1

 

 

Use of Certain Defined Terms

 

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

 

 

 

 

 

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.

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V MEDIA CORP. AND SUBSIDIARIES

3

V MEDIA CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

4

V MEDIA CORP. AND SUBSIDIARIES

5

 

(a)

Organization and nature of business

 

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

 

Effective July 17, 2012, the Company changed its name from China New Media Corp. to V Media Corporation through a short form merger pursuant to Section 253 of the General Corporation Law of the State of Delaware by merging a wholly owned subsidiary of the Company into the Company, with the Company as the surviving corporation in the merger. The Company, along with its subsidiaries and Variable Interest Entities ("VIEs"), is engaged in the sale, construction and operations of outdoor advertising displays and other alternative media business. The Company is headquartered in Dalian, the commercial center of Northeastern China and has subsidiaries in Beijing, Shanghai and Tianjin.

(b)

Basis of presentation

 

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial statements. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles ("US GAAP") for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. These condensed consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the fiscal year ended June 30, 2014 filed with the SEC on October 14, 2014. Operating results for the six and three months ended December 31, 2014 may not be necessarily indicative of the results that may be expected for the full year.

(c)

Liquidity, capital resources and management's plans

 

The Company reported a net loss of approximately $2.9 million and $0.7 million for the six-month periods ended December 31, 2014 and 2013, respectively. At December 31, 2014 and June 30, 2014, the Company had a working capital deficit of approximately $19.0 million and $17.6 million, respectively.

The Company continues to finance its operations primarily through short-term bank borrowings and bank acceptance notes. Short-term bank borrowings and bank acceptance notes amounts to approximately $14.2 million and $6.8 million, respectively, at December 31, 2014. Management expects that short-term bank financing will continue to be available through March 31, 2016.

 

 

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The Company has also historically funded part of its working capital needs from operations, advance payments from customers, capital contributions and loans from its principal shareholders.

Based on our current operating plans, management expects that the Company's existing resources, including short-term bank loans and bank notes payable, advances from customers, capital contributions and loans from our major shareholders will be sufficient to meet the working capital requirements for the Company's current operations over the next twelve months. Management expects the Company to be able to refinance all of its short term loans based on past experience and its good credit history. In July 2012, the Company signed an agreement with Bank of East Asia, pursuant to which, the bank is providing the Company with a RMB 22 million ($3.6 million) revolving credit line from July 25, 2012 to July 25, 2020. In addition, the Company's principal shareholder has committed to provide personal loans when necessary to provide it with sufficient liquidity for the next twelve months. The Company also will discontinue the less profitable business lines to increase its overall profitability of the Company.

Additionally, the Company's Time Square billboard lease expired on August 31, 2014 and the lease was not renewed due to the recurring losses on this project. Management expects to save $3 million of lease payments annually on this project.  With its continued efforts to cut costs and to promote new business, the Company expects to turn around and become profitable in the next twelve months.

The ability of the Company to continue is dependent upon management's ability to implement its strategic plans, obtain additional capital and generate net income and positive cash flows from operations. There can be no assurance that these plans will be sufficient or that additional financing will be available in amounts or terms acceptable to the Company, if at all.

NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of V Media Corp., its subsidiary, Hong Kong Fortune-Rich Investment Co., Ltd. ("Fortune Rich") and its wholly-owned subsidiary Dalian Guo-Heng Management & Consultation Co., Ltd. ("Dalian Guo-Heng"), as well as Dalian Guo-Heng's variable interest entity and Dalian Vastitute Media Group Co., Ltd. ("V-Media Group"). The noncontrolling interests of the variable interest entities represent the minority stockholders' interest in V-Media Group's majority owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.

 

 

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Use of Estimates

In preparing the consolidated financial statements in conformity with US GAAP, 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 consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting years. Significant estimates, required by management, include the utilization of deferred tax assets, recoverability of long-lived assets, collectability of advances to suppliers, loans receivable and accounts receivable. 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. Since a majority of the bank accounts are located in PRC, those bank balances are uninsured.

