V Media Corp - FORM 10-Q - February 14, 2012

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EXCEL - IDEA: XBRL DOCUMENT - V Media Corp	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - V Media Corp	ex31x2.htm
EX-32.2 - EXHIBIT 32.2 - V Media Corp	ex32x2.htm
EX-32.1 - EXHIBIT 32.1 - V Media Corp	ex32x1.htm
EX-31.1 - EXHIBIT 31.1 - V Media Corp	ex31x1.htm

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 December 31, 2011

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 x

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 February 14, 2012, the Company had outstanding 27,590,001 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.	23

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	33

Item 4. Controls and Procedures.	33

PART II OTHER INFORMATION	35

Item 1. Legal Proceedings	35

Item 1A. Risk Factors	35

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 6.60231 for December 31, 2010, and $1 = RMB 6.30559 for December 31, 2011, which were determined based on the currency conversion rate at the end of each respective period. The conversion rates of $1 = RMB 6.7133 is used for the condensed consolidated statement of income and other comprehensive income and consolidated statement of cash flows for the six months ended December 31, 2010, and $1= RMB6.3865 is used for the condensed consolidated statement of income and other comprehensive income and consolidated statement of cash flows for the six months ended December 31, 2011; 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.

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

(UNAUDITED)


	As of December 31		As of June 30
	2011		2011

ASSETS

Current assets
Cash and cash equivalents	$	1,537,099	$	1,808,880
Accounts receivable, net		6,881,971		5,395,698
Advance to suppliers		1,189,039		619,582
Prepaid expenses		96,226		189,759
Loans receivable		2,306,366		1,761,139
Other current assets		362,470		243,159
Deferred tax assets		102,107		129,443
Total current assets		12,475,278		10,147,660

Property, equipment and construction in progress, net,		20,567,370		18,867,352

Other assets
Security deposits		1,889,829		1,955,343
Equity investment		87,151		-
Billboards use right		4,425,484		4,766,060
Total other assets		6,402,464		6,721,403

Total Assets	$	39,445,112	$	35,736,415

LIABILITIES AND EQUITY

Current liabilities
Short term loans	$	11,545,311	$	11,603,746
Current portion of long term loan		475,768		464,150
Accounts payable, accrued expenses and other payables		1,980,413		1,661,011
Deferred revenues		2,655,559		1,618,548
Taxes payable		1,252,650		1,055,620
Due to related parties		306,609		158,297
Total current liabilities		18,216,310		16,561,372

Total Liabilities		18,216,310		16,561,372

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		1,027,248		636,300
Retained earnings		12,207,197		10,724,103
Total stockholders' equity		20,058,124		18,184,082
Noncontrolling interest		1,170,678		990,961
Total equity		21,228,802		19,175,043

Total Liabilities and Equity	$	39,445,112	$	35,736,415

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

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

AND COMPREHENSIVE INCOME

(IN US DOLLARS)

(UNAUDITED)


			For the six months ended December 31,						For the three months ended December 31,
			2011			2010			2011			2010


Revenues			$	9,605,933		$	9,168,539		$	5,043,775		$	5,047,789

Cost of revenue				(4,405,235	)		(3,962,040	)		(2,281,169	)		(2,228,838	)

Gross profit				5,200,698			5,206,499			2,762,606			2,818,951

Selling, general and administrative expenses				(2,459,023	)		(1,691,586	)		(1,532,733	)		(926,447	)

Income from operations				2,741,675			3,514,913			1,229,873			1,892,504

Other income (expenses):
	Interest income			2,891			3,031			1,198			1,529
	Interest expense			(469,145	)		(315,557	)		(236,279	)		(159,227	)
	Loss from equity investment			(7,901	)		-			(7,901	)		-
	Other income			-			117,537			-			52,249
	Other expenses			(21,248	)		(15,424	)		(1,358	)		(15,288	)

		Total Other income (expenses)		(495,403	)		(210,413	)		(244,340	)		(120,737	)

Income before income taxes				2,246,272			3,304,500			985,533			1,771,767

Income tax provision (benefit)
	-	Current		566,435			898,516			194,000			494,958
	-	Deferred		43,795			(23,204	)		60,851			(15,042	)
		Total income tax provision (benefit)		610,230			875,312			254,851			479,916

Net income				1,636,042			2,429,188			730,682			1,291,851

	Less: net income attribute to the noncontrolling interest			152,947			86,570			110,505			34,374

Net income attributable to China New Media Corp.			$	1,483,095		$	2,342,618		$	620,177		$	1,257,477

Other comprehensive income
	Foreign currency translation adjustments			390,948			255,027			202,767			149,608

Comprehensive income				1,874,043			2,597,645			822,944			1,407,085

	Less: comprehensive income attribute to the noncontrolling interest			26,769			25,588			14,267			12,975

Comprehensive income attributable to China New Media Corp.			$	1,847,274		$	2,572,057		$	808,677		$	1,394,110

Earnings per share
	Basic		$	0.05		$	0.09		$	0.02		$	0.05
	Diluted		$	0.05		$	0.08		$	0.02		$	0.04
Weighted average number of common shares
	Basic			27,550,701			27,550,701			27,550,701			27,550,701
	Diluted			27,550,701			28,196,904			27,550,701			27,997,977

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

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS)

(UNAUDITED)


