ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

(Formerly China New Media Corporation)

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.0001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Act.

Yes o No x

 

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

 

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

 

The aggregate market value of the registrant's common stock held by non-affiliates as of December 31, 2013 was approximately $1,390,592.08 based upon the closing price of the common stock as quoted by the Over-the-Counter Bulletin Board (the "OTC Bulletin Board")

 

As of October 9, 2014, there were 27,590,001 shares of the registrant's common stock, par value $0.0001 per share, outstanding.

 

PART IV

i

 

As used herein, "we," "us," "our" and the "Company" refers to V Media Corporation and its subsidiaries.

 

 

Information contained in this annual report contains "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," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business," 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; the relative cost of our operation as compared to our competitors; 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.

ii

 

 

ITEM 1. BUSINESS.

 

Overview

 

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

 

Our principal executive offices are located at Golden Name Commercial Tower 8th floor, 68 Renmin Road, Zhongshan District, Dalian, P.R. China. Our telephone number is 86-411-82728168.

 

Our Corporate History

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

 

On December 8, 2009, we acquired all of the outstanding capital stock of Hongkong Fortune-Rich Investment Co., Limited, a Hong Kong corporation ("Fortune-Rich"), through China New Media Corp., a Delaware corporation (the "Merger Sub") wholly owned by us (the "Merger").  Fortune-Rich is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Dalian Guo-Heng Management and Consultation Co., Ltd. ("Dalian Guo-Heng"), a limited liability company organized under the laws of the People's Republic of China. Substantially all of Fortune-Rich's operations are conducted in China through Dalian Guo-Heng, and through contractual arrangements with several of Dalian Guo-Heng's consolidated affiliated entities in China, including Dalian Vastitude Media Group Co., Ltd. ("V-Media") and its subsidiaries. V-Media is a fast-growing outdoor advertising company with major operations in Dalian, the commercial center of Northeastern China. Upon the completion of the Merger, our name was changed from Golden Key International, Inc. to China New Media Corp. 26,398,634 shares of the common stock of the Company were issued to the shareholders of Fortune-Rich, which constituted approximately 96% of the common stock of the Company. Effective December 28, 2009, our trading symbol on the OTC Bulletin Board was changed to CMDI.OB.

 

Through the contractual arrangements between Dalian Guo-Heng and V-Media, we operate one of the largest outdoor advertising networks in northeast China with strong market presence in Dalian and Shenyang, the two most popular commercial cities in Northeast China; and expanded presence in Beijing, Tianjin and Shanghai. 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 which includes displays on mass city transit system such as 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 ® Network."

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

 

 

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Subsidiaries of V-Media

 

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

 

 

Intellectual Property

 

As of June 30, 2014, Mr. Guojun Wang, our CEO and largest shareholder of V-Media, is the owner of 40 patents in the outdoor advertising display field.  His innovations on billboards, bus and taxi shelters, newsstands and other street fixtures have been vastly used in our outdoor display networks.  Mr. Wang has entered into licensing agreements with V-Media to allow V-Media to use his patents without charge.

 

Regulation

 

China's advertising laws and regulations require advertisers, advertising operators and advertising distributors, including businesses such as ours, to ensure that the content of the advertisements they prepare or distribute are fair and accurate and are in full compliance with applicable law. Outdoor advertisements in China must be registered with the local State Administration for Industry & Commerce ("SAIC") before dissemination.  The content, format, specifications, periods and locations of dissemination of the outdoor advertisement must be submitted for filing with the local SAIC.

 

Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements, and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the Chinese government may revoke a violator's license for advertising business operations.  Furthermore, advertisers, advertising operators or advertising distributors may be subject to civil liability if they infringe on the legal rights and interests of third parties in the course of their advertising business.

 

2

As an advertising service provider, we are obligated under Chinese laws and regulations to monitor the advertising content shown on our platforms for compliance with applicable law. In addition, for advertising content related to certain types of products and services, such as food products, alcohol, cosmetics, pharmaceuticals and medical procedures, we are required to confirm that the advertisers have obtained the requisite government approvals, including the advertising client's operating qualifications, proof of quality inspection of the advertised products, government pre-approval of the contents of the advertisement and filing with the local authorities.

 

Marketing

 

Our marketing staff is trained to work closely with customers such as direct advertisers and advertising agencies. We provide professional and customizing advice to meet customers' advertising needs.  As of June 30, 2014, we had 46 dedicated sales and marketing personnel. We depend on our marketing staff to explain our service offerings to our existing and potential clients and to cover a large number of clients in a wide variety of industries.