Restricted Cash

As of December 31, 2014, the Company had restricted cash of $4.3 million. Restricted cash was associated with its bank acceptance notes payable. The banks require the Company to maintain a cash balance of a minimum of 50% of the balance of the notes payable as collateral (Note 9).

Accounts Receivable

Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible amounts, as needed. If facts subsequently become available to indicate that the allowance provided requires an adjustment, then the allowance will be adjusted. The Company reviews its accounts receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance, customer's historical payment history, its current credit-worthiness and current economic trends. The allowance for doubtful accounts totaled $3,167,973 and $2,557,684 as of December 31, 2014 and June 30, 2014, 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. We have annually recorded an allowance when there is doubt as to collectability. If facts subsequently become available to indicate that an allowance provided requires an adjustment, then the adjustment will be classified as a change in estimate. The allowance for doubtful accounts totaled $113,595 and $98,530 as of December 31, 2014 and June 30, 2014, respectively. Accounts are written off only after exhaustive collection efforts.

 

 

 

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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.

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.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers: Topic 606. This Update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards. The guidance in this Update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition and most industry-specific guidance. The core principle of the guidance is that an entity should recognize revenue to illustrate the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new guidance also includes a cohesive set of dis­closure requirements that will pro­vide users of financial statements with comprehensive information about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a report­ing organization's contracts with customers. This ASU is effective for fiscal years, and interim periods within those years beginning after December 15, 2016 for public companies and 2017 for non-public entities. Management is evaluating the effect, if any, on the Company's financial position and results of operations.

 

In August 2014, the FASB issued ASU No. 2014-15, "Disclosure of Uncertainties About an Entity's Ability to Continue as a Going Concern" ("ASU 2014-15"), which requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued and provides guidance on determining when and how to disclose going concern uncertainties in the financial statements. Certain disclosures will be required if conditions give rise to substantial doubt about an entity's ability to continue as a going concern. ASU 2014-15 applies to all entities and is effective for annual and interim reporting periods ending after December 15, 2016, with early adoption permitted. The Company does not expect that the adoption of this standard will have a material effect on the Company's consolidated financial statements.

 

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In November 2014, FASB issued Accounting Standards Update No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). The amendments permit the use of the Fed Funds Effective Swap Rate (also referred to as the Overnight Index Swap Rate, or OIS) as a benchmark interest rate for hedge accounting purposes. Public business entities are required to implement the new requirements in fiscal years (and interim periods within those fiscal years) beginning after December 15, 2015. All other types of entities are required to implement the new requirements in fiscal years beginning after December 15, 2015,and interim periods beginning after December 15, 2016. The Company does not expect the adoption of ASU 2014-16 to have material impact on the Company's consolidated financial statement.

In February 2015, the FASB issued new guidance for evaluating whether a reporting organization should consolidate certain legal entities. This guidance is effective for annual and interim periods beginning after December 15, 2015, and early adoption is permitted. The guidance should be applied either using a modified retrospective approach or retrospectively. We will adopt this standard on January 1, 2016, and we are currently assessing which implementation method we will apply and the impact its adoption will have on our financial position and results of operations.

NOTE 3 - LOANS RECEIVABLE

 

The loans receivable include the following:

 

 

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a) The Company made $0.24 million loan to Dalian Qianbaihe Cloth Accessories Co. for one year from March 5, 2014 to March 4, 2015 with interest 10%. The loan has been fully reserved as part of the allowance for doubtful accounts.

b) The Company made the following loans to Dalian Tianjun Trade Co.: (1) $0.24 million (RMB 1.5 million) for one year from January 1, 2014 to December 31, 2015, which has been reserved in the provision for doubtful accounts. (2) One-year term loan from November 30, 2012 to October 29, 2013 in the amount of $0.49 million (RMB 3.0 million). The Company has been repaid $0.47 million (RMB2.9 million) as of June 30, 2014.  The remaining balance of $0.02 million (RMB 100,000) has been extended to October 31, 2014. However, Dalian Tianjun did not pay back the loan as of December 31, 2014 and the balance has been fully reserved as part of the allowance for doubtful accounts.

c) The Company made a non-interest bearing loan of $0.04 million to Dalian Digital Media Co. as of June 30, 2012. The loan is due on demand and bears no interest. The loan is fully reserved as part of the allowance for doubtful accounts.

d) The Company loaned $0.05 million to Beijing Cross-Strait publishing exchange center on November 20, 2011. The loan is due on demand and bears no interest. The loan is fully reserved as part of the allowance for doubtful accounts.

e) The Company loaned $0.14 million to Dalian Culture and Broadcasting Corp in December 2012. In November, 2013, the loan was extended on November 21, 2013 for one year with the due date on October 31, 2014. The annual interest is 10%. However, since the Company did not receive the loan repayment as of December 31, 2014, the loan has been fully reserved as part of the allowance for doubtful accounts.

f) The Company loaned $0.15 million to Dalian Bomeishiji Media Corp for one year with the balance due on December 31, 2014. The annual interest is 10%. The Company did not receive the repayment as of the due date and the loan is fully reserved as part of the allowance for doubtful accounts.

 

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g) The Company loaned $0.37 million to Shenzhen Lianchuangjianhe Corp in 2013 which is due on demand and bear 10% annual interest.

h) The Company made the following loans to Bainianchahui Corp: (1) $0.26 million (RMB 1.57 million) for one year due on November 09, 2014. However, the Company did not receive the loan repayment before December 31, 2014 and the loan is fully reserved, (2) $0.15 million (RMB 0.94million) for two years and is due on December 31, 2015. Both loans bear annual interest of 10%, and (3) $0.24 million (RMB 1.0 million) which is due on demand.

i) The Company loaned $0.22 million to Wanjiada Commerce and Trade Co. on June 27, 2014 which is due on demand with no interest. The Company received the repayment as of December 31, 2014.

j) The Company loaned $0.12 million to Beijing Dayang Hongye Building Decoration Engineering on July 10, 2013 which is due on demand with no interest. The loan is fully reserved as part of the allowance for doubtful accounts.

k) The Company loaned $0.63 million to Guohe Company in December, 2014 which is due on demand with no interest.

l) The Company loaned $0.42 million to Shushuai Ma in December, 2014 which is due on demand with no interest.

m) The Company has various loans of $0.38 million to other third parties as of December 31, 2014 which is due on demand and bears no interest.

NOTE 4 - MAJOR SUPPLIERS

 

During the six months ended December 31, 2014, two major suppliers provided approximately 34% of the Company's purchase of raw materials, with each supplier accounting for 25% and 9%. During the six months ended December 31, 2013, three major suppliers provided approximately 78% of the Company's purchase of raw materials, with each supplier accounting for 52% and 13% and 13%.

 

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

 

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

 

Depreciation expense totaled $1,070,785 and $738,282 for the three months ended December 31, 2014 and 2013, respectively, and totaled $1,514,877 and $1,495,594 for the six months ended December 31, 2014 and 2013, respectively. Approximately $29.5 million of advertising equipment was pledged as collateral against various short term loans as of December 31, 2014.

Construction in progress mainly consists of billboards and other outdoor advertising platforms that are still under construction and have not been put in use.

NOTE 6 – SECURITY DEPOSITS

 

Security deposits are mainly comprised of deposits made to third parties to guarantee the Company's outstanding loans.  Since it has been the Company's policy to either roll-over a substantial amount of their existing loans or repay them and subsequently enter into a new loan with the same lender, security deposits have been recorded as long-term assets. (See note 8)

NOTE 7 - BILLBOARDS USE RIGHTS 

 

The Company makes payments for the rights to construct advertising equipment and post advertisements in various locations in the PRC, based on long-term contracts with local government authorities or other business entities. These payments are recorded as billboards use rights and amortized on a straight-line basis over the contract terms.

The Company also leased a billboard use right at Times Square in New York under a non-cancellable operating lease through August 31, 2014, requiring a quarterly lease payment of $840,000 before September 1, 2013 and increasing to $870,000 thereafter. This lease expired on August 31, 2014 and was not renewed.

 

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Lease expense recorded in cost of sales in connection with the Time Square billboard totaled $0 million and $0.87 million for the three months ended December 31, 2014 and 2013, respectively, and $0 million and $1.74 million for the six months ended December 31, 2014 and 2013, respectively.

Amortization of billboard use rights for the three months ended December 31, 2014 and 2013 was $944,264 and $1,625,612, respectively, and $1,988,347 and $3,284,052 for the six months ended December 31, 2014 and 2013, respectively.

The projected amortization expense as of December 31, 2014 attributed to future years is as follows:

 

 The following is a schedule by year for future minimum payments under the billboard use right agreements at December 31, 2014:

NOTE 8 - SHORT TERM LOANS

 

The short term loans include the following:

 

 

 

 

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a)

Loan payable to Shanghai Pudong Development bank is a one-year term loan from June 19, 2014 to June 18, 2015 for RMB 12,000,000 ($1.95 million) at a variable interest rate based on the interest rate set by the People's Bank of China.  The effective rate is 7.5% per year.  This loan has been guaranteed by the Company's major stockholders, Mr. Guojun Wang and Ms. Ming Ma as well as a Joint Venture Guarantee Group Co., LTD, an independent third party guarantee company.

b)

Loan payable to Dalian Bank the First Centre Branch is a one-year term loan from December 16, 2013 to December 15, 2014 in the amount of RMB 20,000,000 ($3.25 million) with a fixed interest rate of 8.4% per year. The loan was repaid when due and the Company obtained a new loan for RMB10,000,000 ($1.63 million) from December 16, 2014 to October 16, 2015 with a fixed interest rate of 8.4% per year.  The Company pledged its brand trademark for the loan.

c)

Loan payable to Industrial and Commercial Bank of China was for a one-year term from August 29, 2013 to August 28, 2014 in the amount of RMB 1,800,000 ($293,220), which was repaid on the due date. The Company obtained a new loan for the same amount from September 5, 2014 to September 5, 2015 at a variable interest rate based on the interest rate set by the People's Bank of China.  As of December 31, 2014, the effective rate of the new loan is 7.2% per year. The Company pledged certain real property owned by the Company's major stockholder as collateral

d)

The Company obtained a loan from Jinzhou Bank in the amount of RMB 10,000,000 ($1.63 million) for a term from November 18, 2013 to November 17, 2014 with a fixed interest rate of 8.4% per year. The loan was repaid when due and the Company obtained a new loan for RMB9,500,000 ($1.55 million) from November 18, 2014 to November 17, 2015 with a fixed interest rate of 8.4% per year. The loan is secured by certain of the Company's advertising equipment with a carrying value of RMB 31 million (approximately $5.0 million) and guaranteed by the Company's major stockholders, Mr. Guojun Wang and Ms. Ming Ma.

 

 

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e)

The Company obtained a loan from Dalian Bank Shenyang Branch in the amount of RMB 6,000,000 ($977,400) for a term from June 23, 2014 to June 22, 2015 with a fixed interest rate of 8.1% per year.   The loan is guaranteed by the Company's a subsidiary, Dalian V-Media, and also guaranteed by the Company's major stockholders, Mr. Guojun Wang, Ms. Ming Ma, Ms. Caiqin Wang and Mr. Tao Sun.

f)

Loan payable to Dalian Bank Shanghai Branch is in the amount of RMB 2,900,000 ($472,410) for a year from December 3, 2013 to December 2, 2014 with a fixed interest rate of 7.8% per year. The loan was repaid when due and the Company obtained a new loan for the same amount from December 12, 2014 to December 11, 2015 with a fixed interest rate of 7.28% per year. This loan is guaranteed by the Company's major Stockholders Ming Ma and Guojun Wang, and other three individuals Shiming Sun, Hong Wang and Chuanrong He. .

g)

Loan payable to Yingkou Bank consisted of two loans. One loan in the amount of RMB 5,000,000 ($0.81 million) from May 22, 2014 to May 21, 2015 with a fixed interest rate of 7.8% per year. The loan is guaranteed by Liancheng Financing Assurance Co., Ltd. and a major shareholder, Ms. Ming Ma. Another loan is in the amount of RMB5, 000,000 ($0.81 million) from May 28, 2014 to May 27, 2015 with a fixed interest rate of 7.8% per year. This loan is guaranteed by Liaoning Baijia Financing Assurance Co.,Ltd, and a major shareholder,  Ms. Ming Ma. In the guarantee contract, the Company pledged part of its advertising equipment with a value of RMB15 million ($2.4 million) to Liancheng Financing Assurance Co., Ltd. and Liaoning Baijia Financing Assurance Co., Ltd as additional collateral.

h)

Loan payable to Jilin Bank is a one-year term loan from June 26, 2014 to June 25, 2015 in the amount of RMB10,000,000 ($1.63 million) with a fixed interest rate of 7.8% per year. This loan has been guaranteed by the Company's major stockholders, Mr. Guojun Wang and Ms. Ming Ma as well as Dalian QianbaiHe Clothing Accessories Co., LTD. The Company pledged part of its advertising equipment to Dalian QianbaiHe Clothing accessories Co., LTD as additional collateral.

 

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i)

Loan payable to Guangdong Development Bank is a one-year term loan from May 16, 2014 to May 15, 2015 in amount of RMB15,000,000 ($2.44 million) with a fixed interest rate of 8.1% per year . This loan has been guaranteed by Dalian Enterprise Credit Guarantee Co., LTD and the Company's major stockholders, Mr. Guojun Wang and Ms. Ming Ma. In the guarantee contract, the Company pledged part of its advertising equipment to Dalian Enterprise Credit Guarantee Co., LTD as additional collateral.

j)

Loans payable to Agriculture and Commerce Bank are two one-year term loans, both from June 3, 2014 to June 2, 2015 each in amount of RMB 5,000,000 ($0.81 million each) with a fixed interest rate of 7.8% per year. The loans have been guaranteed by a third party, Dalian High and New Technology Guarantee Investment Co., and the Company's major stockholders, Ms. Ming Ma. In the guarantee contract, the Company paid approximately $40,000 (RMB 250,000) guarantee fee, and pledged part of its advertising equipment to Dalian High and New Technology Guarantee Investment Co. as additional collateral.

NOTE 9 – BANK ACCEPTANCE NOTES PAYABLE

 

As of December 31, 2014, the Company has bank acceptance notes payable in the amount of $6,841,800. The notes are guaranteed to be paid by the banks and are usually for a short-term period of time of three to six months (see Note 15). The Company is required to maintain cash deposits at a minimum of 50% of the total balance of the notes payable with the banks, in order to ensure future credit availability. In addition, certain of the bank acceptance notes totaling $3,258,000 are secured by the Company's trademark and $3,584,000 of the bank acceptance notes from Bank of East Asia are guaranteed by the Company's major shareholders, Mr. Guojun Wang and Ms. Ming Ma. As of December 31, 2014, $3.4 million in restricted cash related to these notes payable.

 

 

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NOTE 10 – SUBSIDY INCOME

 

Since one of the Company's subsidiaries is located in a special economic development zone in Dalian City, the Company received a special tax subsidy of $335,330 and $43,692 from the local government in the three months ended December 31, 2014 and 2013, respectively, and $359,706 and $194,743 in the six months ended December 31, 2014 and 2013, respectively.

NOTE 11 - RELATED PARTY TRANSACTIONS

 

Amounts due to related parties are as follows:

 

The above stockholders periodically provide funds for the Company's operations for advertising material and equipment purchases. These amounts are generally unsecured, non-interest bearing and due on demand. 

NOTE 12 – TAXES

 

Significant components of the income tax provision were as follows:

 

 

 

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The Company has several subsidiaries operating in different tax jurisdictions. The pre-tax earnings (loss) for the six and three months ended December 31, 2014 and 2013 are summarized below:

The current tax provision is calculated using the PRC statutory rate of 25%, as follows:

 

Tax calculation:

 

United States

 

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

V Media Corp., a Delaware corporation, has incurred a net operating loss for federal income tax purposes through December 31, 2014. The Company had loss carry forwards for U.S. federal income tax purposes available for offset against future taxable U.S income expiring through 2034 of approximately $5,288,000 as of December 31, 2014. Management believes that the realization of the benefits from these losses appears uncertain due to the Company's limited operating history in the United States. Accordingly, a full valuation allowance has been provided against the deferred tax asset and no deferred tax asset benefit has been recorded for the US operation. The valuation allowance against the deferred tax asset was $1,797,920 as of December 31, 2014.

Hong Kong

 

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

 

 

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PRC

 

 

Dalian Guo-heng and V-Media Group are governed by the Income Tax Law of the People's Republic of China concerning the private-run enterprises, which are currently subject to tax at a statutory rate of 25% on net income reported after appropriated tax adjustments. Because of different tax jurisdictions' restriction, the V-Media Group and its subsidiaries of Shenyang, Wangluo, Tianjin, Beijing and Shanghai have loss carryovers that can only be used to offset their own future taxable income. The loss carry forward for those subsidiaries amounted to $3,045,216 and $3,065,281 as of December 31, 2014 and June 30, 2014, respectively.

The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes, and other relevant factors. For the six months ended December 31, 2014, management concluded the realization of PRC deferred tax assets is uncertain. Deferred tax assets amounted to $0.9 million and $0.8 million as of December 31, 2014 and June 30, 2014. The valuation allowance as of December 31, 2014 and June 30, 2014 was $0.9 million and $0.8 million, respectively.

 

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. Dalian V-Media's another subsidiary is only subject to a 3% business tax. Total business tax expenses were $146,954 and $158,884 for the three months ended December 31, 2014 and 2013, respectively, and totaled $304,245 and $582,219 for the six months ended December 31, 2014 and 2013, respectively.

 

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c) Taxes payable consisted of the following:

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 three and six months ended December 31, 2014. The Company files income tax returns with U.S. Federal Government, as well as Delaware State. The Company also files returns in foreign jurisdictions of Hong Kong and PRC. With few exceptions, the Company is subject to U.S. federal and state income tax examinations by tax authorities for years on or after 2009.

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 13 – EARNINGS PER SHARE

As of December 31, 2014, 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 into any securities.

 NOTE 14 – SEGMENT INFORMATION

 

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

 

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

 

 

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

 

		For the three months ended December 31, 2014
		Dalian District				Shenyang District				Beijing District				Tianjin District				Shanghai District				US Corporation				Total
Revenue		$	3,238,118			$	209,131			$	-			$	16,568			$	60,757			$	-			$	3,524,574
Cost of Revenue			(3,309,951	)			(239,545	)			(468,767	)			(77,840	)			(144,297	)			-				(4,240,400	)
Gross Profit		$	(71,833	)		$	(30,414	)		$	(468,767	)		$	(61,272	)		$	(83,540	)		$	-			$	(715,826	)
		For the three months ended December 31, 2013
		Dalian District				Shenyang District				Beijing District				Tianjin District				Shanghai District				US Corporation				Total
Revenue		$	3,834,192			$	257,696			$	465,617			$	237,249			$	146			$	692,665			$	5,487,565
Cost of Revenue			(2,717,317	)			(252,617	)			(409,572	)			(40,480	)			(133,735	)			(878,751	)			(4,432,472	)
Gross Profit		$	1,116,875			$	5,079			$	56,045			$	196,769			$	(133,589	)		$	(186,086	)		$	1,055,093
		For the six months ended December 31, 2014
		Dalian District				Shenyang District				Beijing District				Tianjin District				Shanghai District				US Corporation				Total
Revenue		$	6,965,045			$	484,992			$	-			$	68,662			$	119,225			$	34,333			$	7,672,257
Cost of Revenue			(5,512,820	)			(457,697	)			(844,533	)			(143,478	)			(286,888	)			(159,122	)			(7,404,538	)
Gross Profit		$	1,452,225			$	27,295			$	(844,533	)		$	(74,816	)		$	(167,663	)		$	(124,789	)		$	267,719
		For the six months ended December 31, 2013
		Dalian District				Shenyang District				Beijing District				Tianjin District				Shanghai District				US Corporation				Total
Revenue		$	8,229,536			$	410,818			$	1,250,928			$	280,564			$	49,645			$	917,665			$	11,139,156
Cost of Revenue			(5,310,437	)			(489,490	)			(739,995	)			(69,507	)			(264,992	)			(1,762,774	)			(8,637,195	)
Gross Profit		$	2,919,099			$	(78,672	)		$	510,933			$	211,057			$	(215,347	)		$	(845,109	)		$	2,501,961

 

 

NOTE 15 – SUBSEQUENT EVENTS

 

In February 2015, the Company renewed RMB 18 million (approximately $2.93 million) of banker acceptance notes from Bank of East Asia. The notes payable are due in August 2015.

 

In March 2015, the Company's principal shareholders, Mr. Guojun Wang and Ms. Ming Ma, signed two financial support letters and committed to provide working capital loans to the Company when necessary in the next twelve months.

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

 

Overview and Corporate History

 

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.

 

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."

 

The Company is trying to maintain its business in all geographic locations. The size of our network has grown significantly over the years since the commercial launch of our advertising network. As of December 31, 2014, the number of bus and taxi shelters on which we operate and carry our advertisements is 810; the number of buses that carry our mobile advertisements is 336; the number of mobile displays through Dalian metro-trains is 38. As of December 31, 2014, we have installed 52 "City Navigator" units across Dalian urban area, 3 mega-screen (126 square meters to 400 square meters, approximately 1,356 square feet to 4,306 square feet) LED screens and 8 metal billboards in Dalian, 4 LED screens in the business district in Shenyang, 1 indoor LED screen (22 square meters, approximately 237 square feet) in Tianjin Railway Station, 1 mega-screen (150 square meters, approximately 1,614 square feet) LED screen in Beijing and 5 outdoor billboards in Shanghai. Our Time Square billboard lease has expired on August 31, 2014 and the lease was not renewed due to the recurring loss on this project.

 

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 CMDI.OB.

 

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Subsidiaries of V-Media

 

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

 

 

Factors Affecting Our Results of Operations

 

Domestic Spending and Urbanization

 

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

 

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

 

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

 

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

 

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

 

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

 

Upgrade of Our Outdoor Billboard Network with New Digital Display Technology

 

We intend to capitalize on recent advances in digital display technology, especially mega-screen LED displays, to meet major institutional clients' needs. Because the LED displays can be linked through centralized computer systems to instantaneously change static advertisements, and are highly visible even during bright daylight, it improves the advertising effects remarkably.  We plan to build more mega-screen (100 square meters to 500 square meters, approximately 1,076.4 square feet to 5,382 square feet) LED displays at premier locations in our marketplace.

  

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

 

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

 

 

 

 

 

  

 

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Results of Operations for the Three-Month Period Ended December 31, 2014 Compared to the Three-Month Period Ended December 31, 2013

  

Revenue   

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

 

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

 

 

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Revenues for the three months ended December 31, 2014 were $3,524,574, a decrease of $1,962,991 or 35.8%, from $5,487,565 for the three months ended December 31, 2013. The decrease in revenue was primarily attributable to the revenue decrease in Dalian, Shenyang, Beijing, Tianjin and the US, offset by revenue increase in Shanghai districts.