	For the six months ended December 31,
	2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,636,042		$	2,429,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		1,981,591			1,245,238
Amortization of stock based compensation expense		15,975			-
Loss from equity investment		7,901			-
Allowance for doubtul accounts		69,091			1,258
Changes in operating assets and liabilities
Accounts receivable		(1,403,172	)		(1,097,194	)
Other current assets		(121,137	)		(1,658,136	)
Advance to employee		49,771			59,688
Security deposit		113,009			17,872
Deferred tax assets		30,189			(23,204	)
Advance to suppliers		(546,925	)		969,766
Accounts payable, accrued expenses and other payables		140,316			1,060,860
Advances from customers		96,810			-
Deferred revenues		983,863			974,767
Taxes payable		168,444			421,508

Net cash provided by operating activities		3,221,768			4,401,611

CASH FLOWS FROM INVESTING ACTIVITIES:
Loans receivable		(494,790	)		-
Advance payment for investment		-			1,906,665
Equity investment		(93,948	)		-
Acquisition of billboards use right		(488,526	)		(3,275,235	)
Acquisition of property and equipment		(2,251,187	)		(4,396,546	)

Net cash used in investing activities		(3,328,451	)		(5,765,116	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from capital contributions		-			476,666
Net proceeds from short-term bank loans		751,580			1,042,707
Repaymenof short-term bank loans		(1,096,054	)		-
Repayment of related party loans		138,813			(320,236	)
Repayments of long-term bank loans		-			(297,916	)

Net cash provided by (used in) financing activities		(205,661	)		901,221

EFFECT OF EXCHANGE RATE CHANGE ON
CASH AND CASH EQUIVALENTS		40,563			32,573

NET DECREASE IN CASH AND CASH EQUIVALENTS		(271,781	)		(429,711	)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		1,808,880			1,672,017

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	1,537,099		$	1,242,306

SUPPLEMENTAL CASH FLOW DISCLOSURE
Income taxes paid	$	378,193		$	692,274
Interest paid	$	466,144		$	156,330

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

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

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.

The Company, along with its subsidiaries and VIEs, is engaging in 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 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 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.

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.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION (Continued)

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.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts 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.

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 allowance of doubtful accounts. Actual results could differ from those estimates.

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.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Accounts Receivable

Accounts receivable 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. There were $363,165 and $286,027 allowance for uncollectible amounts as of December 31, 2011 and June 30, 2011, respectively. Accounts are written off only after exhaustive collection efforts.

Advance to suppliers

The Company periodically makes advances to certain vendors for purchases of advertising materials and equipment and records those advances as advance to suppliers. Historically, the Company has not experienced any losses as a result of these advances.

Property, Equipment and Construction in Progress

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
Building	15 years	5	%
Improvement of the building	5 years	0	%
Advertising equipment	4-15 years	5	%
Transportation	7 years	5	%
Office equipment and furniture	5 years	5	%

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. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Impairment of long-lived assets

Long-lived assets, which include property, plant and equipment, billboard use right 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 three and six months ended December 31, 2011 and 2010.

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.

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.

Cost of revenues

Cost of advertising services consists primarily of media costs payable under exclusive advertising agreements, depreciation of advertising equipment and amortization of billboards use right, business taxes and surcharges 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.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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.

Equity Method Investment

The Company uses the equity method to account for its investment with ownership interest between 20% and 50% because it has significant influence but not control. Under the equity method, the Company recognizes its initial investment at cost and subsequently recognize in earnings its proportionate share of the income or loss of the investee.

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:

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

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 carrying amount of the Company’s bank loans approximates the fair value based on their short-term duration and 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, “Compensation- Stock Compensation”. 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.

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.

Concentrations of Business and Credit Risk

The Company maintains certain bank accounts in the PRC, which are not protected by FDIC insurance or other insurance.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and the general state of the PRC’s economy.

The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. The Company’s operating results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.

Reclassification

Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported total assets, liabilities, stockholders' equity or net income.

New Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not significantly impact its consolidated financial statements.

In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,” (“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not significantly impact its consolidated financial statements.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3 - LOANS RECEIVABLE

Loans receivable consist of three loans to non-related parties. The Company loaned $0.79 million (RMB 5 million) to Rongbang New Energy Resources, which is a one-year term loan from April 27, 2011 to April 26, 2012 at fixed interest rate of 10% per annum. The Company loaned $0.95 million (RMB 6 million) to Tianjun Trade Co., which is a one-year term loan from June 10, 2011 to June 9, 2012 at a fixed interest rate of 10% per annum. The Company made a non-interest bearing $0.58million (RMB 3.66 million) to Dalian Qianbaihe Cloth Accessories Co., which will be repaid by April 20, 2012. Tianjun Trade Co. repaid $0.1 million as of December 31, 2011.

NOTE 4 - MAJOR SUPPLIERS

During the three months ended December 31, 2011, one major supplier provided approximately 44% of the Company’s purchase of raw materials. For the three months ended December 31, 2010, one major supplier provided 12% of the Company’s purchase of raw materials.

During the six months ended December 31, 2011, one major supplier provided approximately 40% of the Company’s purchase of raw materials. For the six months ended December 31, 2010, one major supplier provided 11% of the Company’s purchase of raw materials.