 

Competition

 

We compete with some of the largest advertising companies in China that operate outdoor advertising networks such as JCDecaux China, Clear Media, CBS Outdoor (China) and TOM OMG. We compete primarily on the basis of network size and coverage, location, price, the range of services that we offer and our brand name. We also compete for overall advertising spending with other alternative advertising media companies, such as Internet, street furniture, billboard, frame and public transport advertising companies, and with traditional advertising media, such as newspapers, television, magazines and radio. The Company has entered into a one-year lease agreement commencing March 1, 2012 for a LED in Time Square, New York City, the lease agreement has been renewed till August 31, 2014. It is a big step for the company to expand overseas operations and become international. Management is negotiating with potential customers in New York, but competition is strong.

Customers

 

For the fiscal year ended June 30, 2014, we do not have any individual customers accounting for more than 10% of our total revenues. Although our revenues from these advertising clients generally constitute a substantial part of our total revenues, we believe our business is not dependent on any individual advertising client.

Employees

 

V-Media currently has 153 full-time employees as of June 30, 2014, including 21 in manufacturing, 8 in research and development, 39 in administration and financial department, and 46 in sales, purchasing and marketing.

 

Recent Developments

Recognition of a "China Well-know Trademark" by the SAIC

 

On January 10, 2012, our trademark " Vastitude Media" has been recognized by the State Administration for Industry and Commerce (SAIC) as a "China Well-known Trademark". This is the first Well-known trademark that has ever been given in the outdoor media industry and entitles the Company to an additional RMB 50 million credit line.

 

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ITEM 1A. RISK FACTORS.

 

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

RISKS RELATED TO OUR BUSINESS

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

 

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

 

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

 

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

 

4

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

 

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

 

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

 

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

 

We have limited business insurance coverage.

 

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

 

Our management may exercise broad discretion and judgment.

 

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

 

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

 

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

 

5

 

Payment of dividends is unlikely.

 

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

 

We may issue additional securities.

 

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

 

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.

 

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

 

The unprecedented events in global financial markets have had a profound impact on the global economy.  Many industries are impacted by these market conditions.  A continued or worsened slowdown in the financial markets or other economic conditions, including but not limited to, consumer spending, employment rates, business conditions, inflation, fuel and energy costs, consumer debt levels, lack of available credit, the state of the financial markets, interest rates, and tax rates may adversely affect our Company's growth and profitability.  Specifically:

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

 

 

 

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Climate change and related regulatory responses may impact our business.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People's Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.  We may not be able to hedge effectively against Renminbi appreciation, so there can be no assurance that future movements in the exchange rate of Renminbi and other currencies will not have an adverse effect on our financial condition.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

 

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

 

We rely on contractual arrangements between Dalian Guo-Heng and V-Media to operate our advertising business. For a description of these contractual arrangements, see "Part I – Item 1 – Business – Overview."

 

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

 

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

Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability, limit our ability to acquire PRC companies or to inject capital into our PRC subsidiary or affiliate, limit our PRC subsidiary's and affiliate's ability to distribute profits to us or otherwise materially adversely affect us.

 

In October 2005, SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire "control" over domestic companies or assets, even in the absence of legal ownership; (2) adding requirements relating to the source of the PRC resident's funds used to establish or acquire the offshore entity; covering the use of existing offshore entities for offshore financings; (3) purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (4) making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds.  Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006; this date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations.  Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV's affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.

 

 

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

 

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

 

· the amount of government involvement;

· the level of development;

· the growth rate;

· the control of foreign exchange; and

· the allocation of resources.

 

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

 

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

 

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

 

 

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RISKS RELATED TO THE MARKET FOR OUR STOCK

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

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

 

The market price of our common stock may be volatile.

 

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

 

We are subject to penny stock regulations and restrictions.

 

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

Our senior management holds a significant percentage of our outstanding voting securities.

Guojun Wang, our Chairman and Chief Executive Officer, and his wife, Ms. Ming Ma, who is President and a director of the board, beneficially own 10,167,600 shares of common stock, which represent 36.8% of the common stock of the Company. Mr. Wang owns 6,850,000 of these shares, which represents 24.8% of the common stock of the Company, and Ms. Ma owns 3,317,600 of these shares, which represents 12.0% of the common stock of the Company. As a result, they possess significant influence, giving them the ability to prevent significant corporate transactions.  Their ownership and control may impede or delay any future change in control through merger, consolidation, takeover or other business combinations and may discourage a potential acquirer from making a tender offer.

ITEM 1B.  UNRESOLVED STAFF COMMENTS.

 

None.

 

 

 

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ITEM 2.  PROPERTIES.

 

Our principal executive offices are located at 8th Floor, Golden Name Commercial Tower, 68 Renmin Road, Zhongshan District, Dalian, P.R. China, 116001. This office consists of approximately 8,988 square feet which we leased from Mr. Guojun Wang and Ms. Ming Ma for  a nominal $1 a year. This lease agreement is renewable each year for a one-year period.

 

Our Shenyang subsidiary office is located at 5B-2-1 Room, 136 Huigong Street, Shenhe District, Shenyang, P.R. China, 110013. This office consists of approximately 4,700 square feet. This lease agreement is renewable each year for a one-year period.

 

Our Tianjin subsidiary office is located at Room 1-2-1217, Chengji Economics and Trade Center, Heping District, Tianjin, P.R. China, 300051. This office consists of approximately 678 square feet. This lease agreement is renewable each year for a one-year period.

 

Our Shanghai subsidiary office is located at Room 1018, No. 799, Huanlindong Road, Pudong New District, Shanghai, P.R. China, 200123. This office consists of approximately 215 square feet. This lease agreement is renewable upon expiration for a two-year period.

 

Dalian Vastitude & Modern Transit Media Co., Ltd. is located at 11 Liaohe West Road, Development Zone, Dalian, P.R. China, 116600. This office consists of approximately 3,331 square feet. This lease agreement is renewable upon expiration for a three-year period.

Vastitude Media - US Corp. is located at 1221 Ave of the Americas, Suite 4200, New York, New York, 10020. This office consists of approximately 1000 square feet. The lease agreement is automatically renewed by monthly.

 

ITEM 3.  LEGAL PROCEEDINGS.

 

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

 

ITEM 4.  MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

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ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Information

 

Our common stock is currently quoted on the OTC Bulletin Board maintained by the NASD under the symbol CMDI.OB.  The transfer agent for our common stock is Securities Transfer Corporation, 2591 Dallas Parkway, Suite 102, Frisco, TX 75034.

 

The following table sets forth the high and low closing bid quotations for our common stock for the fiscal quarters indicated as reported on the OTC Bulletin Board.  The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.  Trading in our common stock has been sporadic and does not constitute an active market. Our common stock is thinly traded and any reported sale prices may not be a true market-based valuation of our common stock. 

 

As of the date of this filing, there were approximately 273 owners of record of our common stock.

 

Trades in our common stock may be subject to Rule 15g-9 under the Exchange Act, which imposes requirements on broker-dealers who sell securities subject to the rule to persons other than established customers and accredited investors.  For transactions covered by the rule, broker-dealers must make a special suitability determination for purchasers of the securities and receive the purchaser's written agreement to the transaction before the sale.

 

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

Dividend Policy

 

We have not paid or declared any cash dividends on our common stock in the past and do not foresee doing so in the foreseeable future.  We intend to retain any future earnings for the operation and expansion of our business.  Any decision as to future payment of dividends will depend on the available earnings, the capital requirements of our Company, our general financial condition and other factors deemed pertinent by our Board of Directors.

 

13

 

 

Securities authorized for issuance under equity compensation plans.

 

None.

 

ITEM 6.  SELECTED FINANCIAL DATA.

 

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

 

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Factors that can affect our results of operations are as follows:

 

Domestic Spending and Urbanization

 

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

 

 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.

 

 

 

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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 square meters to 500 square meters, approximately 1,076.4 square feet to 5,382 square feet) LED displays at premier locations in our marketplace.

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:

 

 

 

15

Results of Operations for the Year Ended June 30, 2014 Compared to the Year Ended June 30, 2013

 

Revenue   

The following table shows the operations of the Company on a consolidated basis for the fiscal years ended June 30, 2014 and 2013:

 

REVENUES		Fiscal Years Ended June 30,
		2014				2013				Difference				% Change
Dalian District
Street Fixture and Display network		$	7,025,688			$	6,695,706			$	329,982				4.9	%
City Transit system Display network			3,483,114				4,094,252				(611,138	)			(14.9	)%
Outdoor Billboards			3,505,519				3,659,857				(154,338	)			(4.2	)%
City Navigator			307,144				351,288				(44,144	)			(12.6	)%
Other service income (a)			426,575				1,789,061				(1,362,486	)			(76.2	)%
Subtotal for Dalian District		$	14,748,040			$	16,590,164			$	(1,842,124	)			(11.1	)%
Shenyang District
Street Fixture and Display network		$	262,812			$	342,940			$	(80,128	)			(23.4	)%
Outdoor Billboards			619,628				757,659				(138,031	)			(18.2	)%
Subtotal for Shenyang District		$	882,440			$	1,100,599			$	(218,159	)			(19.8	)%
Beijing District
Outdoor Billboards		$	1,244,343			$	2,416,329			$	(1,171,986	)			(48.5	)%
Subtotal for Beijing District		$	1,244,343			$	2,416,329			$	(1,171,986	)			(48.5	)%
Tianjin District
Outdoor Billboards		$	339,398			$	440,331			$	(100,933	)			(22.9	)%
Subtotal for Tianjin District		$	339,398			$	440,331			$	(100,933	)			(22.9	)%
Shanghai District
Outdoor Billboards		$	104,688			$	825,793			$	(721,105	)			(87.3	)%
Subtotal for Shanghai District		$	104,688			$	825,793			$	(721,105	)			(87.3	)%
US District
Outdoor Billboards		$	1,770,599			$	450,000			$	1,320,599				293.5	%
Subtotal for US District		$	1,770,599			$	450,000			$	1,320,599				293.5	%
Total Revenues		$	19,089,508			$	21,823,216			$	(2,733,708	)			(12.5	)%

 

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Revenues for the fiscal year ended June 30, 2014 were $19,089,508, a decrease of $2,733,708 or 12.5%, from $21,823,216 for the fiscal year ended June 30, 2013. The mainly reason is the Company was affected by the general economic downturn, especially real estate industry during 2012 and 20013. In past year, the Company monitored its operating segments and adjusted its business strategy to face economic change. In order to focus resources towards profitable subsidiaries and segments, the Company is downsizing its non-profitable subsidiaries. It may not renew billboard rentals that did not bring enough cash flow in the past.

 

For the fiscal year ended June 30, 2014, sales in Dalian district, accounted for 77.3% of our total sales, a decrease of $1,842,124, or 11.1%, to $14,748,040 from $16,590,164 for the fiscal year ended June 30, 2013. The decrease was mainly because of construction revenue which decreased $1,362,486 or 76.2%, from $1,789,061 to $426,575. Revenue from City Transit System Display Network and City Navigator had a decline of 14.9% and 12.6% compared with revenue last year. These were due to 1) the Company changed its strategy to focus more on outdoor LED screens and billboards, which have less government regulations on location approval. City Navigator, on the contrary, faces more stringent approval by the government. 2) Customers for City Navigator are mostly in the real estate industry. Real estate customers are still under financial pressure and thus have lower advertisement budgets. Overall sales in Shenyang district decreased by $218,159, or 19.8%, to $882,440 from $1,100,599 for the fiscal year ended June 30, 2014. In Shenyang, sales generated from street fixture and display networks decreased by 23.4%, or $80,128 for the fiscal year ended June 30, 2014 compared with same period in 2013, and sales generated from billboards including LED screens decreased by 18.2%, or $138,031 for the fiscal year ended June 30, 2014 as compared with the same period in 2013.

 

 

Cost of revenue for the fiscal year ended June 30, 2014 were $16,250,101, a decrease of $1,997,210 or 10.9%, from $18,247,311 for the same period ended June 30, 2013. The decrease in cost of revenue was primarily attributable to: (i) The decrease in billboard rights amortization expense in the amount of $0.4 million due to a decrease of billboard right obtained in China. (ii) Decrease in raw material cost. As a percentage of total revenues, cost of revenue accounted for approximately 85.1% and 83.6% for the fiscal year ended June 30, 2014 and 2013, respectively. We incurred fees to building owners for placing and/or operating our digital screens. These fees constitute a significant portion of our cost of revenues. While we make payment almost immediately after signing the leasing contract and make additional payment on a fixed schedule, it took us a while to ramp up sales of advertising time slots and locations and build up revenues from these newly acquired or leased platforms. As we continue to operate the current advertising network and look for opportunity to expand and add on new platforms, we may experience a similar level of leasing fees and billboard rights amortization expense. However, as the newly acquired platforms start to generate revenue, we anticipate a decrease in the percentage of cost of revenue relative to revenue.

 

 

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(b) Other service costs 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.

 

 

 

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Gross profit for the fiscal year ended June 30, 2014 decreased by $736,498 or 20.6% to $2,839,407 from $3,575,905 for the same period in 2013.  Our gross profit margin during the fiscal year ended June 30, 2014 and 2013 were 14.9% and 16.4%, respectively. The decrease in our gross profit margin during fiscal year 2014 was primarily due to  decreased construction revenue and revenue from Beijing district. As a result, our gross profit margin was lower than the level we normally would expect. We intend to focus resources towards profitable subsidiaries and segments. We may not renew billboard rentals that did not bring enough cash flow in the past. Instead, we will invest a higher dollar amount in business segments that have higher gross margins.

 

Selling, General and Administrative Expenses  

 

Selling, general and administrative expenses totaled $5,139,047 during the fiscal year ended June 30, 2014, a decrease of $2,409,548 or 31.9%, compared to $7,548,795 for the same period ended June 30, 2013. The decrease in our operating expenses was mainly due to (1) a decrease of $0.9 million in bad debt provision; and (2)  more controlled selling and promotional expenses in both existing and new markets, and other costs related to supporting our sales force. We expect selling and marketing expenses to increase at a controllable rate as we will continue to invest greater resources in sales and marketing of our advertising network.

 

 

Loss from operations was $2,299,640 for the year ended June 30, 2014 as compared to $3,972,690 loss for the year ended June 30, 2013, a decrease of $1,673,050 or 42.1%. The decrease in loss from operation was mainly due to a decrease in cost of revenue and selling, general and administrative expense, offsetting the decrease in total revenue. For the year ended June 30, 2014, non-cash expenses include $9.3 million in depreciation and amortization expense and $1.3 million of provision for doubtful accounts. For the year ended June 30, 2013, non-cash expenses include $9.6 million of depreciation and amortization expense and $2.2 million of provision for doubtful accounts.

 

Other Income (Expense)  

 

For the fiscal year ended June 30, 2014, we had total other expense of $881,262, an increase of $32,673 or 3.9%, compared with $848,589 during the same period of 2013.  The increase in other expenses was mainly due to the decrease of subsidy income. 

 

Interest expense on bank loans for the fiscal year ended June 30, 2014 and 2013, amounted to $1,205,755 and $1,359,366, respectively.

 

Loss Before Income Taxes  

 

Loss before income taxes was $3,180,902 for the year ended June 30, 2014 as compared to a loss before income taxes of $4,821,279 for the year ended June 30, 2013, representing a decrease of $1,640,377 or 34.0% due to the reasons described above.

 

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

For the fiscal year ended June 30, 2014, we reported a total income tax provision of $125,741 due to operating income in certain of our Chinese subsidiaries incurred during the year. For the same period in 2013, we reported a total income tax provision of $875,065.  For the year ended June 30, 2014, management concluded the realization of PRC deferred tax assets is uncertain.  A full valuation allowance has been provided against the deferred tax assets as of June 30, 2014. The valuation allowance as of June 30, 2014 and 2013 was $0.76 million and $1.02, respectively.

 

 

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Net loss attributable to the Company was $3,110,653 for the fiscal year ended June 30, 2014, as compared with a net loss of $6,060,879 during the fiscal year ended June 30, 2013. The decrease in net loss was mainly attributed to our decrease in cost of revenue and selling, general and administrative expense, offsetting the decrease in total revenue.

Comprehensive Income (Loss) Attributable to the Company

The exchange rates used for foreign currency translation were as follows (US$1 = RMB):

Liquidity and Capital Resources

 

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

 

Based on our current operating plan, we believe that our existing resources, including cash generated from operations, bank loans and bank notes payable and advances from suppliers will be sufficient to meet our working capital requirement for our current operations over the next twelve months. In the past few months, our revenue increased due to our effort of client diversification and strategy adjustment.  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.  Our long-term liquidity will depend on our ability to refinance our debts. The Company expects to be able to refinance its short term loans based on past experience and the Company's good credit history. In July 2012, we signed an agreement with Bank of Asia, pursuant to which, the bank will provide us with a RMB 22 million ($3.6 million) revolving note payable credit line from July 25, 2012 to July 25, 2020. On September 4, 2014, we signed another agreement with Industrial and Commercial Bank of China, and pursuant to the agreement, the bank provided a RMB 1.8 million ($292,500) one-year loan to us until September 3, 2015.  Our major Shareholder, Mr. Guojun Wang has pledged to provide personal loans when necessary to provide us with sufficient liquidity for the next 12 months.

As of June 30, 2014, the Company's cash and cash equivalents amounted to $1,141,377, a decrease of $1,006,944 from $2,148,321 as of June 30, 2013.

 

Cash Flow from Operating Activities

 

Cash Used in Investing Activities

Net cash used in investing activities in the fiscal year ended June 30, 2014 was $8,232,704 as compared to cash used in investing activities of $8,755,514 for the fiscal year ended June 30, 2013.  Cash used in investing activities in current period was primarily for acquisitions of new outdoor advertising platforms to expand our existing advertising network, offset by net repayments of loans to third parties.

 

 

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Cash Provided by Financing Activities

 

For the fiscal year ended June 30, 2014, net cash provided by financing activities was $1,806,265 as a result of i) net proceeds from restricted cash was $0.4 million; ii) Net proceeds from short-term bank loans was approximately $3.3 million, iii) net proceeds from related party loans of $54,616, partially offset by cash used in repayment of bank acceptance notes payable of $1.6 million and $0.4 million repayment of long-term loans. Net cash used in financing activities was $2,488,616 for the fiscal year ended June 30, 2013, primarily due to net repayment of restricted cash of $3.3 million, related party loans of $0.3 million and long-term loans of $0.6 million and partially offset by a $334,603 proceeds from capital contributions, $1.1 million proceeds from short-term bank loans and $5.1 million proceeds from bank acceptance notes payable.

 

Loan Facility

 

Short-Term Loans

 

 

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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 ("U.S. 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."

 

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 7A.  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 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Our consolidated financial statements for the fiscal years ended June 30, 2014 and 2013 are attached hereto.

 

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

22

ITEM 9A.  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 Annual Report on Form 10-K (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 Annual Report on Form 10-K. 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 material weaknesses. Therefore, our management concluded that our disclosure controls and procedures were not effective.  We believe that the weaknesses in our disclosure controls and procedures result from weaknesses in our internal control over financial reporting, which is described below.

 

Notwithstanding management's assessment that the internal control over financial reporting was ineffective as of June 30, 2014 due to the material weakness described in the "Management's Annual Report on Internal Control over Financial Reporting section below, the Company believes that the consolidated financial statements included in this Annual Report on Form 10-K fairly present its financial condition, results of operations and cash flows for the fiscal periods covered thereby in all material respects.

Management's Annual Report on Internal Control over Financial Reporting

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company.  The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  The Company's internal control over financial reporting includes those policies and procedures that:

 

Because of its inherent limitations, internal control over financial reporting cannot provide absolute assurance of preventing and detecting misstatements on a timely basis.  Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures.

 

Management of the Company, including the Company's Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company's internal control over financial reporting as of the Evaluation Date.  In making this evaluation, management used the 1992  Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  Based on this evaluation, management concluded that we had made improvements in our internal control over financial reporting as of the Evaluation Date but the Company's internal control over financial reporting as of the Evaluation Date was not effective based on these criteria.

 

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Through the past fiscal year, we have been implementing the following changes to our internal control over financial reporting that have materially affected its internal control over financial reporting:

 

●           We initiated in the process of completing a review and revision of the documentation of the Company's internal control procedures and policies and launched an internal review mechanism.

 

●           We did 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 U.S. GAAP training to all employees involved to ensure the performance of and compliance with those procedures and policies.

  

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. 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, within V Media Corp. have been detected.  

ITEM 9B. OTHER INFORMATION.

 

None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers

 

The following sets forth certain information with respect to our current directors and executive officers.

 

 

All directors hold office until the next annual meeting of our stockholders and until their successors have been elected and qualify.  All executive officers serve at the pleasure of the Board of Directors.

 

Guojun Wang, 50, Chairman and Chief Executive Officer. Mr. Wang has served as our Chairman and Chief Execuitve Officer since December 2009.  Before Mr. Wang founded V-Media in September 2000, he had served as President of Dalian Pacific Advertisement Co., Ltd. for 11 years. With his more than 20 years of experience in the Chinese media and advertising industry and his success in building and managing one of the largest regional outdoor media companies in China, Mr. Wang was elected Vice Chairman of China Advertising Association of Commerce in 2007. He graduated from Northeastern University of Finance & Economics with a bachelor's degree in Economics in 1988.  Mr. Wang's role as the founder of the Company provides the Board of Directors with considerable institutional knowledge and an important long-term perspective on the Company and our industry as a whole. 

 

Hongwen Liu, 47, Chief Financial Officer. Mr. Liu joined the Company as Chief Financial Officer in December 2009.  Prior to that, he served as Deputy Director of Dalian Da-xin Accounting Firm for nine years. Mr. Liu graduated from the Computer-Based Accounting Department of Dalian Radio and Television University in July 1991.

Ming Ma, 48, President and Director. Ms. Ma has served as our President since December 2009 and became a director in June 2010.  Ms. Ma  has been in charge of V-Media's daily operation since its inception in September 2000. Prior to that, she had served as Sales Manager in Dalian Pacific Advertisement Co. Ltd. Ms. Ma graduated from Dalian Institute of Finance Trade Union in 1991.  Ms. Ma's many years of experience in the advertising industry provides the Board of Directors with valuable insight into our industry.  Ms. Ma is the wife of Mr. Wang, our Chairman and Chief Executive Officer.

 

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Family Relationships

Mr. Guojun Wang and Ms. Ming Ma are husband and wife.

Involvement in Certain Legal Proceedings

 

None.

Code of Business Conduct and Ethics

We currently have a code of ethics that applies to our officers, employees and directors, including our Chief Executive Officer (i.e., our principal executive officer) and our Chief Financial Officer (i.e., our principal accounting officer and principal financial officer). A copy of the Code of Ethics is available on the Company's website http://en.gywj.cn.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of any class of our equity securities, who collectively we generally refer to as insiders, to file with the SEC initial reports of beneficial ownership and reports of changes in beneficial ownership of common stock and other equity securities of the Company.  Our insiders are required by SEC regulation to furnish us with copies of all Section 16(a) reports they file.  Based solely upon a review of the copies of the forms furnished to us, we believe that during the fiscal year ended June 30, 2014, our insiders complied with all applicable filing requirements.

Corporate Governance

 

Board Leadership Structure. Our Board of Directors does not have a policy regarding the separation of the roles of Chief Executive Officer and Chairman of the Board, as the Board believes it is in the best interest of the Company to make that determination based on the position and direction of the Company and the membership of the Board.  In the future, we may allow two individuals to hold these two positions if the Board of Directors believes that it would be in the best interests of the Company and its stockholders.

 

Risk Management. The Company's management is responsible for the day-to-day risk management of the Company.  Management reports to the Board of Directors on the material risks the Company faces when management determines that the Company's risk profile materially changes.  The Board of Directors uses management's reports to evaluate the Company's exposure to risks in light of the Company's business plan and growth strategies.  The Board of Directors primarily focuses on risks in the areas of operations, liquidity and regulatory changes and compliance, which the Board of Directors believes are the areas most likely to have a potential impact on the Company in a material way.

 

 

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Consideration and Determination of Executive and Director Compensation.  The Board of Directors has the primary authority to determine our compensation philosophy and to establish compensation for our executive officers.  In establishing executive officer compensation, the Board of Directors uses its subjective evaluation of the executives' performance and responsibilities, our overall performance and the Chief Executive Officer's recommendations.  The Board of Directors has not used any compensation consultant in setting executive salaries, or in determining other components of executive compensation, nor does it seek formally to benchmark the compensation of our executive officers against compensation paid by other companies to their executives.

 

Management plays a significant role in the compensation-setting process.  The most significant aspects of management's role are:

 

·                 evaluating employee performance;

·                 preparing information for meetings of the Board of Directors;

·                 establishing business performance targets and objectives;

·                 providing background information regarding the Company's strategic objectives; and

·                 recommending salary levels and equity awards.

 

Risk Management related to Compensation Policies and Practices.  We do not believe that our compensation policies and practices encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on the Company.  The design of our compensation policies and practices encourages our employees to remain focused on both our short- and long-term goals.

 

Board and the Board Committees:

 

Our Board of Directors currently consists of two members: Mr. Guojin Wang and Ms. Ming Ma. We do not have a standing nominating, audit or compensation committee. As a small public company, we believe that all of our directors acting together, as opposed to a subset of them acting by means of a committee, is the most efficient and effective framework for us to perform the functions otherwise associated with nominating, audit and compensation committees.

 

Nominating Committee Functions -- Our Board of Directors seeks to ensure that it is composed of members whose particular experience, qualifications, attributes, and skills, when taken together, will allow the Board of Directors to satisfy its oversight obligations effectively. Currently, the Company does not have a separate nominating committee. The Board of Directors as a whole is in charge of identifying and appointing appropriate persons to add to the Board of Directors when necessary. In identifying Board candidates it is the Board's goal to identify persons whom it believes have appropriate expertise and experience to contribute to the oversight of a company of the Company's nature while also reviewing other appropriate factors.  In evaluating a director candidate, our Board of Directors will review his or her qualifications including capability, availability to serve, conflicts of interest, general understanding of business, understanding of our business and technology, educational and professional background, personal accomplishment and other relevant factors. Our Board of Directors has not established any specific qualification standards for director nominees, although from time to time the Board of Directors may identify certain skills or attributes as being particularly desirable to help meet specific needs that have arisen. The Company believes that each of the persons that currently comprise its Board of Directors have the experience, qualifications and attributes and skills taken as a whole to enable the Board of Directors to satisfy its oversight responsibilities effectively. .

 

Audit Committee Functions -- Currently we do not have an audit committee.

 

Compensation Committee Functions--We do not have a compensation committee due to the small size of the board. Rather, the full Board of Directors participates in deliberations concerning executive compensation and establishes the compensation and benefit plans and programs of the Company. In establishing executive officer compensation, the Board of Directors uses its subjective evaluation of the executives' performance and responsibilities, our overall performance and the Chief Executive Officer's recommendations.  The Board of Directors has not used any compensation consultant in setting executive salaries, or in determining other components of executive compensation, nor does it seek formally to benchmark the compensation of our executive officers against compensation paid by other companies to their executives. We do not currently have a written compensation committee charter or similar document. Mr. Guojun Wang and Ms. Ming Ma are board members and also our employee. Their compensation was decided by the employment agreements they entered into with the Company before the business combination.

 

Independent Directors

As of the date of this filing, we don't have any independent directors in our company.

 

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ITEM 11.  EXECUTIVE COMPENSATION.

Executive Compensation

The following table sets forth information concerning the annual compensation earned by our named executive officers for the periods specified.

 

 

Employment Agreements with Named Executive Officers

 

V-Media has entered into an employment agreement with each of its executive employees.  Each agreement has a term of three years.  Except for salary and bonus, the terms of the agreements are substantially identical and reflect employment standards common in China.  Mr. Guojun Wang, our Chief Executive Officer, receives an annual salary of RMB 300,000 (approximately $48,750), less all applicable taxes and other appropriate deductions.  Mr. Wang is entitled to an annual bonus in an amount of 10% of his annual salary, which must be approved by the Company's Board of Directors based on the Company's results of operations.

 

Director Compensation

 

Mr. Guojun Wang and Ms. Ming Ma did not receive compensation for their services as directors.

 

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ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Equity Compensation Plan

The Company does not maintain any equity compensation plans.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth information regarding the beneficial ownership of our Common Stock as of the date of this filing by (i) each person known by us to be the beneficial owner of more than 5% of our Common Stock, (ii) our directors, (iii) our named executive officers and (iv) our directors and executive officers as a group.

 

Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.

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*           Less than 1%.

 

 

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ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Related Transactions

 

Amounts due to certain stockholders are as follows:

The above stockholders listed are officers and directors of the Company.  Each of these stockholders provided funds for the Company's operations and for advertising material and equipment purchase purposes. These amounts due are generally unsecured, non-interest bearing and due upon demand.

 

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

   

Audit Fees.  The aggregate fees billed by Friedman LLP for professional services rendered for the audit of our annual financial statements included in our Annual Report on Form 10-K and the reviews of the financial statements included in our quarterly reports on Form 10-Q totaled $135,000 for the fiscal year ended June 30, 2014 and $130,000 for the fiscal year ended June 30, 2013.

Audit-Related Fees. The aggregate fees billed by our independent accounting firm related to assurance and related services totaled $0 for the fiscal year ended June 30, 2014 and 2013.

Tax Fees. The aggregate fees billed by our independent accounting firm for professional services rendered for tax compliance, tax advice and tax planning totaled $0 for the fiscal years ended June 30, 2014 and  2013.

All Other Fees. The aggregate of all other fees for services provided by our independent accounting firm were $0 for the fiscal year ended June 30, 2014 and $0 for the fiscal year ended June 30, 2013.

 

 

30

 

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

The following documents are filed as part of this report:

 

1.           Financial Statements

 

2.           Financial Statement Schedules

 

None.

 

3.           Exhibits

31

 

 

 

 

* Filed herewith.  

 

^ Indicates a management contract or compensatory plan or arrangement.

 

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Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

Pursuant to the requirements of the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

 

 

 

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* Filed herewith.  

 

^ Indicates a management contract or compensatory plan or arrangement.

 

CONSOLIDATED BALANCE SHEETS

(IN US DOLLARS)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(IN US DOLLARS)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED JUNE 30, 2014 AND 2013

F-4

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US DOLLARS)

F-6

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-7

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-8

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

F-9

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-10

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-11

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

F-12

V MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS