiliated with V-Media 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.”

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. However, the information included in these interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full year.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

There have been no material changes during fiscal 2013 in the Company’s significant accounting policies to those previously disclosed in the 2012 annual report on form 10K.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.  These reclassifications have no material impact on the previously reported financial position, results of operations and cash flows.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of V 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. 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.

Restricted Cash

As of September 30, 2012, the Company had restricted cash of $2.98 million. $1.86 million restricted cash is associated with notes payable. The banks require the Company to maintain a cash balance of a minimum 30% - 50% of the balance of the notes payable as collateral (Note 10). $0.4 million restricted cash is associated with a short-term loan in the amount of RMB 15,000,000 (approximately $2.39 million) with Jilin Bank (Note 8). The Company also has a letter of credit from Bank of China in the amount of $3.36 million and was required to deposit $0.72 million restricted cash in the bank.

Recent Accounting Pronouncements

The Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s condensed consolidated financial position, results of operations, or cash flows.

7

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - LOANS RECEIVABLE

The loans receivable include the following:

			September 30, 2012		June 30, 2012
a	)	Dalian Qianbaihe Cloth Accessories Co.	$	184,546	$	103,884
b	)	Feiyue International Trade		31,818		214,064
c	)	Dalian Tianjun Trade Co.		1,272,730		1,259,200
d	)	Shenzhen Baolichang Co.		412,909		-
e	)	Rongfu Auto Parts Co.		31,568		31,232
f	)	Dalian Digital Media Co.		35,826		40,731
g	)	Beijing Cross-Strait Publishing Exchange Center		47,727		47,220
h	)	Others		553,638		403,161
		Total loans receivable	$	2,570,762	$	2,099,493

a) The Company made two non-interest bearing loans to Dalian Qianbaihe Cloth Accessories Co., one is a loan of $0.1million (RMB 0.66 million), another is a loan of $0.08 million (RMB 0.5 million). The loans are expected to be paid back by December 31, 2012.

b) The Company made a non-interest loan of $0.21 million (RMB 1.36 million) to Feiyue International Trade Co. The loan was repaid during July, 2012. The Company made a non-interest loan of $0.03 (RMB 200,000) in September 2012. The loan is expected to be paid back by December 31, 2012.

c) The Company made two loans to Dalian Tianjun Trade Co.: (1) One-year term loan from June 10, 2011 to June 9, 2012 in the amount of $0.95 million (RMB 6 million) at a fixed interest rate of 10% per annum. Dalian Tianjun Trade Co. repaid $0.16 million (RMB1 million) as of June 30, 2012, with the remaining balance of $0.79 million (RMB 5 million) renewed for another year to June 9, 2013 at a fixed interest rate of 10% per year. (2) One-year term loan from December 29, 2011 to December 28, 2012 in the amount of $0.48 million (RMB 3 million) at a fixed interest rate of 10% per annum.

d) The Company made a non-interest loan of $0.41 million (RMB 2.6 million) to Shenzhen Baolichang Co. in September 2012. The loan is expected to be paid back by December 31, 2012.

e) The Company made a non-interest bearing loan of $0.03 million (RMB 0.2 million) to Rongfu Auto Parts Co. on January 15, 2012 which is due on January 14, 2013.

f) The Company made a non-interest bearing loan of $0.04 million (RMB 0.26 million) to Dalian Digital Media Co.

on June 30, 2012. The loan is due on demand and bears no interest. Dalian Digital Media Co. repaid $4,905 as of September 30, 2012.

g) The Company loaned $0.05 million (RMB 0.3 million) to Beijing Cross-Strait publishing exchange center on November 20, 2011 which is due on November 19, 2012 with no interest.

h) The Company had various loans of $0.55 million (RMB 3.48 million) to unrelated parties as of September 30, 2012. These loans are due on demand and bear no interest.

NOTE 4 - MAJOR SUPPLIERS

During the three months ended September 30, 2012, three major suppliers provided approximately 68% of the Company’s purchase of materials, with each supplier accounted for 30%, 26% and 12% respectively. For the three months ended September 30, 2011, one major supplier provided 36% of the Company’s purchase of materials.

NOTE 5 - PROPERTY, EQUIPMENT AND CONSTRUCTION IN PROGRESS, NET

Property, equipment and construction in progress consist of the following:

	September 30, 2012			June 30, 2012
Advertising equipment	$	26,321,877		$	26,034,266
Office equipment and furniture		753,560			667,417
Office building and Improvement		442,804			438,097
Transportation		1,488,207			1,498,251
Subtotal		29,006,448			29,350,311
Less: Accumulated depreciation		(9,301,014	)		(8,536,303	)
Construction in progress		3,676,125			3,103,112
Total	$	23,381,559		$	23,204,841

Depreciation expense totaled $639,228 and $501,249 for the three months ended September 30, 2012 and 2011, respectively. Approximately $23.25 million of advertising equipment was pledged as a guarantee against short term loans as of September 30, 2012.

Construction in progress mainly consists of billboards and other outdoor advertising platforms.

12

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – EQUITY INVESTMENT

On August 18, 2011, the Company obtained a 20% interest in Letian Net (“Letian”) after the entire consideration totaling $94,455 (RMB 600,000) was deposited to a designated bank account of the Company's subsidiary – Dalian Vastitude Network Technology Co., Ltd. on December 31, 2011. Under the equity method of accounting, 20% of the loss in the equity of Letian of $6,575 and $-0- was recognized for the three months ended September 30, 2012 and 2011, respectively. Letian is an online advertising platform in Dalian, the PRC.

NOTE 7 - BILLBOARDS USE RIGHT

The Company makes advance payments for the right to construct advertising equipment and post advertisements in certain locations in the PRC, 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.

The Company leases a billboard use right at Times Square in New York under a non-cancellable operating lease. The Company recognizes expense on a straight-line basis over the term of the lease. The Company entered into a one-year lease agreement commencing March 1, 2012, paid the first nine months and is liable to pay the balance of $0.84 million in November 2012. As of September 30, 2012, there was no revenue generated from this billboard.

Amortization of billboard use rights for the three months ended September 30, 2012 and 2011 was $1,298,428, and $408,028, respectively.

The projected amortization expense as of September 30, 2012 attributed to future years is as follows:

12 months ending September 30,
2013	$	1,461,282
2014		721,879
2015		434,891
2016		334,570
2017		296,251
Thereafter		795,959
	$	4,044,832

13

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7 - BILLBOARDS USE RIGHT (continued)

The following is a schedule by year for future minimum payments under the billboard use right agreements at September 30, 2012:

12 months ending September 30,	Payment
2013	$	2,196,367
2014		1,634,831
2015		606,823
2016		55,682
	$	4,493,703

NOTE 8 - SHORT TERM LOANS

The short term loans include the following:

		September 30, 2012		June 30, 2012
a) Loans payable to Shanghai Pudong Development Bank	$	1,590,912	$	2,518,400
b) Loan payable to Dalian Bank Xigang Branch		1,590,912		1,574,000
c) Loan payable to Industrial and Commercial Bank of China		286,364		283,320
d) Loan payable to Jinzhou Bank		2,386,369		-
e)Loans payable to Jilin Bank		2,863,643		2,833,200
f)Loan payable to Dalian Bank Shenyang Branch		954,548		944,400
g)Loan payable to Dalian Bank Shanghai Branch		477,274		472,200
h) Loan payable to Yinkou Bank		954,548		944,000
i) Loan payable to China Merchant bank		954,548		944,000
j) Loan payable to various unrelated parties		-		520,994
Total short term loans	$	12,059,118	$	11,035,314

a)   Loan payable to Shanghai Pudong Development bank consists of two loans. One is a one-year term loan from November 22, 2011 to November 21, 2012 with the amount of RMB 6,000,000 (approximately $955 thousand) at a variable interest rate of 8.528% per year. The Company pledged a real estate property owned by the Company’s major Stockholder. The loan has been repaid in September, 2012. The second loan is a one-year term loan from June 18, 2012 to June 14, 2013  in the amount of RMB10,000,000 (approximately $1.59 million) at a variable interest rate of 8.203% per year. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company. The Company pledged part of its advertising equipment with the value of RMB 20.4 million (approximately $3.2 million).

14

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - SHORT TERM LOANS (Continued)

b) Loan payable to Dalian Bank Xigang Branch is a one-year term from March 27, 2012 to March 26, 2013 at a variable interest rate of 9.184% per year. This loan has been guaranteed by an unrelated company, Dalian Huanbohai Development Credit Guaranty Company. The Company also pledged part of its advertising equipment with the value of RMB18.26 million (approximately $2.9 million).

c) Loan payable to Industrial and Commercial Bank of China is a one-year term loan from September 28, 2011 to August 21, 2012 at a fixed interest rate of 7.872% per year. The Company pledged a real estate property owned by the Company’s major Stockholder. The loan has been paid off on August 21, 2012. The company obtained a new loan at the same amount from September 20, 2012 to September 12, 2013 with a fixed interest rate of 7.872% per year.

d) Loan payable to Jinzhou Bank is a five-month term loan from July 2, 2012 to November 30, 2012 at a fixed interest rate of 7.80% per year. The Company pledged part of its advertising equipment with the value of RMB30, 998,320 (approximately $4.9 million).

e) Loan payable to Jilin Bank consists of two loans. One loan is a one-year term loan from June 19, 2012 to May 9, 2013 in the amount of RMB 3,000,000 (approximately $0.48 million) at a variable interest rate of 8.528% per year. The other loan is a one-year term loan from May 10, 2012 to May 9, 2013 in the amount of RMB 15,000,000 (approximately $2.39 million) at a variable interest rate of 8.528% per year. $0.4 million restricted cash was deposited in Jilin Bank in association with this loan.  The two loans have been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Co., Ltd. The Company also pledged part of its advertising equipment with the approximate value of RMB 43,408,300 (approximately $6.9 million).

f) Loan payable to Dalian Bank Shenyang Branch was a one-year term loan from June 6, 2012 to June 5, 2013 at a variable interest rate of 8.856% per year.  The loan is guaranteed by Dalian Vastitude Media Group Co., Ltd.

g) Loan payable to Dalian Bank Shanghai Branch is an eleven-month term loan from December 29, 2011 to November 28, 2012 at a floating interest rate of 9.184% per year. This loan has been guaranteed by Dalian Vastitude Media Group Co., Ltd.

h) Loan payable to Yingkou bank is one-year term loan from June 29, 2012 to June 28, 2013 at a floating interest rate of 8.203% per year. This loan has been guaranteed by Zhongqing Union Credit Guarantee (Dalian) Corporation.

i) Loan payable to China Merchant bank is one-year term loan from May 24, 2012 to May 24, 2013 at a fixed interest rate of 8.528% per year. The Company also pledged part of its advertising equipment for this loan.

j) The company had loans from outside unrelated parities as of June 30, 2012, which were due on demand and bear no interest. These loans have been repaid as of September 30, 2012.

15

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 – LONG TERM LOAN

Long term loans consist of following:

	September 30, 2012			June 30, 2012
Long term loan-ORIX leasing	$	818,186		$	953,430
Less: current portion		(606,689	)		(590,370	)
Long term loan- noncurrent portion	$	211,497		$	363,060

On December 29, 2011, V-Media Group’s subsidiary Shenyang and Beijing subsidiaries entered into loan agreements with ORIX finance leases (China) Co., Ltd. (“ORIX Leasing”) pursuant to which Shenyang and Beijing borrowed $0.65 million (RMB 4.1 million) and $0.56 million (RMB 3.5 million) from ORIX leasing and pledged its advertising equipment with the approximate value of RMB $1.0 million (RMB6.26 million) and $0.85 million (RMB5.37 million), respectively. These loans are paid on a monthly basis over a two-year period and consist of a fixed payment based upon a 24-month amortization of the purchase price plus an interest component that varies based upon the rate announced from time to time by the People’s Bank of China for two-year loans. At September 30, 2012, the monthly payment under the agreement for Shengyang and Beijing were $0.03 million (RMB 181,309) and $0.02 million (RMB 155,410) respectively, which including an interest component calculated at the rate of 6.65%.

Future payments of the loan are as follows:

Year ending September 30,	Payment
2013	$	606,689
2014		211,497
	$	818,186

NOTE 10 – NOTES PAYABLE

As of September 30, 2012, the Company has bank acceptance notes payable in the amount of $3,862,736. The notes are guaranteed to be paid by the banks and usually for a short-term period of three to six months. The Company is required to maintain cash deposits at a minimum 30%-50% of the total balance of the notes payable with the banks, in order to ensure future credit availability.  $1.86 million restricted cash was associated with notes payable.

NOTE 11 – SUBSIDY INCOME

Since one of the Company’s subsidiaries is located in a special economic development zone in Dalian city, the Company received a special tax refund of $41,224 from the local government as a subsidy income for the three months ended September 30, 2012.

NOTE 12 - RELATED PARTY TRANSACTIONS

Amounts due to related parties are as follows:

	September 30, 2012		June 30, 2012
Wang, Caiqin	$	119,319	$	118,050
Ma, Ming		21,869		412,242
Wang, Guojun		135,438		64,482
Total	$	276,626	$	594,774

The above stockholders provide funds for the Company’s operations for advertising material and equipment purchase. These amounts due are generally unsecured, non-interest bearing and due upon demand.

16

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - STOCKHOLDERS’ EQUITY

(1) Preferred Stock


In conjunction with the reverse merger on December 8, 2009, the Company issued 1,000,000 shares of Series A preferred stock, which have an aggregate voting power of 40% of the combined voting power of the entire Company’s shares, Common Stock and Preferred Stock as long as the Company is in existence. These preferred shares are not convertible into common shares of the Company and are not freely traded in the market. The preferred shares also do not contain any dividend right, liquidation preference right, redemption right or preemptive right.


(2) Issuance of Stocks

On March 26, 2011, the Company granted 40,000 restricted shares of its common stock, which vested one year from the date of issue to its employee in consideration for services rendered from February 19, 2011. The fair value of the awards is measured based on the grant date stock price of $0.42 per share with an aggregate amount of $16,800. The amortization of share-based compensation expense was $0 and $1,289 for the three months ended September 30, 2012 and September 30, 2011, respectively.

 (3) Warrants

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 issued 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 with an exercise price of 0.95. 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. 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.

17

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

On March 7, 2011, the Company granted its independent director, Stephen Monticelli warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Warrant Shares for the first year (up to an aggregate total of 16,666 shares) will be vested following a full year of service as a Non-Executive Director. The Warrant Shares for the second year (up to an aggregate total for years one and two of 33,333 shares) will be vested following a second full year of service as a Non-Executive Director. The Warrant Shares for years three through five (up to an aggregate total for all five years of 50,000 shares) will be vested following the third full year of service as a Non-Executive Director. The fair value of the warrants to the director was $18,988 at the grant date. On September 24, 2012, Stephen Monticelli submitted his resignation from his position as an independent director of V Media Corporation. The unvested warrants were cancelled thereafter.

The following is a summary of the status of warrant activities for the three months ended September 30, 2012:

	Warrants Outstanding		Weighted Average Exercise Price	Average Remaining Life in years	Average Intrinsic Value
Outstanding, June 30, 2012	3,348,760	$	0.96	1.45	-
Granted	-		-	-	-
Forfeited	33,334	$	1.8	-	-
Exercised	-		-	-	-
Outstanding, September 30, 2012	3,315,426	$	0.95	1.16	-
Exercisable, September 30, 2012	3,215,426	$	0.95	1.16	-

NOTE 14 – TAXES

a)   Corporate Income Tax

Significant components of the income tax provision were as follows:

	For the three months ended September 30,
	2012				2011
Current tax provision
Federal		$	-		$	-
State			-			-
Foreign			180,058			372,436
			180,058			372,436
Deferred tax benefit, net of valuation allowance
Federal			-			-
State			-			-
Foreign			(261,185	)		(17,056	)
			(261,185	)		(17,056	)
Income tax provision		$	(81,127	)	$	355,380

18

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – TAXES (Continued)

The following table reconciled the US statutory rates to the Company’s effective rate for the three months ended September 30, 2012 and 2011. Other item represents net loss occurred by some subsidiaries and non-deductible items.

For the three months ended September 30	2012			2011
US statutory income tax rate		35.00	%		35.00	%
Income not taxed in US		-35.00	%		-35.00	%
China Income tax statutory rate		25.00	%		25.00	%
Other item		-18.5	%		3.2	%
Effective rate		6.5	%		28.2	%

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.

V Media Corp., a Delaware corporation, has incurred a net operating loss for U.S. federal income tax purposes for the year ended June 30, 2012. The Company had loss carry forwards for U.S. federal income tax purposes available for offset against future taxable U.S income expiring through 2031 of approximately $1,038,000 and $182,000 as of September 30, 2012 and June 30, 2012, respectively. Management believes that the realization of the benefits from these losses appears uncertain due to the Company's limited operating history in the United States. Accordingly, a full deferred tax asset valuation allowance has been provided against federal deferred tax assets and no deferred tax asset benefit has been recorded for US operation. The valuation allowance against federal deferred tax assets was $353,018 and $61,989 as of September 30, 2012 and June 30, 2012, respectively.

Hong Kong

Fortune-Rich was incorporated in Hong Kong and has operations through its subsidiaries in the PRC, its only tax jurisdiction. Fortune-Rich did not earn any income that was derived in Hong Kong since incorporation and therefore was not subject to Hong Kong Profit tax. All Fortune-Rich and its subsidiaries’ income is generated in the PRC. Accordingly, its income tax provision is calculated based on the applicable tax rates and existing legislation, interpretations and practices in respect thereof.

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, the V-Media Group and its subsidiaries of Jiaotong, Shenyang, Wangluo, Tianjin, Beijing and Shanghai have loss carryovers that can only be used to offset their own future taxable income. The loss carry forward for those subsidiaries amounted to $2,554,265 and $1,587,852 as of September 30, 2012 and June 30, 2012, respectively.

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 carry forward periods available for tax reporting purposes, and other relevant factors. For the three months ended September 30, 2012, management concluded PRC deferred tax assets would be realized in the future. Accordingly, the Company recorded a deferred tax benefit of $261,185 and $17,056 from loss carryover for the three months ended September 30, 2012 and 2011, respectively.

19

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 – TAXES (Continued)

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 expenses were $397,180 and $244,876 for the three months ended September 30, 2012 and 2011, respectively.

c) The Company recognizes interest and penalties accrued related to unrecognized tax benefits and penalties, if any, as income tax expense. There were no unrecognized tax benefits or penalties for the period ended September 30, 2012. The Company files income tax returns with U.S. Federal Government, as well as Delaware State. The Company also files returns in foreign jurisdictions of Hong Kong 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 2008.

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 15 – EARNINGS PER (LOSS) SHARE

As of September 30, 2012, the Company had 1,000,000 shares of preferred stock issued and outstanding, that have 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, 2012.

The Company’s outstanding warrants to acquire 3,298,760 shares of common stock at exercise price of $0.95, were not included in the diluted weighted average shares calculation, because they are anti-dilutive.

The warrants issued on March 7, 2011 to acquire 50,000 shares of common stock with an exercise price of $1.80, were not included in the diluted weighted average shares calculation, because they are anti-dilutive.

20

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – SEGMENT INFORMATION

ASC 280, "Segment Reporting", establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company's business segments.

The Company is an outdoor advertising company in China which provides a full range of integrated outdoor advertising services including art design, advertising publishing, daily maintenance and technical upgrading. The Company's chief operating decision maker ("CODM") has been identified as the CEO who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of each entity. Based on management's assessment, the Company has determined that its operating segments can be categorized by geographic locations as well as the format of the outdoor media platforms.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM evaluates performance based on each reporting segment's revenues, cost of revenues, and gross profit. Selling expenses and G&A expenses are not separated reviewed to each segment. The CODM does not review balance sheet information to measure the performance of the reportable segments, nor is this part of the segment information regularly provided to the CODM.

	For the three months ended September 30, 2012
	Dalian District			Shenyang District			Beijing District			Tianjin District			Shanghai District			US Corporation			Total
Revenue	$	4,315,530		$	124,624		$	708,392		$	121,502		$	210,915		$	-		$	5,480,963
Cost of Revenue		(2,820,495	)		(242,737	)		(286,532	)		(47,028	)		(396,205	)		(852,699	)		(4,645,696	)
Gross Profit	$	1,495,035		$	(118,113	)	$	421,860		$	74,474		$	(185,290	)	$	(852,699	)	$	835,267

	For the three months ended September 30, 2011
	Dalian District			Shenyang District			Beijing District			Tianjin District			Shanghai District			US Corporation		Total
Revenue	$	4,010,815		$	265,604		$	-		$	110,601		$	175,139		$	-	$	4,562,159
Cost of Revenue		(1,695,995	)		(113,209	)		(76,622	)		(50,923	)		(187,317	)		-		(2,124,066	)
Gross Profit	$	2,314,820		$	152,395		$	(76,622	)	$	59,678		$	(12,178	)	$	-	$	2,438,093

The US subsidiary was incorporated in the quarter ended September 30, 2012. The cost of revenue was related to amortization of Time square billboard right amortization, which was acquired in March 2012.  The cost of $547,300 related to the billboard was recorded under Dalian District prior to the incorporation of US subsidiary for the 3 months ended September 30, 2012.

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

Overview

We are one of the fastest growing outdoor advertising companies in China. We own and operate various outdoor media network and provide a full range of integrated outdoor advertising services to our clients, 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 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 86-411-82728168.

Our Corporate History

Through our contractual arrangements with our affiliates in China, we own and operate one of the largest outdoor advertising networks in northeast China with a strong market presence in Dalian and Shenyang, the two most popular commercial cities in Northeast China. We provide a full range of integrated outdoor advertising services to our clients, including art design, advertising display, 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 levels. Founded in 2000, we have grown steadily and expanded our media network into cities of Shenyang, Tianjin, Beijing and Shanghai from our headquarters in Dalian.

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 Navigator.”

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. As of September 30, 2012, the number of bus and taxi shelters on which we operate and carry our advertisements is 810; the number of buses that carry our mobile advertisements is 336; the number of mobile displays through Dalian metro-trains is 38. As of September 30, 2012, we have installed 52 “City Navigator” units across Dalian urban area, 3 mega-screen (126 square meters to 400 square meters, approximately 1,356 square feet to 4,306 square feet) LED screens and 8 metal billboards in Dalian, 4 LED screens in the business district in Shenyang, 1 indoor LED screen (22 square meters, approximately 237 square feet) in Tianjin Railway Station, 1 mega-screen (150 square meters, approximately 1,614 square feet) LED screen in Beijing and 5 outdoor billboards in Shanghai. On March 1, 2012, we also gained the operating right for one LED screen located at No. 1 Times Square in New York City in the United States.

On July 17, 2012, our name was changed from China New Media Corp. to V Media Corporation through a short form merger pursuant to Section 253 of the General Corporation Law of the State of Delaware by merging a wholly owned subsidiary of the Company into the Company, with the Company as the surviving corporation in the merger. Our trading symbol on the OTC Bulletin Board remains to be CMDI.OB.

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Subsidiaries of V-Media

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

Name of Subsidiary	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 and domestic advertisement
Dalian Vastitude Engineering & Design Co., Ltd.	83%	Dalian	Engineering, design and 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
Vastitude Media –US  Corporation	100%	U.S.	Advertising company

Factors Affecting Our Results of Operations

Domestic Spending and Urbanization

The demand for our advertising time slots is directly related to the outdoor advertising spending in northeast China. Advertising spending is largely determined by the economic conditions in our region.  The Chinese government is aimed at building a domestic consumer-driven economy, which we believe, will continue to generate demand for outdoor advertising.  

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 various 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 are aggressively expanding 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 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 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 are highly visible even during bright daylight, it improves the advertising effects  markedly.  We plan to build more mega-screen (100 square meters to 500 square meters, approximately 1,076.4 square feet to 5,382 square feet) LED displays at premier locations in our marketplace.

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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 continuous 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;

● Our ability to expand our new systems including large-screen LED display network and City Navigator® Networks.

Results of Operations for the Three-Month Period Ended September 30, 2012 Compared to the Three-Month Period Ended September 30, 2011

Revenue  

The following table shows the operations of the Company on a consolidated basis:

REVENUES	Three Months Ended September 30,
	2012		2011		Difference			% Change
Dalian District
Street Fixture and Display network	$	2,134,300	$	1,217,835	$	916,465			75.3	%
City Transit system Display network		1,078,962		919,819		159,143			17.3	%
Outdoor Billboards		861,964		1,209,425		(347,461	)		(28.7	%)
City Navigator		105,472		531,833		(426,361	)		(80.2	%)
Other service income(a)		134,832		131,903		2,929			2.2	%
Subtotal for Dalian District	$	4,315,530	$	4,010,815	$	304,715			7.6	%
Shenyang District
Street Fixture and Display network	$	46,596	$	55,588	$	(8,992)			(16.2	%)
Outdoor Billboards		78,028		210,016		(131,988)			(62.8	%)
Subtotal for Shenyang District	$	124,624	$	265,604	$	(140,980)			(53.1	%)
Beijing District
Outdoor Billboards	$	708,392	$	-	$	708,392			100	%
Subtotal for Beijing District	$	708,392	$	-	$	708,392			100	%
Tianjin District
Outdoor Billboards	$	121,502	$	110,601	$	10,901			9.9	%
Subtotal for Tianjin District	$	121,502	$	110,601	$	10,901			9.9	%
Shanghai District
Outdoor Billboards	$	210,915	$	175,139	$	35,776			20.4	%
Subtotal for Shanghai District	$	210,915	$	175,139	$	35,776			20.4	%
Total Revenues	$	5,480,963	$	4,562,159	$	918,804			20.1	%

(a) Other service income is consisted of income from (i) Construction & Design service provided by Dalian Vastitute Engineering & Design Company and (ii) technique service provided by Dalian Vastitute Network Technology Company to outside customers.

24

Revenue

Revenues for the three months ended September 30, 2012 were $5,480,963, an increase of $918,804 or 20.1%, from $4,562,159 for the three months ended September 30, 2011. The increase in revenue was primarily attributable to the revenue increase in Beijing, Shanghai and Dalian district, offset by revenue decrease in Shenyang district.

For the three months ended September 30, 2012, sales in Dalian district, accounted for 78.7% of our total sales, increased by $304,715, or 7.6%, to $4,315,530 from $4,010,815 for the three months ended September 30, 2011.

For the three months ended September 30, 2012, sales in Beijing district, accounted for 12.9% of our total sales, increased by $708,392, or 100%, from none for the three months ended September 30, 2011.

For three months ended September 30, 2012, sales in Tianjin district increased by 10,901, or 9.9%, to $121,502 from $110,601 for the three months ended September 30, 2012.

Sales revenue in Shanghai District increased $35,776 or 20.4% to $210,915 from $175,139 for the three months ended September 30, 2012.

Overall sales in Shenyang district decreased by $140,980, or 53.1%, to $124,624 from $265,604 for the three months ended September 30, 2012. In Shenyang, sales generated from street furniture and display network decreased 16.2%, or $8,992 compared with same period in 2011, and sales generated from billboards including LED screens decreased 62.8%, or $131,988 compared with same period in 2011. The decreased sales was a result of decreased revenue from real estate clients.

Cost of Revenue

Cost of revenue for the three months ended September 30, 2012 were $4,645,696, an increase of $2,521,630 or 118.7%, from $2,124,066 for the same period ended September 30, 2011. The increase in cost of revenue was primarily attributable to increased depreciation of advertising equipment for approximatley $140,000 as we secured more advertising platforms during this quarter, increase in labor for approximately $280,000, and the cost of lease expense for approximately $1.7 million related to billboards. Cost related to the Time Square LED was about $1.4 million in current quarter. As a percentage of total revenues, cost of revenue accounted for approximately 84.8% and 46.6% for the three months ended September 30, 2012 and 2011, respectively.

COST OF REVENUES	Three Months Ended September 30,
	2012		2011		Difference			% Change
Dalian District
Street Fixture and Display network	$	1,315,051	$	551,937	$	763,116			138.3	%
City Transit system Display network		831,379		384,537		446,842			116.2	%
Outdoor Billboards		530,019		453,849		76,170			16.8	%
City Navigator		110,698		160,179		(49,481	)		30.9	%
Other service cost (b)		33,345		145,493		(112,148	)		(77.1	%)
Subtotal for Dalian District	$	2,820,495	$	1,695,995	$	1,124,500			66.3	%
Shenyang District
Street Fixture and Display network	$	92,030	$	9,057	$	82,973			916.1	%
Outdoor Billboards		150,707		104,152		46,555			44.7	%
��  Subtotal for Shenyang District	$	242,737	$	113,209	$	129,528			114.4	%
Beijing District
Outdoor Billboards	$	286,532	$	76,622	$	209,910			274	%
Subtotal for Beijing District	$	286,532	$	76,622	$	209,910			274	%
Tianjin District
Outdoor Billboards	$	47,028	$	50,923	$	(3,895	)		(7.6	%)
Subtotal for Tianjin District	$	47,028	$	50,923	$	(3,895	)		(7.6	%)
Shanghai District
Outdoor Billboards	$	396,205	$	187,317	$	208,888			111.5	%
Subtotal for Shanghai District	$	396,205	$	187,317	$	208,888			111.5	%
United States
Outdoor Billboards		852,699		–		852,699			100	%
Subtotal for United States		852,699		–		852,699			100	%
Total Cost of Revenue	$	4,645,696	$	2,124,066	$	2,521,630			118.7	%

 (b) Other service cost incurred by Dalian Vastitute Engineering & Design Company and by Dalian Vastitute Network Technology Company when they provide Construction & Design service and technique service to outside customers, respectively.

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Gross Profit

Gross profit for the three months ended September 30, 2012 decreased by $1,602,826 or 65.7% to $835,267 from $2,438,093 for the same period in 2011. The decrease in gross profit was due to the increase in cost of revenue during the three months ended September 30, 2012. Our gross profit margin during the three months ended September 30, 2012 and 2011 were 15.2% and 53.4%, respectively. The decrease in our gross profit margin during the first quarter of fiscal 2013 was primarily due to (i) increased cost of revenue which was mainly caused by increased depreciation expense of advertising equipment and increase in overhead due to the higher labor cost and raw material cost, (ii) cost of Times Square LED was about $1.4 million in current quarter. As a result, our gross profit margin was lower than the level we normally would expect. We intend to increase our sales effort to improve the utilization rate of our platforms in the coming quarters to improve our gross profit margin, and we expect to have a margin recovery as the new market gains sales momentum.

Selling, General and Administrative Expenses

Selling, general and administrative expenses totaled $1,834,803 during the three months ended September 30, 2012, an increase of $908,513 or 98.1%, compared to $926,290 for the same period ended September 30, 2011. Along with increase in our payroll and administrative costs, the increase in our operating expenses was mainly due to increased selling and promotional expenses so as to improve market awareness in both existing and new markets, and other costs related to supporting our sales force as the overall advertising market became more competitive.

Other Income (Expenses)

For the three months ended September 30, 2012, we had total other expense of $257,419, an increase of $6,356 or 2.5%, compared with $251,063 during the same period of 2011.  The increase in other expenses was mainly due to the increase in interest expense during the period.

Total interest expense on bank loans for the three months ended September 30, 2012 and 2011, amounted to $281,353 and $232,866, respectively.

Income Tax Provision (Benefit)

Our profit is subject to the prevailing tax rate applicable to the respective jurisdictions in which we operate.

For the three months ended September 30, 2012, we reported an income tax benefit of $81,127 due to operating losses incurred during the quarter. For the same period in 2011, we reported an income tax provision of $355,380.

Net Income (Loss) Attributable to the Company

Net loss attributable to the Companywas $1,404,689 for the three months ended September 30, 2012, as compared with a net income of $862,918 during the three months ended September 30, 2011, representing a decrease of 262.8%. The decrease in net income was mainly attributed to increase in cost of revenue, selling, general and administrative expenses.

Comprehensive Income (Loss) Attributable to the Company

Our business operates primarily in Chinese Renminbi (“RMB”), but we report our results in U.S. Dollars. The conversion of our accounts from RMB to U.S. Dollars results in translation adjustments. As a result of a currency translation adjustment gain, our comprehensive loss was $1,032,333 during the three months ended September 30, 2012, as compared with comprehensive income of $1,093,541 during the three months ended September 30, 2011.

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Liquidity and Capital Resources

We have historically funded our working capital needs from operations, advance payments from customers, bank borrowings, and capital from shareholders. Presently, our principal sources of liquidity are generated from our operations and loans from commercial banks and capital leases.  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, bank loans and bank notes payable, will be sufficient to meet our working capital requirement for our current operations over the next twelve months. In order to fully implement our business plan and continue our growth, however, we will require additional capital either from our shareholders or from outside sources.  The Company expects to be able to refinance its short term loan based on past experience.

In July 2012, we signed an agreement with Bank of Asia, pursuant to which, the bank provides a RMB 22 million ($3.5 million) revolving notes payable credit line from July 25, 2012 to July 25, 2020. We also have a letter of credit from Bank of China in the amount of $3.36 million for lease payment of Times Square Billboard.

As of September 30, 2012, the Company’s cash and cash equivalents amounted to $880,338, a decrease of $646,266 from $1,526,604 as of June 30, 2012.

Cash Flow from Operating Activities

Net cash used by operating activities was $487,124 for the three months ended September 30, 2012, a decrease of $2,272,907 from the cash provided by operating activities of $1,785,783 for the three months ended September 30, 2011. The decrease was mainly due to decreased net income.

Cash Used in Investing Activities

Net cash used in investing activities in the three months ended September 30, 2012 was $1,515,731 as compared to cash used in investing activities of $2,108,366 for the three months ended September 20, 2011.  Cash used in investing activities in current quarter was for  acquisition of new outdoor advertising platforms to expand our existing advertising network and loan to third parties.

Cash Provided by Financing Activities

For the three months ended September 30, 2012, net cash provided by financing activities was $1,348,575 as compared to net cash used in financing of $818,164 for the three months ended September 30, 2011. Net proceeds from short-term bank loans was approximately $1.4 million; net proceeds from bank acceptance notes payable was $3.8 million; cash used in restricted cash was $2.9 million during the three months ended September 30, 2012.

Loan Facility

Short-Term Loans

a) Loan payable to Shanghai Pudong Development bank consists of two loans. One is a one-year term loan from November 22, 2011 to November 21, 2012 with the amount of RMB 6,000,000 (approximately $955,000) at a variable interest rate of 8.528% per year. The Company pledged a real estate property owned by a Company’s major stockholder. The loan has been repaid in September, 2012. The second loan is a one-year term loan from June 18, 2012 to June 14, 2013 in the amount of RMB 10,000,000 (approximately $1.59 million) at a variable interest rate of 8.203% per year. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company. The Company pledged part of its advertising equipment with the value of RMB 20.4 million (approximately $3.2 million).

b) Loan payable to Dalian Bank Xigang Branch is a one-year term from March 27, 2012 to March 26, 2013 at a variable interest rate of 9.184% per year. This loan has been guaranteed by an unrelated company, Dalian Huanbohai Development Credit Guaranty Company. The Company also pledged part of its advertising equipment with the value of RMB18.26 million (approximately $2.9 million).

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c) Loan payable to Industrial and Commercial Bank of China is a one-year term loan from September 28, 2011 to August 21, 2012 at a fixed interest rate of 7.872% per year. The Company pledged a real estate property owned by a Company’s major stockholder. The loan has been paid off on August 21, 2012. The company obtained a new loan at the same amount from September 20, 2012 to September 12, 2013 with a fixed interest rate of 7.872% per year.

d) Loan payable to Jinzhou Bank is a five-month term loan from July 2, 2012 to November 30, 2012 at a fixed interest rate of 7.80% per year. The Company pledged part of its advertising equipment with the value of RMB30, 998,320 (approximately $4.9 million).

e) Loan payable to Jilin Bank consists of two loans. One loan is a one-year term loan from June 19, 2012 to May 9, 2013 in the amount of RMB 3,000,000 (approximately $0.48 million) at a variable interest rate of 8.528% per year. The other loan is a one-year term loan from May 10, 2012 to May 9, 2013 in the amount of RMB 15,000,000 (approximately $2.39 million) at a variable interest rate of 8.528% per year. $0.4 million restricted cash was deposited in Jilin Bank in association with this loan.  The two loans have been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Co., Ltd. The Company also pledged part of its advertising equipment with the approximate value of RMB 43,408,300 (approximately $6.9 million).

f) Loan payable to Dalian Bank Shenyang Branch was a one-year term loan from June 6, 2012 to June 5, 2013 at a variable interest rate of 8.856% per year.  The loan is guaranteed by Dalian Vastitude Media Group Co., Ltd.

g) Loan payable to Dalian Bank Shanghai Branch is an eleven-month term loan from December 29, 2011 to November 28, 2012 at a floating interest rate of 9.184% per year. This loan has been guaranteed by Dalian Vastitude Media Group Co., Ltd.

h) Loan payable to Yingkou bank is one-year term loan from June 29, 2012 to June 28, 2013 at a floating interest rate of 8.203% per year. This loan has been guaranteed by Zhongqing Union Credit Guarantee (Dalian) Corporation.

i) Loan payable to China Merchant bank is one-year term loan from May 24, 2012 to May 24, 2013 at a fixed interest rate of 8.528% per year. The Company also pledged part of its advertising equipment for this loan.

Long-Term loan

On December 29, 2011, V Media Corporation’s subsidiary Shenyang and Beijing subsidiaries entered into loan agreements with ORIX finance leases (China) Co., Ltd. (“ORIX Leasing”) pursuant to which Shenyang and Beijing borrowed $0.65 million (RMB 4.1 million) and $0.56 million (RMB 3.5 million) from ORIX leasing and pledged its advertising equipment with the approximate value of RMB $1.0 million (RMB6.26 million) and $0.85 million (RMB5.37 million), respectively. These loans are paid on a monthly basis over a two-year period and consist of a fixed payment based upon a 24-month amortization of the purchase price plus an interest component that varies based upon the rate announced from time to time by the People’s Bank of China for two-year loans. At September 30, 2012, the monthly payment under the agreement for Shengyang and Beijing were $0.03 million (RMB 181,309) and $0.02 million (RMB 155,410) respectively, which including an interest component calculated at the rate of 6.65%.

Notes Payable

 As of September 30, 2012, the Company has bank acceptance notes payable in the amount of $3,862,736. The notes are guaranteed to be paid by the banks and usually for a short-term period of three to six months. The Company is required to maintain cash deposits at a minimum 30%-50% of the total balance of the notes payable with the banks, in order to ensure future credit availability.

Application of Critical Accounting Policies

Management's discussion and analysis of its financial condition and results of operations are based upon our  condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles (“US GAAP”). Our financial statements reflect the selection and application of accounting policies, which require management to make significant estimates and judgments. See Note 2 to our consolidated financial statements, “Summary of Significant Accounting Policies.”

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Impact of Accounting Pronouncements

The Company’s management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, will have a material effect on the Company’s condensed consolidated financial position, results of operations, or cash flows.

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. 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 light of the material weaknesses that were identified and described in our Annual Report on Form 10-K for the year ended June 30, 2012 which was filed with the Securities and Exchange Commission on September 27, 2012, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of September 30, 2012.  

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2012, we have

●           Continued our search for an experienced internal control manager for the Company to lead the testing and implementation of our accounting and internal control procedures.

●           Evaluated the roles of our existing accounting personnel and updated the reporting structure of our accounting staff .

●           Established a work plan to update the Company’s internal control procedures and policies.

●           Developed a preliminary staff  training program to all employees involved which objective is to enhance the staff’s awareness of the Company’s updated accounting policies and procedures and familiarity with US GAAP and SEC rules and regulations.

There were no other changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None for the period covered by this report

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

None for the period covered by this report.

ITEM 6. EXHIBITS.

(a) Exhibits.

31.1*	Certification of the CEO
31.2 *	Certification of the CFO
32.1 *	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2*	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
101.*INS	XBRL Instance Document
101.*SCH	XBRL Taxonomy Extension Schema Document
101.*CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.*DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.*LAB	XBRL Taxonomy Extension Label Linkbase Document
101.*PRE	XBRL Taxonomy Extension Presentation Linkbase Document
		_____________

* Filed herewith

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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 14, 2012

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)

31

Exhibit Index

31.1*	Certification of the CEO
31.2 *	Certification of the CFO
32.1 *	Certification of the CEO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
32.2*	Certification of the CFO pursuant to 18 U.S.C. Section 1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as filed herewith.
101.*INS	XBRL Instance Document
101.*SCH	XBRL Taxonomy Extension Schema Document
101.*CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.*DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.*LAB	XBRL Taxonomy Extension Label Linkbase Document
101.*PRE	XBRL Taxonomy Extension Presentation Linkbase Document
	_____________

* Filed herewith

32