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

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

	December 31, 2011			June 30, 2011
Advertising equipment	$	24,297,061		$	20,950,906
Office equipment and furniture		685,712			518,763
Office building and Improvement		441,407			355,048
Transportation		1,446,878			1,338,611
Subtotal		26,871,058			23,163,328
Less: Accumulated depreciation		(7,420,168	)		(6,217,911	)
Construction in progress		1,116,480			1,921,935

Total	$	20,567,370		$	18,867,352

Depreciation expense was $532,723 and $377,657 for the three months ended December 31, 2011 and 2010, respectively, and totaled $1,039,016 and $750,598, for the six months ended December 31, 2011 and 2010 respectively. Approximately $11.13 million of advertising equipment was pledged for short term loans as of December 31, 2011.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 - SECURITY DEPOSITS

Security deposits are mainly comprised of deposits made to third parties to guarantee the Company’s outstanding loans (see Note 10 and 11). As of December 31, 2011 and June 30, 2011, the Company has security deposit balances of $1,889,829 and $1,955,343, respectively, which will be returned when the respective loans are repaid.

NOTE 7 - EQUITY INVESTMENT

According to a contract signed on August 18, 2011, the Company obtained a 20% interest in Letian Net (“Letian”) after the entire consideration (RMB 600,000) was deposited to a designated bank account of the Company's subsidiary – Dalian Vastitude Network Technology Co., Ltd. as of December 31, 2011. Under the equity method of accounting a 20% loss of Letian ($7,901) was recognized for the three and six months ended December 31, 2011. Letian is an online advertising platform in Dalian, the PRC.

	As of December 31, 2011
Current assets	$	47,577
Noncurrent assets		-
Current liabilities	$	7,565
Noncurrent liabilities		-

	For the six months ended December 31, 2011
Revenue		-
Gross profit		-
Net income	$	(39,505	)

NOTE 8 - BILLBOARDS USE RIGHT

The Company makes advance payments for the right to construct advertising equipment 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 December 31, 2011 and 2010 was $535,229, and $258,956, respectively, and totaled $942,575 and $463,187 for the six months ended December 31, 2011 and 2010, respectively.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 - BILLBOARDS USE RIGHT (Continued)

The projected amortization expense from December 31, 2011 attributed to future periods is as follows:

The period ending December 31,	Amount
2012	$	1,327,332
2013		719,245
2014		577,900
2015		508,902
2016		278,325
Thereafter		1,013,780
	$	4,425,484

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 through June 30, 2011. The Company had loss carry forwards for U.S. income tax purposes available for offset against future taxable U.S income expiring through 2030 of approximately $173,492 and $157,516 as of December 31, 2011 and June 30, 2011, respectively. 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 was $58,987 and $53,555 as of December 31, 2011 and June 30, 2011, respectively.

Hong Kong

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

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, Shenyang, Wangluo and Shanghai have loss carryover that can only be used to offset their own future taxable income. The loss carry forward for those subsidiaries amounted to $403,252 and $146,598 as of December 31, 2011 and 2010, 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 carryforward periods available for tax reporting purposes, and other relevant factors. For the six months ended December 31, 2011, management concluded that it was more likely than not those additional PRC deferred tax assets would be realized. This determination was based upon actual and projected future operating results. Accordingly, the Company recorded a deferred tax provision of $43,795 and benefit of $23,204 for the six months ended December 31, 2011 and 2010, respectively.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - TAXES (Continued)

Significant components of the income tax provision were as follows for the three months and six months ended December 31, 2011 and 2010:

	For the six months ended December 31,					For the three months ended December 31,
	2011		2010			2011		2010
Current tax provision
Federal	$	-	$	-		$	-	$	-
State		-		-			-		-
Foreign		566,435		898,516			194,000		494,958

		566,435		898,516			194,000		494,958

Deferred tax benefit,net of valuation allowance
Federal		-		-			-		-
State		-		-			-		-
Foreign		43,795		(23,204	)		60,851		(15,042	)

		43,795		(23,204	)		60,851		(15,042	)

Income tax provision	$	610,230	$	875,312		$	254,851	$	479,916

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 December 31, 2011 and 2010 was $163,544 and $111,779, respectively, and totaled $408,781 and $441,172 for the six months ended December 31, 2011 and 2010, respectively.

c) Taxes payable consisted of the following:

	December 31,		June 30,
	2011		2011
Business tax payable	$	102,672	$	115,973
Corporate income tax payable		998,625		773,286
Other		151,353		166,361

Total taxes payable	$	1,252,650	$	1,055,620

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9 - TAXES (Continued)

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 December 31, 2011. 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 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 2007.

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:

	December 31, 2011		June 30, 2011
a) Loan payable to Harbin Bank	$	951,537	$	928,300

b) Loans payable to Shanghai Pudong Development Bank		2,537,431		2,475,466

c) Loan payable to Dalian Bank Xigang Branch		1,585,894		1,547,166

d) Loan payable to Industrial and Commercial Bank of China		285,461		-

e) Loan payable to Jinzhou Bank		2,378,841		2,320,749

f) Loans payable to Industrial Bank				1,083,016

g) Loans payable to Jilin Bank		2,378,842		2,320,749

h) Loan payable to Dalian Bank Shenyang Branch		951,537		928,300

i) Loan payable to Dalian Bank Shanghai Branch		475,768		-

Total short term loans	$	11,545,311	$	11,603,746

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 May 9, 2011 to May 8, 2012 at a variable interest rate of 7.57% at June 30, 2011. 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 is an original one-year term loan from November 10, 2008 to November 10, 2009 with the amount of RMB 6,000,000 (approximately $952 thousand) at a fixed interest rate of 7.99% per year. This loan has been renewed from November 16, 2011 to November 15, 2012 at a variable interest rate of 8.528% 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 June 22, 2011 to June 15, 2012 in the amount of RMB 10,000,000 (approximately $1.59 million) at a fixed interest rate of 8.20% per year. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company and the major stockholders.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

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 March 14, 2011 to March 11, 2012 at a variable interest rate of 5.56% at June 30, 2011. 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 $2.06 million) to Dalian Huanbohai Development Credit Guaranty Company.

d) 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. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma. The Company pledged a real estate property with an estimated value of RMB2,630,000 (approximately $417,090).

e) Loan payable to Jinzhou Bank was a one-year term loan from April 21, 2010 to April 20, 2011 at a fixed interest rate of 6.90% per year. The loan has been renewed for another year from May 3, 2011 to April 20, 2012 at a fixed interest rate of 8.20% 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 $2.7 million).

f) Loan payable to Industrial Bank was a one-year term loan from July 20, 2010 to July 19, 2011 in the amount of RMB 7,000,000 (approximately $1.1 million) at a variable interest rate of 6.11% per year. This loan has been repaid on July 19, 2011.

g) Loan payable to Jilin Bank consists of two loans. One loan is a one-year term loan from May 6, 2011 to May 4, 2012 with the amount of RMB 5,000,000 (approximately $0.8 million) at a fixed interest rate of 8.20% per year. The other loan is a one-year term loan from May 9, 2011 to May 8, 2012 with the amount of RMB 10,000,000 (approximately $1.6 million) at a fixed interest rate of 8.20% per year. The two loans have been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Co., Ltd. In the guaranty contract, the Company pledged part of its advertising equipment with the approximate value of RMB43,408,300 (approximately $6.9 million) to Dalian Enterprise Credit Guaranty Co., Ltd.

h) Loan payable to Dalian Bank Shenyang Branch is a one-year term loan from June 10, 2011 to June 8, 2012 at a fixed interest rate of 8.52% per year. This loan has been guaranteed by Dalian Vastitude Media Group Co., Ltd.

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

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11 - LONG TERM LOANS

The long term loans include the following:

	December 31, 2011		June 30, 2011
Loan payable to Dalian Bank	$	475,768	$	464,150

Total long term loans	$	475,768	$	464,150

Less: current portion	$	475,768	$	464,150

Total long term loans noncurrent portion	$	-	$	-

Loan payable to Dalian Bank matures on June 25, 2012 and has a variable interest rate of 4.95% at December 31, 2011. This loan has been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Company.

NOTE 12 - RELATED PARTY TRANSACTIONS

Amounts due to related parties are as follows:

		December 31, 2011		June 30, 2011


Ma, Ming	$	140,595	$	-
Wang, Caiqin		118,942		116,038
Wang, Guojun		47,072		42,259
Total	$	306,609	$	158,297

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.

NOTE 13 - STOCKHOLDERS’ EQUITY

(1) 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.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13 - STOCKHOLDERS’ EQUITY (Continued)

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 warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected life 4.19 years, expected volatility 197%, dividend yield 0.00%, risk free interest rate 0.83% and the exercise price of $1.8. The fair value of the warrants to the director was $18,988 at the grant date. There were no estimated forfeitures as the Company has a short history of issuing options. Stock compensation expenses recognized were $23,960 and -0- for the six months ended December 31, 2011 and 2010, respectively.

The following is a summary of the status of warrant activities for the six months ended December 31, 2011:

	Warrants Outstanding		Weighted Average Exercise Price		Average Remaining Life in years
Outstanding, June 30, 2011		3,348,760	$	0.96		2.4
Granted		-		-		-
Forfeited		-		-		-
Exercised		-		-		-
Outstanding, December 31, 2011		3,348,760	$	0.96		1.93
Exercisable, December 31, 2011		3,298,760	$	0.95		1.9

NOTE 14 - EARNINGS PER SHARE

Basic earnings per share is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14 - EARNINGS PER SHARE (Continued)

Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income position at the calculation date.

As of December 31, 2011, 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 December 31, 2011.

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.

The following table sets forth earnings per share calculation for the six months and three months ended December 31, 2011 and 2010:

	For the six months ended				For the three months ended
	December 31,				December 31,
	2011		2010		2011		2010
Basic earnings per share
Net income attributable to China New Media Corp.	$	1,483,095	$	2,342,618	$	620,177	$	1,257,477

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

Earnings per share-Basic	$	0.05	$	0.09	$	0.02	$	0.05

Diluted earnings per share
Net income attributable to China New Media Corp.	$	1,483,095	$	2,342,618	$	620,177	$	1,257,477

Weighted average number of common shares outstanding -Basic		27,550,701		27,550,701		27,550,701		27,550,701
Effect of diluted securities-warrant				646,203				447,276
Weighted average number of common shares outstanding - Diluted		27,550,701		28,196,904		27,550,701		27,997,977

Earnings per share-Diluted	$	0.05	$	0.08	$	0.02	$	0.04

CHINA NEW MEDIA CORP. AND SUBSIDIARIES

NOTES TO CONDENCSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15 - 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 the group. 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.

Revenue and cost of revenues by segment were as follows:

	For three months ended December 31, 2011
	Dalian District			Shenyang District			Beijing District			Tianjin District			Shanghai District			Total

Revenue	$	3,576,801		$	463,745		$	704,606		$	141,215		$	157,408		$	5,043,775
Cost of Revenue		(1,357,408	)		(402,599	)		(259,893	)		(77,057	)		(184,212	)		(2,281,169	)
Gross Profit	$	2,219,393		$	61,146		$	444,713		$	64,158		$	(26,804	)	$	2,762,606


	For three months ended December 31, 2010
	Dalian District			Shenyang District			Beijing District			Tianjin District			Shanghai District			Total

Revenue	$	4,513,761		$	181,252			-		$	52,479		$	300,297		$	5,047,789
Cost of Revenue		(1,855,432	)		(181,156	)		(15,108	)		(16,141	)		(161,001	)		(2,228,838	)
Gross Profit	$	2,658,329		$	96		$	(15,108	)	$	36,338		$	139,296		$	2,818,951


	For six months ended December 31, 2011
	Dalian District			Shenyang District			Beijing District			Tianjin District			Shanghai District			Total

Revenue	$	7,587,615		$	729,349		$	704,606		$	251,815		$	332,548		$	9,605,933
Cost of Revenue		(3,053,403	)		(515,808	)		(336,515	)		(127,980	)		(371,529	)		(4,405,235	)
Gross Profit	$	4,534,212		$	213,541		$	368,091		$	123,835		$	-38,981		$	5,200,698


	For six months ended December 31, 2010
	Dalian District			Shenyang District			Beijing District			Tianjin District			Shanghai District			Total

Revenue	$	8,138,839		$	367,011		$	-		$	66,955		$	595,734		$	9,168,539
Cost of Revenue		(3,354,597	)		(212,001	)		(30,507	)		(28,001	)		(336,934	)		(3,962,040	)
Gross Profit	$	4,784,242		$	155,010		$	(30,507	)	$	38,954		$	258,800		$	5,206,499

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. 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 December 31, 2011, the number of bus and taxi shelters on which we operate and carry our advertisements is 790; the number of buses that carry our mobile advertisements is 336; the number of mobile displays through Dalian metro-trains is 35. As of December 31, 2011, we have installed 52 “City Navigator” units across Dalian urban area, 3 mega-screen (126 M2 to 400 M2, approximately 1,356 square feet to 4,306 square feet) LED screens and 8 metal billboards in Dalian, 2 mega-screen (88 M2, approximately 947 square feet, and 558 M2, approximately 6,327 square feet) LED screens in the business district in Shenyang, 1 indoor LED screen (22 M2, approximately 237 square feet) in Tianjin Railway Station, 1 mega-screen (150 M2, approximately 1,614 square feet) LED screen in Beijing and 5 outdoor billboards in Shanghai.

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.

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

Factors Affecting Our Results of Operations

The increase in our operating results in the last two fiscal years is attributable to a number of factors, including the substantial expansion of our outdoor media network in Dalian and Shenyang, the two largest cities in Northeast 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 February 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 more 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 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 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 are highly visible even during bright daylight, it improves the advertising effectiveness and efficiency markedly. We plan to build more mega-screen (100 M2 to 500 M2, approximately 1,076.4 square feet to 5,382 square feet) LED displays 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 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 which commenced operation in the third quarter of 2009.

Results of Operations for the Three-Month Period Ended December 31, 2011 Compared to the Three-Month Period Ended December 31, 2010

Revenue

The following table shows the operations of the Company on a consolidated basis for the three months ended December 31, 2011 and 2010:

REVENUES	Three Months Ended December 31,
	2011		2010		Difference		% Change
Dalian District
Street Fixture and Display network	$	1,133,934	$	1,621,365	$	-487,431		-30.1	%
City Transit system Display network		751,134		966,683		-215,549		-22.3	%
Outdoor Billboards		1,163,582		1,248,353		-84,771		-6.8	%
City Navigator		388,470		425,778		-37,308		-8.8	%
Other service income(a)		139,681		251,582		-111,901		-44.5	%
Subtotal for Dalian District	$	3,576,801	$	4,513,761	$	-936,960		-20.8	%

Shenyang District
Street Fixture and Display network	$	81,400	$	73,787	$	7,613		10.3	%
Outdoor Billboards		382,345		107,465		274,880		255.8	%
Subtotal for Shenyang District	$	463,745	$	181,252	$	282,493		155.9	%

Beijing District
Outdoor Billboards	$	704,606	$	-	$	704,606		100	%
Subtotal for Beijing District	$	704,606	$	-	$	704,606		100	%

Tianjin District
Outdoor Billboards	$	141,215	$	52,479	$	88,736		169.1	%
Subtotal for Tianjin District	$	141,215	$	52,479	$	88,736		169.1	%

Shanghai District
Outdoor Billboards	$	157,408	$	300,297	$	-142,889		-47.6	%
Subtotal for Shanghai District	$	157,408	$	300,297	$	-142,889		-47.6	%

Total Revenues	$	5,043,775	$	5,047,789	$	-4,014		-0.1	%

(a) Other service income generated by Construction & Design service provided by Dalian Vastitute Engineering & Design Company and technique service provided by Dalian Vastitute Network Technology Company to outside customers.

Revenue

Our total revenues for the three months ended December 31, 2011 were $5,043,775, a decrease of $4,014 or 0.1%, from $5,047,789 for the three months ended December 31, 2010.

For the three months ended December 31, 2011, sales in Dalian district, accounted for 70.9% of our total sales, decreased by $936,960, or 20.8%, to $3,576,801 from $4,513,761 for the three months ended December 31, 2010. The decline was primarily attributable to a decrease in contracting demand from advertisers under unfavorable macro economic conditions. Advertisers from certain industries, such as real estate, significantly reduced their advertising budgets in the second half of 2011.

Overall sales in Shenyang district increased by $282,493, or 155.9%, to $463,745 from $181,252 for the three months ended December 31, 2010. In Shenyang, sales generated from street furniture and display network increased 10.3%, or $7,613 compared with same period in 2010, and sales generated from billboards including LED screens increased 255.8%, or $274,880 compared with same period in 2010. The increased sales reflected the Company’s focused effort on developing Shenyang market, as Shenyang will be the host city for the upcoming 12th National Games of the People’s Republic of China in 2013.

For three months ended December 31, 2011, sales in Tianjin district increased by 88,736, or 169.1%, to $141,215 from $52,479 for the three months ended December 31, 2010. Sales revenue in Shanghai District decreased $142,889 or 47.6% to $157,408 from $300,297 for the three months ended December 31, 2010. The decline was primarily attributable to the unfavorable macro outdoor advertising market conditions in Shanghai.

For three months ended December 31, 2011, the Company also generated sales revenue of $704,606 from its Beijing District compared with none for the three months ended December 31, 2010.

Cost of Revenue

Cost of revenue for the three months ended December 31, 2011 were $2,281,169, an increase of $52,331 or 2.3%, from $2,228,838 for the same period ended December 31, 2010. The increase in cost of revenue was primarily attributable to increased depreciation of advertising equipment and labor and raw material cost. As a percentage of total revenues, cost of revenue accounted for approximately 45.2% and 44.2% for the three months ended December 31, 2011 and 2010, respectively.

COST OF REVENUES		Three Months Ended December 31,
		2011		2010	Difference		% Change
Dalian District
Street Fixture and Display network	$	392,499	$	566,991	$	-174,492	-30.8	%
City Transit system Display network		352,771		519,642		-166.871	-32.1	%
Outdoor Billboards		402,295		436,367		-34,072	-7.8	%
City Navigator		134,140		148,614		-14,474	-9.7	%
Other service cost (b)		75,703		183,818		-108,115	-58.8	%
Subtotal for Dalian District	$	1,357,408	$	1,855,432	$	-498,024	-26.8	%

Shenyang District
Street Fixture and Display network	$	70,579	$	73,861	$	-3,282	-4.4	%
Outdoor Billboards		332,020		107,295		224,725	209.4	%
Subtotal for Shenyang District	$	402,599	$	181,156	$	221,443	122.2	%

Beijing District
Outdoor Billboards	$	259,893	$	15,108	$	244,785	1,620.2	%
Subtotal for Beijing District	$	259,893	$	15,108	$	244,785	1,620.2	%

Tianjin District
Outdoor Billboards	$	77,057	$	16,141	$	60,916	377.4	%
Subtotal for Tianjin District	$	77,057	$	16,141	$	60,916	377.4	%

Shanghai District
Outdoor Billboards	$	184,212	$	161,001	$	23,211	14.4	%
Subtotal for Shanghai District	$	184,212	$	161,001	$	23,211	14.4	%

Total Cost of Revenue	$	2,281,169	$	2,228,838	$	52,331	2.3	%

(b) Other service cost attributed 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.

Gross Profit

Our gross profit for the three months ended December 31, 2011 decreased by $56,345 or 2.0% to $2,762,606 from $2,818,951 for the same period in 2010. The decrease in gross profit was due to the slight decrease in revenue and the increase in cost of revenue during the three months ended December 31, 2011. Our gross margin during the three months ended December 31, 2011 and 2010 were 54.8% and 55.8%, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses, totaled $1,532,733 during the three months ended December 31, 2011, an increase of $606,286 or 65.4%, compared to $926,447 for the same period ended December 31, 2010. The increase in our operating expenses was mainly due to increased selling expense and other costs related to supporting our sales force as the overall advertising market became more competitive, increase in our payroll and administrative costs, and increased cost of being a public company.

Other Income (Expenses)

For the three months ended December 31, 2011, we had total other expense of $244,340, an increase of $123,603 or 102.4%, compared with $120,737 during the same period of 2010. The increase in other expenses was mainly due to the $77,052 increase in interest expense during the period.

Total interest expense on the bank loans for the three months ended December 31, 2011 and 2010, amounted to $236,279 and $159,227, respectively.

Net Income Attributable to the Company

Net income attributable to the Company was $620,177 for the three months ended December 31, 2011, as compared with $1,257,477 during the three months ended December 31, 2010, representing a decrease of 50.7%. The decrease in net income was mainly attributed to our increase in selling, general and administrative expenses.

Comprehensive Income

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 income was $822,944 during the three months ended December 31, 2011, as compared with $1,407,085 during the three months ended December 31, 2010, an decrease of 41.5%. The decrease is due to significant currency exchange fluctuation of Chinese RMB to US Dollar for the periods.

Results of Operations for the Six-Month Period Ended December 31, 2011 Compared to the Six-Month Period Ended December 31, 2010

Revenue

The following table shows the operations of the Company on a consolidated basis for the six months ended December 31, 2011 and 2010:

REVENUES	Six Months Ended December 31,
	2011		2010		Difference		% Change
Dalian District
Street Fixture and Display network	$	2,351,768	$	2,964,421	$	-612,653	-20.7	%
City Transit system Display network		1,670,952		1,812,244		-141,292	-7.8	%
Outdoor Billboards		2,373,008		2,186,680		186,328	8.5	%
City Navigator		920,303		718,481		201,822	28.1	%
Other service income (a)		271,584		457,013		-185,429	-40.6	%
Subtotal for Dalian District	$	7,587,615	$	8,138,839	$	-551,224	-6.8	%

Shenyang District
Street Fixture and Display network	$	136,988	$	133,396	$	3,592	2.7	%
Outdoor Billboards		592,361		224,381		367,980	164.0	%
Other service income (a)				9,234		-9,234	-100	%
Subtotal for Shenyang District	$	729,349	$	367,011	$	362,338	98.7	%

Beijing District
Outdoor Billboards	$	704,606	$		$	704,606	100	%
Subtotal for Beijing District	$	704,606	$		$	704,606	100	%

Tianjin District
Outdoor Billboards	$	251,815		66,955	$	184,860	276.1	%
Subtotal for Tianjin District	$	251,815		66,955	$	184,860	276.1	%

Shanghai District
Outdoor Billboards	$	332,548	$	595,734	$	-263,186	-44.2	%
Subtotal for Shanghai District	$	332,548	$	595,734	$	-263,186	-44.2	%

Total Revenues	$	9,605,933	$	9,168,539	$	437,394	4.8	%

Revenue

Our total revenues for the six months ended December 31, 2011 were $9,605,933, an increase of $437,394 or 4.8%, from $9,168,539 for the six months ended December 31, 2010.

For the six months ended December 31, 2011, sales in Dalian district, accounted for 79% of our total sales, decreased by $551,224, or 6.8%, to $7,587,615 from $8,138,839 for the six months ended December 31, 2010. Overall sales in Shenyang district increased by 362,338, or 98.7%, to $729,349 from $367,011 for the six months ended December 31, 2010. In Shenyang, sales generated from street furniture and display network increased 2.7%, or $3,592 compared with same period in 2010, and sales generated from billboards including LED screens increased 164%, or $367,980 compared with same period in 2010.

For six months ended December 31, 2011, sales in Tianjin district increased by 184,860, or 276.1%, to $251,815 from $66,955 for the six months ended December 31, 2010. Sales revenue in Shanghai District decreased $263,186 or 44.2% to $332,548 from $595,734 for the six months ended December 31, 2010. The decline was primarily attributable to the unfavorable macro outdoor advertising market conditions in Shanghai.

The Company also generated sales revenue of $704,606 from its Beijing District compared with none for the three months ended December 31, 2011.

Cost of Revenue

Cost of revenue for the six months ended December 31, 2011 were $4,405,235, an increase of $443,195 or 11.2%, from $3,962,040 for the same period ended December 31, 2010. The increase in cost of revenue was primarily attributable to increased depreciation of advertising equipment and labor and raw material cost. As a percentage of total revenues, cost of revenue accounted for approximately 45.9% and 43.2% for the six months ended December 31, 2011 and 2010, respectively.

COST OF REVENUES	Six Months Ended December 31,
	2011		2010		Difference		% Change
Dalian District
Street Fixture and Display network	$	944,436	$	1,092,241	$	-147,805		-13.5	%
City Transit system Display network		737,308		885,722		-148,414		-16.8	%
Outdoor Billboards		856,144		785,566		70,578		9.0	%
City Navigator		294,319		232,113		62,206		26.8	%
Other service cost (b)		221,196		358,955		-137,759		-38.4	%
Subtotal for Dalian District	$	3,053,403	$	3,354,597	$	-301,194		-9.0	%

Shenyang District
Street Fixture and Display network	$	79,635	$	83,759	$	-4,124		-4.9	%
Outdoor Billboards		436,173		126,708		309,465		244.2	%
Other service cost (b)				1,534		-1,534		-100	%
Subtotal for Shenyang District	$	515,808	$	212,001	$	303,807		143.3	%

Beijing District
Outdoor Billboards	$	336,515	$	30,507	$	306,008		1,003.1	%
Subtotal for Beijing District	$	336,515	$	30,507	$	306,008		1,003.1	%

Tianjin District
Outdoor Billboards	$	127,980	$	28,001	$	99,979		357.1	%
Subtotal for Tianjin District	$	127,980	$	28,001	$	99,979		357.1	%

Shanghai District
Outdoor Billboards	$	371,529	$	336,934	$	34,595		10.3	%
Subtotal for Shanghai District	$	371,529	$	336,934	$	34,595		10.3	%

Total Cost of Revenue	$	4,405,235	$	3,962,040	$	443,195		11.2	%

Gross Profit

Gross profit for the six months ended December 31, 2011 decreased by $5,801, or 0.1%, to $5,200,698, as compared to $5,206,499 for the six months ended December 31, 2010. Gross profit margin was approximately 54.1% and 56.8% for the six months ended December 31, 2011and 2010, respectively. The decline in gross profit margin was mainly due to the increased maintenance cost of advertising equipment, and the increase of labor and raw material cost during the six months ended December 31, 2011.

Selling, General and Administrative Expenses

Our selling, general and administrative expenses consist primarily of salaries of sales personnel, commissions for sales representatives, rent expenses and related administrative expenses. SG&A expenses were $2,459,023 for the six months ended December 31, 2011, as compared to $1,691,586 for the six months ended December 31, 2010, an increase of $767,437 or 45.4%. This increase was due to increased sales effort from the Company to accommodate its geographic expansion of its media platforms, higher maintenance and professional fees as being a public company, and other expenses related to the growth of business.

Income from Operations

Income from operations was $2,741,675 for the six months ended December 31, 2011 as compared to $3,514,913 for the six months ended December 31, 2010, a decrease of $773,238 or 22%. The decrease was mainly due to our increase in total cost of revenue and SG&A expenses.

Other Income (Expense)

Total other expense was $495,403 for the six months ended December 31, 2011 as compared to total other expenses of $210,413 for the six months ended December 31, 2010, an increase of $284,990, or 135.4%. The increase in other expense is mainly due to the increased interest expense from the bank loans.

Income Before Income Taxes

Income before income taxes was $2,246,272 for the six months ended December 31, 2011 as compared to $3,304,500 for the six months ended December 31, 2010, a decrease of $1,058,228 or 32%.

Income tax provision

Income tax provision was $610,230 for the six months ended December 31, 2011 as compared to $875,312 for the six months ended December 31, 2010, a decrease of $265,082 or 30.3%.

Net Income attributable to China New Media Corp.

Net income attributable to China New Media Corp. for the six months ended December 31, 2011 was $1,483,095, a decrease of $859,523, or 36.7%, compared to net income of $2,342,618 for the six months ended December 31, 2010. The decrease was mainly due to the increase in cost of revenues and selling, general and administrative expenses. Net income as a percentage of total net sales was approximately 15.4% and 25.6% for the six months ended December 31, 2011 and 2010, respectively.

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 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 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.

As of December 31, 2011, the Company’s cash and cash equivalents amounted to $1,537,099, a decrease of $271,781 from $1,808,880 as of June 30, 2011.

Cash Flow from Operating Activities

Net cash provided by operating activities was $3,221,768 for the six months ended December 31, 2011, a decrease of $1,179,843 from $4,401,611 for the six months ended December 31, 2010. The decrease was mainly due to the decrease in net income, increase in accounts receivable, and partially offset by an increase in depreciation and amortization.

Cash Used in Investing Activities

Net cash used in investing activities in the six months ended December 31, 2011 was $3,328,451 as compared to cash used in investing activities of $5,765,116. Net cash used in investing activities for 2010 and 2011 was mainly used to acquire new outdoor advertising platforms to expand our existing advertising network.

Cash Provided by Financing Activities

For the six months ended December 31, 2011, net cash used in financing activities was $205,661 as compared to net cash provided by financing of $901,221 for the six months ended December 31, 2010. This was mainly due to the repayment of short-term bank loans of approximately $1 million by the Company during the six months ended December 31, 2011.

Loan Facility

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 May 9, 2011 to May 8, 2012 at a variable interest rate of 7.88% at June 30, 2011. 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 is an original one-year term loan from November 10, 2008 to November 10, 2009 with the amount of RMB 6,000,000 (approximately $952,000) at a fixed interest rate of 7.99% per year. This loan has been renewed from November 16, 2011 to November 15, 2012 at a variable interest rate of 7.57% 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 June 22, 2011 to June 15, 2012 in the amount of RMB 10,000,000 (approximately $1.59 million) at a fixed interest rate of 8.20% per year. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company and the major stockholders

d) 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. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma. The Company pledged a real estate property with an estimated value of RMB2,630,000 (approximately $417,090).

f) Loan payable to Industrial Bank was a one-year term loan from July 20, 2010 to July 19, 2011 with the amount of RMB 7,000,000 (approximately $1.1 million) at a variable interest rate of 6.11% per year. This loan has been repaid on July 19, 2011.

Long-Term loan

Application of Critical Accounting Policies

Management's discussion and analysis of its financial condition and results of operations are based upon our 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.”

Impact of Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not materially affect its consolidated financial statements.

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 improvements, 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 in 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 as of December 31, 2011. We believe that the material weakness in our disclosure controls and procedures, lack of sufficient accounting personnel with the appropriate level of knowledge, experience and training in the application of U.S. GAAP standards, which was 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 September 28, 2011, still exists.

In order to correct the foregoing deficiencies, the Company has taken the following remediation measures:

● To improve its financial system, management of the Company started to look for more experienced accounting professional who are familiar with US GAAP Standard and reporting requirements.

● To the extent practicable in the segregation of duties, the Company designed procedures to enhance the independent performance by separate individuals of different tasks, such as in the custody of assets and the recording of transactions.

Changes in Internal Control over Financial Reporting

Through the most recent quarter ended December 31, 2011, we have been implementing the following changes to our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, its internal control over financial reporting.

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

● We continued evaluating the roles of our existing accounting personnel in an effort to realign the reporting structure of our internal auditing staff in China that will test and monitor the implementation of our accounting and internal control procedures.

● We are in the process of completing a review and revision of the documentation of the Company’s internal control procedures and policies.

● We continued the preliminary implementation of an initiative and training in China to ensure 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.

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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None for the period covered by this report.

ITEM 1A. RISK FACTORS.

If we become directly subject to the recent scrutiny, criticism and negative publicity involving certain U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations, stock price and reputation and could result in a loss of your investment in our stock, especially if such matter cannot be addressed and resolved quickly.

Recently, U.S. public companies that have substantially all of their operations in China, particularly companies like us which have completed so-called reverse merger transactions, have been the subject of intense scrutiny, criticism and negative publicity by investors, short sellers, financial commentators and regulatory agencies, such as the United States Securities and Exchange Commission. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities and mistakes, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in many cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many U.S. listed Chinese companies has sharply decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits, SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what affect this sector-wide scrutiny, criticism and negative publicity will have on our company, our business and our stock price. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation could be costly and time consuming and distract our management from growing our company. If such allegations are not proven to be groundless, our company and business operations will be severely impacted. It could seriously affect our ability to raise money and our ability to uplist to major stock exchange, and your investment in our stock could be rendered worthless.

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

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: February 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)

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

Attached files

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