For three months ended December 31, 2014, sales in Dalian district, accounted for 91.9% of our total sales, decreased by $596,074, or 15.5%, to $3,238,118 from $3,834,192 for the three months ended December 31, 2013. The mainly decrease reason is the Company focused resources towards profitable subsidiaries and segments and thus the Company is downsizing its non-profitable subsidiaries. The Company may not renew billboard rentals that did not bring enough cash flow in the prior period.

 

Sales in Tianjin district decreased by 220,681, or 93%, to $16,568 from $237,249 for the three months ended December 31, 2014, which due to loss of customers and inability of finding new customers.

Sales in Shenyang district decreased $48,565 or 18.8% to $209,131 from $257,696 for the three months ended December 31, 2014. Sales in Shanghai District increased $60,611 or 41,514.4% to $60,757 from $146 for the three months ended December 31, 2014.

Sales in Beijing district decreased by $465,617, or 100%, to $0 from $465,617 for the three months ended December 31, 2014. The reason of the decrease is that Beijing district has lost its only customer (of annual sales RMB 18 million) due to the lease expiration and that the client didn't extend the contract due to expenditure control consideration.

Sales in the US decreased by $692,665, or 100% from $692,665 for the three months ended December 31, 2014. The Company has terminated the lease for the billboard in the US since it didn't generate the level of revenue as the Company previously projected.

 

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Cost of revenue for the three months ended December 31, 2014 was $4,240,400, a decrease of $192,072 or 4.3%, from $4,432,472 for the same period ended December 31, 2013.   The decrease is primarily due to the termination of lease for the billboard located at Times Square. We experienced higher labor cost due to hiring experienced ads production staff and higher material costs charge due to price increase, but the effect is offset by the savings noted above.

 

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

 

 

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Gross Profit/Loss

 

Our gross profit/loss for the three months ended December 31, 2014 decreased by $1,770,919 or 167.8% to loss of $715,826 from profit of $1,055,093 for the same period in 2013. Our gross margin during the three months ended December 31, 2014 and 2013 were -20.3% and 19.2%, respectively. The decrease in gross profit was due to the decreased revenue during the three months ended December 31, 2014.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses, totaled $1,657,869 during the three months ended December 31, 2014, an increase of $219,128 or 15.2%, compared to $1,438,741 for the same period ended December 31, 2013. The main increase reason is increase in depreciation expense of $494K.

 

Other Expenses/Income, net

 

For the three months ended December 31, 2014, we had total other income of $26,536, an increase of $272,251 or 110.8%, compared with the other expenses of $245,715 during the same period of 2013.  The increase in net of other expense was mainly due to a $291,638 increase in subsidy income during the period which is a special tax subsidy for the companies located in a special economic development zone in Dalian City.

 

Total interest expense on the bank loans for the three months ended December 31, 2014 and 2013, amounted to $313,113 and $297,627, respectively, the increase is due to the increase in borrowing.

 

Net Loss Attributable to the Company

 

Net loss attributable to the Company was $1,958,239 for the three months ended December 31, 2014, as compared with the net loss of $566,989 during the three months ended December 31, 2013, representing an increase of $1,391,250 or 245.4%. The increase in net loss was mainly attributed to our decrease in revenue and increase in selling, general and administrative expenses.

 

Foreign currency translation adjustments

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, our comprehensive loss was $1,867,362 during the three months ended December 31, 2014, and $464,555 during the three months ended December 31, 2013.

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Results of Operations for the Six-Month Period Ended December 31, 2014 Compared to the Six-Month Period Ended December 31, 2013

Revenue   

The following table shows the operations of the Company on a consolidated basis for the six months ended December 31, 2014 and 2013: