UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K


___________





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended June 30, 2011





Commission file number: 000-53027





CHINA NEW MEDIA CORP.


(Exact name of registrant as specified in its charter)





Delaware

33-0944402(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)Dalian Vastitude Media Group

8th Floor, Golden Name Commercial Tower

68 Renmin Road, Zhongshan District, Dalian, P.R. China

116001(Address of principal executive offices)

(Zip Code)Registrant’s telephone number, including area code: 86-0411-82728168





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 o 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.





Large accelerated filer o
Accelerated fileroNon-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company x





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, 2010 was approximately $4,341,463.70, based upon the closing price of the common stock as quoted by the Over-the-Counter Bulletin Board (the “OTC Bulletin Board”).





As of September 28, 2011, there were 27,590,001 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

















Table of Contents





PART I





ITEM 1.
BUSINESS
1ITEM 1A.
RISK FACTORS
4ITEM 1B.
UNRESOLVED STAFF COMMENTS
11ITEM 2.
PROPERTIES
11ITEM 3.
LEGAL PROCEEDINGS
12ITEM 4.
(REMOVED AND RESERVED)
12





PART II





ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
13ITEM 6.
SELECTED FINANCIAL DATA
14ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
20ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
20ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
20ITEM 9A.
CONTROLS AND PROCEDURES
21ITEM 9B.
OTHER INFORMATION
22





PART III





ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
23ITEM 11.
EXECUTIVE COMPENSATION
25ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
26ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
28ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
28





PART IV





ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
29


SIGNATURES
31
 
 EXHIBIT INDEX
32





i














As used herein, “we,” “us,” “our” and the “Company” refers to China New Media Corp. and its subsidiaries.





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS





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











PART I


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, 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 new trading symbol on the OTC Bulletin Board is 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.”








1











We have experienced sustainable business growth in recent years. The size of our network has grown significantly over the years since the commercial launch of our advertising network. From June 30, 2010 to June 30, 2011, the number of bus shelters and taxi stops on which we operate and carry our advertisements increased from 764 to 790.  For the same period, the number of buses that carry our mobile advertisements increased from 335 to 336; the number of mobile displays through Dalian metro-trains increased from 28 to 32. As of  June 30, 2011, we have installed 52 “City Navigator” units across Dalian urban area, 3 mega-screen (126 M2 to 400 M2, approximately 1,356
square feet to 4,306 square feet) LED screens and 8 metal billboards in Dalian, 1 mega-screen (88 M2, approximately 947 square feet) LED screen in the business district in Shenyang, 1 indoor LED screen (22 M2, approximately 237 square feet)  in Tianjin Railway Station, and 5 outdoor billboards in Shanghai.





Subsidiaries of V-Media





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





V-Media’s

Ownership Percentage

Region of Operations

Primary BusinessShenyang Vastitude Media Co., Ltd.


100%

Shenyang

Advertising companyTianjin Vastitude AD Media Co., Ltd.


100%

Tianjin

Advertising companyDalian Vastitude Network Technology Co., Ltd.


60%

Dalian

Computer exploitation, technical service, domestic advertisementDalian Vastitude Engineering & Design Co., Ltd.


83%

Dalian

Engineering, design, constructionDalian Vastitude & Modern Transit Media Co., Ltd.


70%

Dalian

Advertising  companyVastitude (Beijing) Technology Co.


60%

Beijing

Advertising companyShanghai Vastitude Advertising & Media Co., Ltd.


100%

Shanghai

Advertising company





Intellectual Property





As of June 30, 2011, 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, 2011, we had 40 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.





Customers





For the fiscal year ended June 30, 2011, 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 139 full-time employees as of June 30, 2011, including 21 in manufacturing, 8 in research and development, 39 in administration and financial department, and 40 in sales, purchasing and marketing.





Recent Developments





Establishment of Shanghai Subsidiary





On July 8, 2010, through one of our consolidated affiliates, Shanghai Vastitude Advertising & Media Co., Ltd.  (“Vastitude”), we entered into a purchase agreement with Shanghai Haosheng Advertising Co., Ltd., (“Haosheng”), pursuant to which, Vastitude purchased from Haosheng five outdoor billboards and all relevant rights of their advertisement operation for 16 million RMB (approximately $2,363,368).





Pursuant to the purchase agreement, Haosheng agreed to transfer all outdoor advertising contracts it has previously signed with respect to the billboards to Vastitude.





Expansion of Beijing Subsidiary





On February 9, 2010, we entered into a cooperation agreement with Beijing Shidai Lianxin Cultural Propagation Co. Ltd. to cooperate on the nation’s “Hundred-Screens for Strait Information Display Network” Project (the “Hundred Screens Project”), which involves the installation of around 100 large-size LED screens throughout core commercial zones, central business districts, airports and surrounding areas of Beijing. We subsequently set up a new subsidiary in Beijing, Vastitude (Beijing) Technology Co., to launch the Hundred Screens Project. On August 28, 2011, we completed the construction of a 200 square meter (approximately 2,153 square feet) LED screen at Beijing International Airport
which will be used primarily for commercial advertisement.





Investment in Le Tian Net





On August 18, 2011, we invested RMB 600,000 or approximately $94,000, in Le Tian Net (www.letian.net, “Letian”), to acquire 20% of the operating rights of the website. Le Tian Net is the third largest online platform in Dalian in terms of influence and website traffic, and it is an integrated platform for information, entertainment, business and transactions. We believe the acquisition will create strong synergy between our entities based on the brand names and popularity.





ITEM 1A. RISK FACTORS.





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





RISKS RELATED TO OUR BUSINESS





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





We have a fairly limited operating history in the outdoor advertising business due to the fact that our company was established in 2000. It is difficult to forecast accurately our future revenues and expenses related to this business. We will continue to be subject to risks inherent in the establishment of a new business, including, among other things, efficiently deploying our capital, developing our product and service offerings, developing and implementing our marketing campaigns and strategies and developing awareness and acceptance of our products. Our ability to generate future revenues from our operations will be dependent on a number of factors, many of which are beyond our control. To be successful, we must, among other things, establish greater market
recognition in this business. This will require us to expend significant resources, including capital and management time.





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








4











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





We have recently experienced a period of significant growth in our sales volume. We believe that continued expansion is essential for us to remain competitive and to capitalize on the growth potential of our business. Such expansion may place a significant strain on our management and operations and financial resources. As our operations continue to grow, we will have to continually improve our management, operational and financial systems, procedures and controls, and other resources infrastructure and expand our workforce. There can be no assurance that our existing or future management, operating and financial systems, procedures and controls will be adequate to support our operations, or that we will be able to
recruit, retain and motivate our personnel. 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.





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.





5





We have limited business insurance coverage.





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





Our management may exercise broad discretion and judgment.





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





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





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





Payment of dividends is unlikely.





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





We may issue additional securities.





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





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.








6





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





The recent unprecedented events in global financial markets have had a profound impact on the global economy.  Many industries are impacted by these market conditions.  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:





·
the global credit/liquidity crisis could impact the cost and availability of financing and our Company’s overall liquidity;·
volatile energy prices, commodity and consumables prices and currency exchange rates impact potential production costs; and





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





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





Climate change and related regulatory responses may impact our business.





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





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





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





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





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





7





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 US GAPP.





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.





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.





8











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





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





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





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





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





9











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.





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.








10








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 possesse 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.





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 8,987.94 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.








11





Our Beijing subsidiary office is located at Room 1201, A block, Huibin Building, No.8, Beichen E.Rd., Chaoyang District, Beijing, P.R. China, 100101. This office consists of approximately 2,432.64 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 215.27 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 3,330.89 square feet. This lease agreement is renewable upon expiration for a three-year period.





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.  (REMOVED AND RESERVED.)


Not applicable.





12

















PART II





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





Trading 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.





High ($)


Low($)First Quarter ended September 30, 2010


2.35



1.55Second Quarter ended December 31, 2010


2.00



0.81Third Quarter ended March 31, 2011


0.82



0.45Fourth Quarter ended June 30, 2011


0.52



0.25




As of September 26, 2011, there were approximately 275 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








Sales of Unregistered Securities





During 2011 we made the following issuances of shares of our common stock in transactions that were not registered under the Securities Act of 1933:





On March 7, 2011, the Company entered into a director appointment agreement with Mr. Stephen Monticelli, pursuant to which, Mr. Monticelli receives an annual grant of 33,333 shares of restricted stock of the Company which will vest one year from the date of grant, and a warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Warrant Shares for the first year (up to an aggregate total of 16,666 shares) will vest following a full year of service as a Non-Executive Director.  The Warrant Shares for the second year (up to an aggregate total for years one and two of 33,333 shares) will vest following a second full year of service as a Non-Executive Director.  The Warrant Shares for
years three through five (up to an aggregate total for all five years of 50,000 shares) will vest following the third full year of service as a Non-Executive Director.  If Mr. Monticelli is removed, resigns or otherwise does not serve as a director of the Company for the full five year period, then the Holder shall return to the Company on a pro rata basis the number of Warrant Shares received that is proportionate to the number of months remaining in the five-year period.





On March 26, 2011, the Company issued 40,000 restricted shares of its common stock to its employee pursuant to an Employment Agreement the Company entered into with the employee dated as of February 19, 2010.





Purchases of Equity Securities by the Issuer and Affiliated Purchasers





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 Affecting Our Results of Operations





The increase in our operating results in the last two fiscal years is attributable to a number of factors, including the substantial expansion of our outdoor media network in Dalian and Shenyang, the two largest cities in Northeast China, and our technical innovation and large-scale media system upgrading.  We expect our business to continue to be driven by the following factors:





Increasing Domestic Spending in Outdoor Advertising





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





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





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




By using wireless access technology, our LED displays at bus and taxi shelters are able to display real time programs at the control of our centralized computer systems. It consists of a Wi-Fi receiver, large-screen LED display, and web-based touch-screen kiosk which provide the public with information on all aspects of the city life, including travel, traffic, restaurants, shopping, hotels, business, medical and education.  In addition, every City Navigator is equipped with Bluetooth, wireless access and printing technology. Users can either print the information or send the information to their cell phones or computers. As City Navigator® Network adopts Wi-Fi technology, users can enjoy its service
from any area covered by its Wi-Fi signals.  We 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.





14








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





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





Upgrade of Our Outdoor Billboard Network with New Digital Display Technology





We intend to capitalize recent advances in digital display technology, especially mega-screen LED displays, to meet major institutional clients’ needs. Because the LED displays can be linked through centralized computer systems to instantaneously change static advertisements, and are highly visible even during bright daylight, it improves the advertising effectiveness and efficiency markedly.  We plan to build more mega-screen (100 M2 to 500 M2, approximately 1,076.4 square feet to 5,382 square feet) LED displays at premier locations in our marketplace.





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




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





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





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





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




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




●
Our ability to expand our new systems including large-screen LED display network and City Navigator® Networks which commenced operation in the third quarter of 2009.










15





Results of Operations for the Year Ended June 30, 2011 Compared to the Year Ended June 30, 2010





Revenue





The following table shows the operations of the Company on a consolidated basis for the fiscal years ended June 30, 2011 and 2010:





REVENUES

Fiscal Years Ended June 30,2011


2010


Difference


% ChangeDalian DistrictStreet Fixture and Display network

$
6,629,401


$
5,213,848


$
1,415,553



27.15
%City Transit system Display network


4,415,623



2,829,692



1,585,931



56.05
%Outdoor Billboards


5,205,074



2,504,101



2,700,973



107.86
%City Navigator


1,773,982



1,689,454



84,528



5
%Other service income (a)


799,083



1,223,412



-424,329



-34.68
%Subtotal for Dalian District

$
18,823,163


$
13,460,507


$
5,362,656



39.84
%Shenyang DistrictStreet Fixture and Display network

$
160,602


$
399,056


$
-238,454



-59.75
%Outdoor Billboards


449,175



80,953



368,222



454.86
%Other service income (a)

$
9,356






$
9,356



100
%Subtotal for Shenyang District

$
619,133


$
480,009


$
139,124



28.98
%Beijing DistrictOutdoor Billboards

$
54,330






$
54,330



100
%Subtotal for Beijing District

$
54,330






$
54,330



100
%Tianjin DistrictOutdoor Billboards

$
203,473



39,400



164,073



416.43
%Subtotal for Tianjin District

$
203,473



39,400



164,073



416.43
%Shanghai DistrictOutdoor Billboards

$
878,265


$



$
878,265



100
%Subtotal for Shanghai District

$
878,265


$



$
878,265



100
%Total Revenues

$
20,578,364


$
13,979,916


$
6,598,448



47.20
%





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





Revenue
 
 Our total revenues for the fiscal year ended June 30, 2011 were $20,578,364, an increase of $6,598,448 or 47.2%, from $13,979,916 for the fiscal year ended June 30, 2010.  The increase in revenues resulted from our increased sales to existing and new customers in fiscal year 2011 based on our expanded outdoor advertising network as we obtained more desirable locations for our outdoor advertising platforms.
 
 For the fiscal year ended June 30, 2011, sales in Dalian district, accounted for 91.5% of our total sales, increased by $5,362,656, or 39.8%, to $18,823,163 from $13,460,507 for the fiscal year ended June 30, 2010. Dalian is the Company’s headquarter. Sales increased across all the company’s outdoor advertising platforms.
 
 Overall sales in Shenyang district increased by 139,124, or 28.98%, to $619,133 from $480,009 for the fiscal year ended June 30, 2010. In Shenyang, sales generated from street furniture and display network decreased 59.8%, or $238,454 compared with same period in 2010, while sales generated from billboards including LED screens increased 454.9%, or $368,222 compared with same period in 2010. This reflected the Company’s strategy of focusing more on high-end outdoor advertising platform.
 
 For fiscal year ended June 30, 2011, sales in Tianjin district increased by 164,073, or 416.4%, to $203,473 from $39,400 for the fiscal year ended June 30, 2010. The Company also generated sales revenue of $54,330 from its Beijing District and $878,265 from its Shanghai District compared with none for the fiscal year ended June 30, 2010.












Cost of Revenue





Cost of revenue for the fiscal year ended June 30, 2011 were $8,976,950, an increase of $3,154,979 or 54.19%, from $5,821,971 for the same period ended June 30, 2010. The increase in cost of revenue was primarily attributable to increased depreciation of advertising equipment and labor and raw material cost. As a percentage of total revenues, cost of revenue accounted for approximately 43.6% and 41.6% for the fiscal years ended June 30, 2011 and 2010, respectively.




COST OF  REVENUES


Fiscal Years Ended June 30,2011



2010



Difference



% ChangeDalian DistrictStreet Fixture and Display network

$
2,487,325


$
2,036,048


$
451,277



22.16
%City Transit system Display network


2,150,578



1,145,022



1,005,556



87.82
%Outdoor Billboards


1,856,244



727,110



1,129,134



155.29
%City Navigator


586,014



888,912



-302,898



-34.08
%Other service cost (b)


675,359



805,288



-129,929



-16.13
%Subtotal for Dalian District

$
7,755,520


$
5,602,380


$
2,153,140



38.43
%Shenyang DistrictStreet Fixture and Display network

$
96,220


$
160,434


$
-64,214



-40.03
%Outdoor Billboards


261,580



38,906



222,674



572.34
%Other service cost (b)


1,554



0



1,554



100
%Subtotal for Shenyang District

$
359,354


$
199,340


$
160,014



80.27
%Beijing DistrictOutdoor Billboards

$
109,827


$
-


$
109,827



100
%Subtotal for Beijing District


109,827







109,827



100
%Tianjin DistrictOutdoor Billboards

$
130,889



20,251


$
110,638



546.33
%Subtotal for Tianjin District

$
130,889



20,251


$
110,638



546.33
%Shanghai DistrictOutdoor Billboards

$
621,360


$
-


$
621,360



100
%Subtotal for Shanghai District


621,360







621,360



100
%Total Cost of Revenue

$
8,976,950


$
5,821,971


$
3,154,979



54.19
%





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




Gross Profit





Gross profit for the fiscal year ended June 30, 2011 increased by $3,443,469, or 42.2%, to $11,601,414, as compared to $8,157,945 for the fiscal year ended June 30, 2010.  The increase in gross profit was attributable to the revenue increase.  Gross profit margin was approximately 56.4% and 58.4% for the fiscal year ended June 30, 2011and 2010, respectively. The slight decline in gross profit percentage during 2011 compared with 2010 was mainly due to the increased maintenance cost of advertising equipment, and the increase of labor and raw material cost during the fiscal year ended June 30, 2011.





Selling, General and Administrative Expenses





Our selling, general and administrative expenses consist primarily of salaries of sales personnel, commissions for sales representatives, rent expenses and related administrative expenses. SG&A expenses were $4,048,022 for the fiscal year ended June 30, 2011, as compared to $1,880,706 for the year ended June 30, 2010, an increase of $2,167,316 or 115.2%.  This increase was due to increased sales effort from the Company which is in line with the increase in total revenue, higher maintenance and professional fees as being a public company, and other expenses related to the growth of business.








17








Income from Operations





Income from operations was $7,553,392 for the year ended June 30, 2011 as compared to $6,277,239 for the year ended June 30, 2010, an increase of $1,276,153 or 20.3%. The increase was mainly due to our increase in total revenue.





Other Income (Expense)





Total other expenses were $776,552 for the year ended June 30, 2011 as compared to total other expenses of $362,952 for the year ended June 30, 2010, an increase of $413,599, or 114.0%. The increase is due to the increased interest expense due to higher average loan balance for current year ended June 30, 2011.





Income Before Income Taxes





Income before income taxes was $6,776,840 for the year ended June 30, 2011 as compared to $5,914,287 for the year ended June 30, 2010, an increase of $862,553 or 14.6%.





Income tax provision





Income tax provision was $1,810,240 for the year ended June 30, 2011 as compared to $1,459,854 for the year ended June 30, 2010, an increase of $350,386 or 24.0%. The income tax increase was mainly due to our increased income from ordinary business operations.





Net Income attributable to China New Media Corp.





Net income attributable to China New Media Corp. for the fiscal year ended June 30, 2011was $4,871,885, an increase of $656,517, or 15.6%, compared to net income of $4,215,368 for the fiscal year ended June 30, 2010. The increase was attributable to the increase in gross profit. Net income as a percentage of total net sales was approximately 23.7% and 30.2% for the fiscal year ended June 30, 2011 and 2010, respectively.





Liquidity and Capital Resources





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





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





As of June 30, 2011, the Company’s cash and cash equivalents amounted to $ 1,808,880, an increase of $136,864 from $1,672,017 as of June 30, 2010.





18











Cash Flow from Operating Activities





Net cash provided by operating activities was $6,748,205 for the fiscal year ended June 30, 2011, an increase of $3,437,716 from $3,310,489 for the fiscal year ended June 30, 2010. The increase was mainly due to an increase in net income and a decrease in other current assets, and partially offset by an increase in accounts receivable, accounts payable and a decrease in taxes payable.





Cash Used in Investing Activities





Net cash used in investing activities in the fiscal year ended June 30, 2011 was $9,589,263 as compared to cash used in investing activities of $9,727,274.  Net cash used in investing activities for 2010 and 2011was mainly used to acquire new outdoor advertising platforms to expand our existing advertising network.





Cash Provided by Financing Activities





For the year ended June 30, 2011, net cash provided by financing activities was $2,899,297 as compared to cash provided by financing of $7,918,736 for the year ended June 30, 2010. This was due to the private financing dated November 23, 2009, which caused cash inflow of $4,292,935 for the year ended June 30, 2010.





Loan Facility





Short-Term Loans




a) Loan payable to Harbin Bank had an original one-year term from April 14, 2009 to April 13, 2010 at a fixed interest rate of 5.31% per year. The loan has been renewed for another year from May 9, 2011 to May 8, 2012 at a variable interest rate of 7.57% at June 30, 2011.  This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company.
 
 b) Loan payable to Shanghai Pudong Development bank consists of two loans. One is an original one-year term loan from November 10, 2008 to November 10, 2009 with the amount of RMB 6,000,000 (approximately $928 thousand) at a fixed interest rate of 7.99% per year. This loan has been renewed from November 23, 2010 to November 15, 2011 at a variable interest rate of 7.57% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma.The other loan is a one-year term loan from June 22, 2011 to June 15, 2012 in the amount of RMB 10,000,000 (approximately $1.55 million) at a fixed interest rate of 8.20% per year. This loan has been guaranteed by an unrelated company,
Union Chuangye Guaranty Company and the major stockholders
 
 c) Loan payable to Dalian Bank Xigang Branch had an original one-year term from January 6, 2009 to January 6, 2010 at the fixed interest rate of 6.90% per year. This loan has been repaid and a new loan has been borrowed with one year term from March 14, 2011 to March 11, 2012 at a variable interest rate of 5.56% at June 30, 2011. This loan has been guaranteed by an unrelated company, Dalian Huanbohai Development Credit Guaranty Company. In the guaranty contract, the Company pledged part of its advertising equipment with the approximate value of RMB13, 000,000 (approximately $2.01 million) to Dalian Huanbohai Development Credit Guaranty Company.
 
 d) Loan payable to Industrial and Commercial Bank of China is a one-year term loan from July 20, 2009 to July 5, 2010 at a fixed interest rate of 6.93% per year. This loan has been repaid on June 2011.
 
 e) Loan payable to Jinzhou Bank is a one-year term loan from April 21, 2010 to April 20, 2011 at a fixed interest rate of 6.90% per year. The loan has been renewed for another year from April 21, 2011 to April 20, 2012 at a fixed interest rate of 8.20% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma. The Company pledged part of its advertising equipment with the value of RMB17,000,000 (approximately $2.6 million).
 
 f) Loan payable to Industrial Bank consists of two loans. One loan is a one-year term loan from June 25, 2010 to June 24, 2011 with the amount of RMB 10,000,000 (approximately $1.5 million) at a fixed interest rate of 6.10% per year. This loan has been repaid on June 24, 2011. The other loan is a one-year term loan from July 20, 2010 to July 19, 2011 with the amount of RMB 7,000,000 (approximately $1.1 million) at a variable interest rate of 6.11% per year. This loan has been guaranteed by the Company’s major stockholders Mr. Guojun Wang and Ms. Ming Ma and also has been guaranteed by an unrelated company, Union Chuangye Guaranty Company.
 
 g) Loan payable to Jilin Bank consists of two loans. One loan is a one-year term loan from May 6, 2011 to May 4, 2012 with the amount of RMB 5,000,000 (approximately $0.8 million) at a fixed interest rate of 8.20% per year. The other loan is a one-year term loan from May 9, 2011 to May 8, 2012 with the amount of RMB 10,000,000 (approximately $1.5 million) at a fixed interest rate of 8.20% per year. The two loans have been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Co., Ltd. In the guaranty contract, the Company pledged part of its advertising equipment with the approximate value of RMB43,408,300 (approximately $6.63 million) to Dalian Enterprise Credit Guaranty Co., Ltd.
 
 h) Loan payable to Dalian Bank Shenyang Branch is a one-year term loan from June 10, 2011 to June 8, 2012 at a fixed interest rate of 8.52% per year. This loan has been guaranteed by Dalian Vastitude Media Group Co., Ltd.


19











Application of Critical Accounting Policies





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





Impact of Accounting Pronouncements





In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company
anticipates that the adoption of this standard will not materially affect its consolidated financial statements.
 
 In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,”(“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive
statements. This new guidance is to be applied retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company anticipates that the adoption of this standard will not change the presentation of its consolidated financial statements.


Off-Balance Sheet Arrangements





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





ITEM 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, 2011 and 2010 are attached hereto.





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





None.





20











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, 2011 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:





(i)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;





(ii)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and





(iii)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.





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 criteria set forth in the 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 material weaknesses in our internal control over financial reporting as of the Evaluation Date and the Company’s internal control over financial reporting as of the Evaluation Date was not effective.











21





Management’s conclusion was based on the fact that the Company lacks sufficient personnel with the appropriate level of knowledge, experience and training in the application of U.S. GAAP standards. The current accounting team is professional and experienced in accounting requirements and procedures generally accepted in the PRC, but is less experienced in applying the U.S. GAAP standard and reporting requirements. The Staff needs additional training to become experienced in U.S. GAAP. In addition, due to the Company’s size, there is certain degree of lack of segregation of duties between functions. Segregation of all conflicting duties may not always be possible and may not be economically feasible.





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





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





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





Changes in Internal Control over Financial Reporting





Through the past fiscal year, we have been implementing the following changes to our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, its internal control over financial reporting.





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





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





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





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





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





ITEM 9B. OTHER INFORMATION.





None.





22








PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.





Directors and Executive Officers





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




Name

Age

Positions with the CompanyGuojun Wang

47

Chief Executive Officer and Chairman of the BoardHongwen Liu

44

Chief Financial OfficerMing Ma

45

President and DirectorDror Poleg

32

DirectorJohann Y. Tse

44

DirectorStephen Monticelli

56

DirectorFeng Wan

34

Chief Technology Officer





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, 47, 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, 44, 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, 45, 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.





Stephen Monticelli, 56, Director.  Mr. Monticelli has an investment career spanning 23 years and encompassing both private and public equity.   Mr. Monticelli founded Mosaic in 1996 and launched its first two funds in 1998.  The Mosaic China Fund was launched in 2010.  His investment career began in 1987 when he joined The Fremont Group as a Principal.  He was later a Managing Director with Baccharis Capital, a venture capital firm.   Prior to his investment career, Mr. Monticelli was a management consultant with Marakon Associates and a certified public accountant with Deloitte and Touche.  Mr. Monticelli holds
a BS and an MBA from the Haas School of Business at the University of California at Berkeley. Mr. Monticelli also serves on the Board of Directors and Chair of the Audit Committee of China Linen Textile Industries Ltd (CTXIF on the OTC:BB), a manufacturer of linen fabrics based in Harbin, China.





Dror Poleg, 32, Director. Mr. Poleg has served as a director since June 2010.  Mr. Poleg has extensive experience in corporate strategy and cross-cultural communication, as well as nearly 10 years of advertising and marketing experience. Currently, Mr. Poleg is the Vice President of Leasing & Marketing at GTC Real Estate China, a subsidiary of one of the largest development groups in Europe.  Mr. Poleg has worked with GTC Real Estate China since August 2007 and started as the Marketing Director.   From August 2007 to August 2010, Mr. Poleg served as the China Marketing Director of Kardan N.V., a Dutch investment
group that is traded on NYSE Euronext and invests in real estate and infastructure.  From March 2007 to the present, Mr. Poleg has served as the founder and Director of Dror Poleg & Company Ltd., which is in the strategy, communication and investment consulting business.  From May 2005 to May 2007, he served as the Online Operations Manager of Standards Group, an advertising and marketing agency.  Mr. Poleg received his Bachelor of Arts in Media & Communications from Swinburne University, Melbourne, Australia.





Johann Y. Tse, 44, Director.  Mr. Tse has served as a director since June 2010.  Mr. Tse is the founder and Chief Executive Officer of Aquarian Capital, LLC, a consulting firm focused on cross-border mergers and acquisitions, joint ventures or direct investment between companies from the U.S., Europe, Greater China, and beyond. Mr. Tse was previously Director of International M&A at Yum! Brands, where he led acquisitions, divestitures and franchising transactions across its quick-service restaurants portfolio. Earlier, he created and managed the corporate venture capital program for Rohm and Haas Company. Mr. Tse
graduated with distinction from the Chinese University of Hong Kong in Electronics Engineering and has an MBA from INSEAD, Fontainebleau, France.




23








Feng Wan,34, Chief Technology Officer. Mr. Wan also serves as General Manager of Dalian Vastitude Network Technology Co., Ltd. Mr. Wan joined the Company in 2001, He provides technical and manangement services for the Company because of his broad industry experiences. He graduated from the Central Party School with a Law degree in 2000.





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, 2010, our insiders complied with all applicable
filing requirements, except that on January 27, 2011, Mr. Guojun Wang and Ms. Ming Ma each filed a late statement of changes in beneficial ownership on Form 4 for the release of the escrow shares of the common stock of the Company pursuant to an Escrow Agreement dated December 8, 2009 with certain investors of the Company.





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.





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.








24








Board and the Board Committees:





Our Board of Directors currently consists of five members: Mr. Guojin Wang, Ms. Ming Ma, Mr. Dror Poleg, Mr. Johann Y. Tse and Mr. Stephen Monticelli. 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. The Board has determined that Mr. Stephen Monticelli is an audit committee financial expert, as that term is defined in Item 407(d)(5)(ii) of Regulation S-K, serving on the Board of Directors.





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





Our Board has determined that Messrs. Dror Poleg, Hohann Y. Tse and Stephen Monticelli are “independent directors” within the meaning of applicable Nasdaq listing standards relating to Board composition and Section 301 of the Sarbanes-Oxley Act of 2002.





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.




Summary Compensation Table





Name and Principal Position

Fiscal Year Ended

June 30,

Salary

($)(1)


Bonus

($)

Stock Awards ($)

Option Awards ($)

Nonequity Incentive Plan Compensation ($)

Nonqualified Deferred Compensation Earnings ($)

All Other Compensation ($)

Total

($)Guojun Wang,

Chief Executive Officer

2011

$
45,249


$
4,525











$
49,7742010


44,248



4,425












48,673





(1)
The amounts shown in this table were paid in RMB and were translated into U.S. dollars at the rate of $6.63 per RMB for 2011 and $6.78 per RMB for 2010, which are the average 12 month exchange rates that the Company used in its audited financial statements for such years.








25











In accordance with PRC law, we contribute specified amounts to government-managed benefit plans for our employees. Benefits include pension, medical insurance, disability and unemployment.  The amounts of our contributions are specified by the PRC government based on each employee’s compensation and length of service, up to a maximum required contribution. The PRC government is responsible for the payment of benefits to employees.





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 $44,248), 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





For Messrs. Poleg and Tse, each of them is paid a base fee of USD 10,000 per year. If a Board committee is established and they become a Chair, they will receive an additional USD 5,000 per year for a total of USD 15,000 in total compensation for the year.  Mr. Monticelli receives $2,500 per month as cash compensation, an annual grant of 33,333 shares of restricted stock of the Company which vests one year from the date of grant, and a warrant to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.80 per share. Mr. Guojun Wang and Ms. Ming Ma did not receive compensation for their services as directors.





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


Equity Compensation Plan Information


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 September 28, 2011 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.











26








Name and Address of Beneficial Owner

Common Stock Beneficially Owned(1)


Percentage of Common Stock  Owned (1)Five Percent Stockholders (other than directors and principal executive officer):Chuk Chung Fuk (2)


6,590,000



23.89
%China Reinv Partners, L.P.(3)


5,497,933



19.93
%Directors and Named Executive Officers:Guojun Wang (4)


6,850,000



24.83
%Hongwen Liu (4)


0



*Ming Ma (4)


3,317,600



12.02
%Dror Poleg (4)


0



*Johann Y. Tse (4)


0



*Stephen Monticelli(4)


0



*Feng Wan (4)


10,000



0.04
%Wei Wang (4)


30,000



0.11
%Directors and Executive Officers as a group (8 persons)


10,207,600



37.00
%


_______________





*           Less than 1%.





(1)
Applicable percentage ownership is based on 27,590,001 shares of common stock outstanding as of September 28, 2011. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock that are currently issuable upon conversion or exercisable within 60 days of September 28, 2011, are deemed to be beneficially owned by the person holding such convertible securities or warrants for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.





(2)
The address of this stockholder is Room 1105, 11/F., Tower 1, Lippo Center, No. 89 Queensway, Admiralty, Hong Kong.





(3)
Based on a Schedule 13G filed by the indicated holder.  The address of the indicated holder is c/o Oded Har-Even, Zysman Aharoni Gayer & Co./Sullivan & Worcester LLP, 1290 Avenue of the Americas, 29th Floor, New York, NY 10023 U.S.A.





(4)
The address of the indicated holder is c/o Golden Name Commercial Tower, Room 803, No. 68 Renming Road, Zhongshan District, Dalian, China 116001.








27














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





Related Transactions





Amounts due to certain stockholders are as follows:





As of June 30,2011


2010Due to stockholdersMa, Ming

$
--


$
97,562Modern Trailer Company


--



309,669Wang, Caiqin


116,038



29,890Wang, Guojun


42,259



29,890Total due to stockholders

$
158,297


$
437,121





Modern Trailer Company is the minority stockholder of Dalian Vastitude Modern Transit Media Co., Ltd., which is one of Dalian V-Media’s subsidiaries. The other 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 equipments purchase purposes. These amounts due are generally unsecured, non-interest bearing and due upon demand.





ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.





Chang G. Park, CPA (“CGP”) served as the company’s independent registered public accounting firm from December 7, 2006 to December 8, 2009.  From December 8, 2009 through January 13, 2010, we engaged Bagell, Josephs, Levine & Company, LLP (“BJL”) to serve as our independent registered public accounting firm.  On January 13, 2010, we were notified that a majority of the partners of BJL joined Friedman LLP ("Friedman").  Consequently, on January 13, 2010, BJL resigned as our independent registered public accounting firm and we engaged Friedman to serve as our principal accounting firm. The fees paid or payable for services
rendered by these accounting firms for the past two fiscal years were as follows:





Audit Fees.  The aggregate fees billed by these accounting firms 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, 2011 and $92,500 for the fiscal year ended June 30, 2010.





Audit-Related Fees.  The aggregate fees billed by these accounting firms related to assurance and related services totaled $0 for the fiscal year ended June 30, 2011 and $0 for the fiscal year ended June 30, 2010.





Tax Fees.  The aggregate fees billed by these accounting firms for professional services rendered for tax compliance, tax advice and tax planning totaled $0 for the fiscal year ended June 30, 2011 and $0 for the fiscal year ended June 30, 2010.





All Other Fees.  The aggregate of all other fees for services provided by these accounting firms were $5,000 for the fiscal year ended June 30, 2011 and $3,000 for the fiscal year ended June 30, 2010.











28








PART IV





ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.





The following documents are filed as part of this report:





1.           Financial Statements





INDEX TO FINANCIAL STATEMENTS





Report of Registered Independent Public Accounting Firm


F-1Consolidated Balance Sheets


F-3Consolidated Statements of Income and Comprehensive Income


F-4Consolidated Statements of Stockholders’ Equity


F-5Consolidated Statements of Cash Flows


F-6Notes to the Financial Statements


F-7





2.           Financial Statement Schedules





None.





3.           Exhibits





3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form SB2 filed on April 11, 2007).





3.2
Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form SB2 filed on April 11, 2007).





10.1
Agreement and Plan of Merger, dated December 8, 2009, among the Company and the certain parties listed therein (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.2
Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.3
Exclusive Service Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media and its subsidiaries (incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.4
Call Option Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media, V-Media’s shareholders and subsidiaries (incorporated by reference to Exhibit 10.4 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.5
Shareholders’ Voting Rights Proxy Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media and V-Media’s shareholders (incorporated by reference to Exhibit 10.5 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.6
Equity Pledge Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media, V-Media’s shareholders and subsidiaries (incorporated by reference to Exhibit 10.6 to the Company’s current report on Form 8-K filed on December 9, 2009).








29














10.7
Form of Employment Agreement (incorporated by reference to Exhibit 10.7 to the Company’s current report on Form 8-K filed on December 9, 2009).^





10.8
Stock Purchase Agreement dated December 8, 2009, by and between the Company and the shareholders listed therein (incorporated by reference to Exhibit 10.13 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.9
Cooperation Agreement between Vastitude (Beijing) Technology Co., Ltd. and Beijing Shidai Lianxin Cultural Propagation Co., Ltd., dated February 9, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on March 5, 2010).





10.10
Cooperation Agreement between Dalian Vastitude Media Group Co., Ltd. and Liaoning Daily Newspaper Media Group Co., Ltd., dated February 10, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on March 5, 2010).





10.11
Contract with Shanghai Vastitude Advertising & Media Co., Ltd. and Shanghai Haosheng Advertising Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on July 14, 2010) (English translation).14.1
Code of Ethics.21.1
Subsidiaries of the Registrant.31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a).*31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a).*32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*





32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*





* Filed herewith.





^ Indicates a management contract or compensatory plan or arrangement.





30














SIGNATURES





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.





China New Media Corp.Date:  September 28, 2011
By:
/s/ Guojun WangGuojun Wang

Chief Executive Officer








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.








SIGNATURE

TITLE

DATE/s/ Guojun Wang

Chief Executive Officer and Chairman

September 28, 2011Guojun Wang

(principal executive officer)/s/ Hongwei Liu

Chief Financial Officer

September 28, 2011Hongwei Liu

(principal financial and accounting officer)/s/ Ming Ma

Director

September 28, 2011Ming Ma/s/ Johann Y. Tse

Director

September 28, 2011Johann Y. Tse/s/ Stephen Monticelli

Director

September 28, 2011Stephen Monticelli














31














Exhibit Index





3.1
Articles of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form SB2 filed on April 11, 2007).





3.2
Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s registration statement on Form SB2 filed on April 11, 2007).





10.1
Agreement and Plan of Merger, dated December 8, 2009, among the Company and the certain parties listed therein (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.2
Certificate of Designation of Series A Preferred Stock (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.3
Exclusive Service Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media and its subsidiaries (incorporated by reference to Exhibit 10.3 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.4
Call Option Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media, V-Media’s shareholders and subsidiaries (incorporated by reference to Exhibit 10.4 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.5
Shareholders’ Voting Rights Proxy Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media and V-Media’s shareholders (incorporated by reference to Exhibit 10.5 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.6
Equity Pledge Agreement dated November 6, 2009 among Dalian Guo-Heng, V-Media, V-Media’s shareholders and subsidiaries (incorporated by reference to Exhibit 10.6 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.7
Form of Employment Agreement (incorporated by reference to Exhibit 10.7 to the Company’s current report on Form 8-K filed on December 9, 2009).^





10.8
Stock Purchase Agreement dated December 8, 2009, by and between the Company and the shareholders listed therein (incorporated by reference to Exhibit 10.13 to the Company’s current report on Form 8-K filed on December 9, 2009).





10.9
Cooperation Agreement between Vastitude (Beijing) Technology Co., Ltd. and Beijing Shidai Lianxin Cultural Propagation Co., Ltd., dated February 9, 2010 (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on March 5, 2010).





10.10
Cooperation Agreement between Dalian Vastitude Media Group Co., Ltd. and Liaoning Daily Newspaper Media Group Co., Ltd., dated February 10, 2010 (incorporated by reference to Exhibit 10.2 to the Company’s current report on Form 8-K filed on March 5, 2010).





10.11
Contract with Shanghai Vastitude Advertising & Media Co., Ltd. and Shanghai Haosheng Advertising Co., Ltd. (incorporated by reference to Exhibit 10.1 to the Company’s current report on Form 8-K filed on July 14, 2010) (English translation).14.1
Code of Ethics.21.1
Subsidiaries of the Registrant.31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a).*31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a).*32.1
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*





32.2
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*





* Filed herewith.





^ Indicates a management contract or compensatory plan or arrangement.











32






















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the Board of Directors and
 Stockholders of China New Media Corp. and subsidiaries
   We have audited the accompanying consolidated balance sheets of China New Media Corp. and subsidiaries as of June 30, 2011 and 2010, and the related consolidated statements of income and comprehensive income, changes in equity, and cash flows for each of the years in the two-year period ended June 30, 2011. China New Media Corp.’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of China New Media Corp. and subsidiaries as of June 30, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the two-year period ended June 30, 2011 in conformity with accounting principles generally accepted in the United States of America.


/s/ Friedman LLP
  September 28, 2011















F-1


CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEETS
 (IN US DOLLARS)
  As of June 30


As of June 302011


2010ASSETSCurrent assetsCash and cash equivalents

$
1,808,880


$
1,672,017Accounts receivable, net


5,395,698



3,388,247Advance to suppliers


619,582



1,050,567Prepaid expensees


189,759



-Loan receivables


1,761,139



-Other current assets


243,159



282,618Deferred tax assets


129,443



34,790Total current assets


10,147,660



6,428,239Property, equipment and construction in progress, net,


18,776,998



13,120,233Other assetsSecurity deposits


1,955,343



1,874,363Intangible asset, net


90,354



93,903Billboards use right


4,766,060



2,172,894Investment advance


-



1,887,505Total other assets


6,811,757



6,028,665Total Assets

$
35,736,415


$
25,577,137LIABILITIES AND EQUITYCurrent liabilitiesShort term loans

$
11,603,746


$
7,196,112Long term loans-current


464,150



737,307Accounts payable, accrued expenses and other payables


1,661,011



154,808Deferred revenues


1,618,548



1,628,911Taxes payable


1,055,620



1,395,209Due to related parties


158,297



437,121Total current liabilities


16,561,372



11,549,468Long term loans


-



442,384Total  Liabilities


16,561,372



11,991,852Commitments and contingenciesEquitySeries A Preferred Stock, $0.0001 par value, 20,000,000 shares authorized,1,000,000 shares issued and outstanding as of June 30, 2011 and 2010, respectively


100



100Common stock, $0.0001 Par value; 80,000,000 shares authorized;27,590,701 and 27,550,701 shares issued and outstandingas of June 30, 2011 and 2010, respectively


2,759



2,755Additional paid-in-capital


6,820,820



6,746,071Accumulated other comprehensive income


636,300



94,571Retained earnings


10,724,103



5,852,218Total stockholders' equity


18,184,082



12,695,715Noncontrolling interest


990,961



889,570Total equity


19,175,043



13,585,285Total Liabilities and Equity

$
35,736,415


$
25,577,137
     
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF INCOME
 AND COMPREHENSIVE INCOME
 (IN US DOLLARS)
 For the years ended June 30,2011


2010Revenues

$
20,578,364


$
13,979,916Cost of revenue


(8,976,950
)


(5,821,971
)Gross profit


11,601,414



8,157,945Selling, general and administrative expenses


(4,048,022
)


(1,880,706
)Income from operations


7,553,392



6,277,239Other income (expenses):Interest income


25,824



12,633Interest expense


(815,103
)


(348,943
)Subsidy Income


-



29,293Other income


29,158



85Other expenses


(16,431
)


(56,021
)Total Other income (expenses)


(776,552
)


(362,952
)Income before income taxes


6,776,840



5,914,287Income tax provision (benefit)- Current


1,904,238



1,494,409- Deferred


(93,998
)


(34,555
)Total income tax provision (benefit)


1,810,240



1,459,854Net income


4,966,600



4,454,433Less: net income attribute to the noncontrolling interest


94,715



239,065Net income attributable to China New Media Corp.

$
4,871,885


$
4,215,368Other comprehensive incomeForeign currency translation adjustments


541,729



61,456Comprehensive income


5,413,614



4,276,824Less: comprehensive income attribute to the noncontrolling interest


45,642



4,175Comprehensive income attributable to China New Media Corp.

$
5,367,972


$
4,272,649Earnings per shareBasic

$
0.18


$
0.16Diluted

$
0.17


$
0.15Weighted average number of common sharesBasic


27,550,701



27,031,218Diluted


28,196,904



28,148,587
  
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 FOR THE YEARS ENDED JUNE 30, 2011 AND 2010
  Preferred Stock

Par value $0.0001



Common Stock

Par value $0.0001



Subscription



Additional paid-in



Accumulated Other comprehensive



Retained



Non-

controllingShares



Amount



Shares



Amount



Receivable



capital



income



earnings



Interest



TotalBalance at June 30, 2009


1,000,000


$
100



26,398,634


$
2,640


$
(500,000
)

$
3,121,186


$
33,115


$
1,636,850


$
351,407


$
4,645,298Proceeds from subscription receivable

















500,000



















500,000Acquisition of China New Media in the reverse merger










1,102,067



110







(110
)Captial contributions


































294,923



294,923Capital raised in connection with reverse merger






















3,500,000















3,500,000Common stock issued for service










50,000



5







124,995















125,000Net income






























4,215,368



239,065



4,454,433Foreign currency translation gain


























61,456







4,175



65,631Balance at June 30, 2010


1,000,000



100



27,550,701



2,755



-



6,746,071



94,571



5,852,218



889,570



13,585,284Common stock issued for service










40,000



4







35,784















35,788Non-controlling interest acquisition






















38,965











(38,965
)


-Net income






























4,871,885



94,715



4,966,600Foreign currency translation gain


























541,729







45,642



587,371Balance at June 30, 2011


1,000,000


$
100



27,590,701


$
2,759


$
-


$
6,820,820


$
636,300


$
10,724,103


$
990,961


$
19,175,043
   
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (IN US DOLLARS)
  For the years ended June 30,2011


2010CASH FLOWS FROM OPERATING ACTIVITIES:Net income

$
4,966,600


$
4,454,433Adjustments to reconcile net income to net cashprovided by operating activities:Depreciation and amortization


2,497,692



1,671,289Amortization of stock based compensation expense


35,788



125,000Loss on disposal of property and equipment


-



8,135Provision for doubful accounts


288,575



-Changes in operating assets and liabilitiesAccounts receivable


(2,009,171
)


(337,946
)Other current assets


3,426,730



(149,053
)Advance to employee


(64,427
)


(99,448
)Security deposit


10,966



(1,189,266
)Deferred tax assets


(90,660
)


(34,555
)Advance to suppliers


470,822



689,974Accounts payable, accrued expenses and other payables


(2,125,729
)


(745,483
)Advances from customers


(172,484
)Deferred revenues


(88,285
)


(1,648,858
)Taxes payable


(398,212
)


566,268Net cash provided by operating activities


6,748,205



3,310,489CASH FLOWS FROM INVESTING ACTIVITIES:Acquisition of intangible asset


(12,073
)


(73,234
)Advance payment for investment


-



(1,887,505
)Loan receivables


(1,717,895
)


-Acquisition of billboards use right


(1,409,700
)


(1,167,766
)Acquisition of property and equipment


(6,449,595
)


(6,598,768
)Net cash used in investing activities


(9,589,263
)


(9,727,274
)CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from capital contributions


-



4,292,935Net proceeds from short-term bank loans


12,224,325



7,176,902Repaymnet of short-term bank loans


(8,270,284
)


(2,929,348
)Repayment of related party loans


(300,155
)


(35,883
)Repayments of long-term bank loans


(754,588
)


(585,870
)Net cash provided by financing activities


2,899,297



7,918,736EFFECT OF EXCHANGE RATE CHANGE ONCASH AND CASH EQUIVALENTS


78,624



22,699NET INCREASE IN CASH AND CASH EQUIVALENTS


136,863



1,524,651CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR


1,672,017



147,366CASH AND CASH EQUIVALENTS, END OF YEAR

$
1,808,880


$
1,672,017SUPPLEMENTAL CASH FLOW DISCLOSUREIncome taxes paid

$
2,462,752


$
772,715Interest paid

$
772,372


$
412,387NON-CASH INVESTING AND FINANCING ACTIVITIES:Common stock granted for service

$
35,788


$
125,000Non-controlling interest acquisition


(38,965
)


-
  
    
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1- ORGANIZATION AND BASIS OF PRESENTATION
 
 China New Media Corp., (“the Company”), formerly known as Golden Key International Inc., is a corporation organized under the laws of the State of Delaware in 1999.
 
 The Company, along with its subsidiaries and VIEs, is engaging in sales, construction and operations of outdoor advertising displays and other alternative media business.
 
 On December 8, 2009, Golden Key International Inc. acquired all of the outstanding capital stock of HongKong Fortune-Rich Investment Co., Ltd., a Hong Kong corporation (“Fortune-Rich ”), through China New Media Corp., a Delaware corporation (the “Merger Sub”) wholly owned by the Company.  Fortune-Rich is a holding company whose only asset, held through a subsidiary, is 100% of the registered capital of Dalian Guo-Heng Management & Consultation Co., Ltd. (“Dalian Guo-Heng”), a limited liability company organized under the laws of the People’s Republic of China. Substantially all of the Fortune-Rich’s operations are conducted in China though Dalian
Guo-Heng, and through contractual arrangements with several of Dalian Guo-Heng’s consolidated affiliated entities in China, including Dalian Vastitude Media Group Co., Ltd. (“V-Media”) and its subsidiaries. V-Media is an out-door advertising company headquartered in Dalian, the commercial center of Northeastern China.  As a result of these contractual arrangements, which obligate the Company to absorb a majority of the risk of loss from V-Media’s activities and entitle it to receive a majority of its residual returns. In addition, V-Media Group 's shareholders have pledged their equity interest in V-Media Group to Dalian Guo-Heng, irrevocably granted Dalian Guo-Heng an exclusive option to purchase, to the extent permitted under PRC law, all or part of the equity interests in V-Media Group and agreed to entrust all the rights to exercise their voting power to
the person(s) appointed by Dalian Guo-Heng. Through these contractual arrangements, the Company and Dalian Guo-Heng hold all the variable interests of V-Media Group, and the Company and Dalian Guo-Heng have been determined to be the most closely associated with V-Media Group. Therefore, the Company is the primary beneficiary of V-Media Group. Based on these contractual arrangements, the Company believes that V-Media Group should be considered as a Variable Interest Entity (“VIE”)  under Accounting Standards Codification (“ASC”) 810 (“Consolidation”), because the equity investors in V-Media Group do not have the characteristics of a controlling financial interest and the Company through Dalian Guo-Heng is the primary beneficiary of V-Media Group.
 
 In connection with the acquisition, Merger Sub issued 10 shares of the common stock of the Merger Sub which constituted the 10% ownership interest in the Merger Sub and 1,000,000 shares of Series A Preferred Stock of the Company to the shareholders of Fortune-Rich, in exchange for all the shares of the capital stock of Fortune-Rich (the “Share Exchange” or “Merger”). The 10 shares of the common stock of the Merger Sub were converted into approximately 26,398,634 shares of the common stock of the Company so that upon completion of the Merger, the shareholders of Fortune-Rich own approximately 96 % of the common stock of the Company.
 
   
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1- BASIS OF PRESENTAION (Continued)
 The acquisition was accounted for as a reverse merger under the purchase method of accounting since there was a change of control. Accordingly, Hong Kong Fortune-Rich Investment Co., Ltd. and its subsidiaries will be treated as the continuing entity for accounting purposes.
 
 As part of the merger, the Company’s name was changed from “Golden Key International, Inc.” to “China New Media Corp.” to more effectively reflect our business and communicate our brand identity to customers.
 
 NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of Consolidation
 
 The accompanying consolidated financial statements include the accounts of China New Media Corp., its subsidiary, Fortune-Rich and its wholly-owned subsidiary Dalian Guo-Heng, as well as Dalian Guo-Heng’s variable interest entity, V-Media Group.
  The noncontrolling interests represent the minority stockholders’ interest in V-Media Group’s majority owned subsidiaries.
 
 All significant inter-company balances and transactions have been eliminated in consolidation.
 
 Use of Estimates
  In preparing the financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the dates of the financial statements, as well as the reported amounts of revenues and expenses during the reporting years. Significant estimates, required by management, include useful lives of property and equipment, the recoverability of long-lived assets and the valuation of outstanding warrants, stock based compensation and provision for allowance of doubtful accounts.  Actual results could differ from those
estimates.
 
 
 
 
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Cash and Cash Equivalents
 
 Cash and cash equivalents include cash on hand and demand deposits with a bank with an original maturity of less than three months.
 
 Accounts Receivable
  Accounts receivable are recorded at net realizable value consisting of the carrying amount less an allowance for uncollectible amounts, as needed.
 
 The Company uses the aging method to estimate the allowance for anticipated uncollectible receivable balances. Under the aging method, bad debt percentages determined by management based on historical experience as well as current economic climate are applied to customers’ balances categorized by the number of months the underlying invoices have remained outstanding. The allowance is adjusted to the amount computed as a result of the aging method. When facts subsequently become available to indicate that the allowance provided requires an adjustment, then the adjustment will be classified as a change in estimate. There were $286,027 and $62,635 allowances for uncollectible amounts for the years ended
June 30, 2011 and 2010, respectively. Receivables are considered past due after 180 days. Accounts are written off only after exhaustive collection efforts.
 
 Advance to suppliers
 
 The Company periodically makes advances to certain vendors for purchases of advertising materials and equipment and records those advances as advance to suppliers. Historically, the company has not experienced any losses as a result of these advances.
 
 Property, Equipment and Construction in Progress
 
 Property and equipment are stated at cost less accumulated depreciation. Expenditures for maintenance and repairs are charged to earnings as incurred while additions, renewals and betterments are capitalized. When the asset property and equipment is retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property, plant and equipment is provided using the straight-line method for substantially all assets with estimated lives as follows:
 Estimated Useful Life

Residual valueBuilding
15 years


5%Improvement of the building
5 years


0%Advertising equipment
4-15 years


5%Transportation
7 years


5%Office equipment and furniture
5 years


5%
 Construction in progress represents direct costs of construction or acquisition and design fees incurred. Capitalization of these costs ceases and the construction in progress is transferred to plant and equipment when substantially all the activities necessary to prepare the assets for their intended use are completed. No depreciation is provided until it is completed and ready for intended use.
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 2-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  Impairment of long-lived assets
 
 Long-lived assets, which include property, plant and equipment, billboard use right and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the assets.   If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the assets.  Fair value is
generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. No impairment loss has been recorded for the year ended June 30, 2011 and 2010.
 
 Deferred revenues
 
 Deferred revenues represent cash received in advance from customers according to the contracts for advertising service fees, advertisement production and sponsorship fees. These advances are usually refundable to the customers if the Company is unable to deliver the advertising services. Deferred revenues are recognized as income when services are provided based on the terms of the contracts.
 
 Revenue recognition
 
 The Company recognizes revenues when advertisements are posted over respective contractual terms based on the schedules agreed with customers and collections are reasonably assured. Payments received in advance of services provided are recorded as deferred revenues.
 
 Cost of revenues
 
 Cost of advertising services consists primarily of media costs payable under exclusive advertising agreements, depreciation of advertising equipments and amortization of billboards use right, business taxes and surcharges and other direct operating costs. Media costs are expensed as incurred. 
 Selling, General and administrative Costs
 
 Selling, general and administrative costs consist primarily of salaries and commissions for sales representatives, salaries for administrative staffs, rent expenses, office supplies, depreciation expense and employee benefits for administrative staffs.
 
 Foreign currency translation
 
 The Company and Fortune-Rich use the United States dollar (“US Dollars”) for financial reporting purposes. The Company, Dalian Guo-Heng and Dalian Vastitute Group maintain their books and records in the currency of Renminbi (“RMB”), being the primary currency of the economic environment in which their operations are conducted.
 
 For financial reporting purposes, RMB has been translated into United States dollars ("USD") as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income". Gains and losses resulting from foreign currency translations are included in accumulated other
comprehensive income.  There is no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.
 
 F-9
 
 
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 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.
 
 Acquisition
 
 Changes in a parent’s ownership interest while the parent retains its controlling financial interest in its subsidiary shall be accounted for as equity transactions.Therefore, no gain or loss shall be recognized in consolidated net income or comprehensive income. The carrying amount of the noncontrolling interest shall be adjusted to reflect the change in its ownership interest in the subsidiary. Any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is adjusted shall be recognized in equity attributable to the
parent.
  Fair Value of Financial Instruments
 
 The Company adopted the provisions of ASC 820, Fair Value Measurements and Disclosures. ASC 820 clarifies the definition of fair value, prescribes methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows:
 
 Level 1-Observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
 
 Level 2-Inputs other than quoted prices that are observable for the asset or liability in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other then quoted prices that are observable, and inputs derived from or corroborated by observable market data.
 
 Level 3-Inputs are unobservable inputs which reflect managements’ own assumptions based on the best available information.
 
 The carrying amounts of certain financial instruments, including accounts receivable, advances to vendors, other receivables, accounts payable, advance from customers, taxes payable, other payables and accrued liabilities, approximate their fair value due the short-term nature of these items. The carrying amount of the Company’s bank loans approximates the fair value based on the Company's expected borrowing rate with similar remaining maturities and comparable risk in market.
 
 Stock-Based Compensation
 
 The Company measures compensation expense for its non-employee stock-based compensation under ASC 718, “Compensation- Stock Compensation”.  The fair value of the stock issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete.  The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.
   
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Earnings per Share
 
 The Company computes earnings per share (“EPS’) in accordance with ASC 260, “Earnings per share.” ASC 260 requires companies with complex capital structures to present basic and diluted EPS.  Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period.  Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later.  Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or
decrease loss per share) are excluded from the calculation of diluted EPS.
 
 Concentrations of Business and Credit Risk
 
 The Company maintains certain bank accounts in the PRC, which are not protected by FDIC insurance or other insurance.
 
 The Company’s operations are carried out in the PRC. Accordingly, the Company’s business, financial condition and results of operations may be influenced by the political, economic and legal environments in the PRC and the general state of the PRC’s economy.
 
 The Company’s operations in the PRC are subject to specific considerations and significant risks not typically associated with companies in the North America and Western Europe. The Company’s operating results may be adversely affected by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other things.
  The current management team own controlling interests in the Company and are also the majority owners of the controlled variable interest entity in the PRC. Substantially all of the Company’s assets are owned through their control of the VIE and the Company only controls the variable interest entity through certain agreements which obligate them to absorb the risk of loss and to receive the residual expected returns. As such, the controlling shareholders of the Company and the variable interest entity could cancel these agreements or permit them to expire at the end of the agreement
 Reclassification
 
 Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported total assets, liabilities, stockholders' equity or net income.
 
 New Accounting Pronouncements
  In May 2011, the FASB issued Accounting Standards Update No. 2011-04, “Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” (“ASU 2011-04”). ASU 2011-04 expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This new guidance is to be applied prospectively. This guidance will be effective for the Company beginning January 1, 2012.  The Company anticipates that the adoption of this standard will not
materially affect its consolidated financial statements.
    
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
  In June 2011, the FASB issued Accounting Standards Update No. 2011-05, “Comprehensive Income (Topic 220): Presentation of Comprehensive Income,”(“ASU 2011-05”). ASU 2011-05 eliminates the option to report other comprehensive income and its components in the statement of changes in equity. ASU 2011-05 requires that all non-owner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This new guidance is to be applied retrospectively. This guidance will be effective for the Company beginning January 1, 2012. The Company
anticipates that the adoption of this standard will not change the presentation of its consolidated financial statements.
 
 NOTE 3 - LOAN RECEIVABLES
 
 The Company loaned two non-related companies, Rongbang New Energy Resources and Tianjun Trade Co., $0.8 million and $0.9 million, respectively. The former is a loan for one year term from April 27, 2011 to April 26, 2012 at a fixed interest rate of 10% per annum. The latter is a loan for one year term from June 10, 2011 to June 9, 2012 at a fixed interest rate of 10% per annum.
 
 NOTE 4 - MAJOR SUPPLIERS
 For the year ended June 30, 2011, one major supplier provided approximately 27% of the Company’s purchase of raw materials. For the year ended June 30, 2010, two major suppliers provided 72.5% of the Company’s purchase of raw materials, with each supplier individually accounting for 46.5% and 26%, respectively.
 NOTE 5 - PROPERTY, EQUIPMENT AND CONSTRUCTION IN PROGRESS, NET
 
 Property, equipment and construction in progress consist of the following:
 
 June 30, 2011


June 30, 2010Advertising equipment

$
20,950,906


$
14,857,020Office equipment and furniture


387,839



234,428Office building and Improvement


355,048



-Transportation


1,338,611



912,093Subtotal


23,032,404



16,003,541Less: Accumulated depreciation


(6,177,341
)


(4,362,006
)Construction in progress


1,921,935



1,478,698Total

$
18,776,998


$
13,120,233
  Depreciation expense totaled $1,561,413 and $1,193,642, for the years ended June 30, 2011 and 2010 respectively.  Approximately $11.13 million of advertising equipment was pledged for short term loans as of June 30, 2011. The Company expects to complete construction in progress and pay the outstanding balance of $4.33 million by December 31, 2011.
    
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6 - SECURITY DEPOSIT
 
 Security deposit is mainly comprised of deposits made to third parties to guarantee the Company’s outstanding loans (see Note 10 and 11). As of June 30, 2011 and June 30, 2010, the Company has security deposit balances of $1,955,343 and $1,874,363, respectively.
 NOTE 7 - INTANGIBLE ASSETS
 
 Intangible assets consist of computer software acquired. The Company amortizes the intangible assets on a straight-line basis over the useful terms 3 to 10 years. Amortization expense amounted $20,042 and $13,822 for the years ended June 30, 2011 and 2010, respectively.
 The projected amortization expense attributed to future periods is as follows:
 
 Years ending June 30,

Expense2012

$
20,8352013


8,9742014


8,9742015


8,9742016


8,974Thereafter


33,623$
90,354
 NOTE 8 - BILLBOARDS USE RIGHT
 
 The Company makes advance payments for the right to construct advertising equipment and post advertisements in certain locations based on long-term contracts with local government authorities or other business entities. These payments are recorded as billboards use right and amortized on a straight-line basis over the contract terms 2 to 15 years.
  Amortization of billboards use right amounted $1,083,412 and $ 247,569 for the years ended June 30, 2011 and 2010, respectively.
 
 The projected amortization expense attributed to future periods is as follows:
 
 Years ending June 30,

Expense2012

$
1,216,6572013


898,7532014


612,2922015


560,9472016


352,624Thereafter


1,124,787$
4,766,060
     CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 9 - TAXES
 
 a)  Corporate Income Tax
 
 United States
 
 The Company is subject to income taxes on an entity basis on income arising in or derived from the tax jurisdiction in which each entity is domiciled.
 
 China New Media Corp., a Delaware corporation, has incurred a net operating loss for income tax purposes for the year ended June 30, 2011. The Company had loss carry forwards for U.S. income tax purposes available for offset against future taxable U.S income expiring in 2030 was approximately $157,516 and $125,000 as of June 30, 2011 and 2010, respectively. Management believes that the realization of the benefits from these losses appears uncertain due to the Company's limited operating history. Accordingly, a full deferred tax asset valuation allowance has been provided and no deferred tax asset benefit has been recorded for US operation. The valuation allowance was $53,555 and $42,500 as of June 30, 2011 and
2010, respectively. The valuation allowance increased by $11,055 and $42,500 for the years ended June 30, 2011 and 2010, respectively.
 
 Hong Kong
 
 Fortune-Rich was incorporated in Hong Kong and is not subject to income taxes under the current laws of Hong Kong.
 
 PRC
  Dalian Guo-heng and V-Media Group are governed by the Income Tax Law of the People’s Republic of China concerning the private-run enterprises, which are currently subject to tax at a statutory rate of 25% on net income reported after appropriated tax adjustments. Because of different tax jurisdictions’ restriction, V-Media Group’s subsidiaries of Beijing, Tianjin, and Shenyang, have loss carryover that can only be used to offset their own future taxable income. The loss carry forward for those subsidiaries amounted $375,992 and $138,220 as of June 30, 2011 and 2010, respectively.
 
 The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. The Company considers many factors when assessing the likelihood of future realization of the deferred tax assets, including its recent cumulative earnings experience, expectation of future income, the carryforward periods available for tax reporting purposes, and other relevant factors. For the year ended June 30, 2011, management concluded that it was more likely than not those additional deferred tax assets would be realized. This determination was based upon actual and
projected future operating results in our business. Accordingly, the Company recorded a non-cash income tax benefit of $93,998 and $34,555 for the year ended June 30, 2011 and 2010, respectively.
    
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 9 - TAXES (Continued)
  Significant components of the income tax provision were as follows for the years ended June 30, 2011 and 2010:
 
 For the years ended June 30,2011


2010Current tax provisionFederal

$
-


$
-State


-



-Foreign


1,904,238



1,494,4091,904,238



1,494,409Deferred tax benefit, net of valuation allowanceFederal


-



-State


-



-Foreign


(93,998
)


(34,555
)(93,998
)


(34,555
)Income tax provision

$
1,810,240


$
1,459,854
 
 b) Business Tax
 
 Dalian Guo-heng, Dalian Vastitude Media Group Co., Ltd. and its five subsidiaries are also subject to 5% business tax and related surcharges levied on advertising services in China, which are approximately 3% on our revenues from providing advertising services. Dalian V-Media’s another subsidiary is only subject to 3% business tax. Total business tax expense amounted $1,017,529 and $688,940 for the years ended June 30, 2011 and 2010, respectively.
 
 c) Taxes payable consisted of the following:
 
 June 30,


June 30,2011


2010Business tax payable

$
115,973


$
187,826Corporate income tax payable


773,286



1,199,227Other


166,361



8,156Total taxes payable

$
1,055,620


$
1,395,209
 
 The Company recognizes interest and penalties accrued related to unrecognized tax benefits and penalties, if any, as income tax expense. The Company files income tax returns with U.S. Federal Government, as well as Delaware State and the Company files returns in foreign jurisdictions of Hongkong and PRC China. With few exceptions, the Company is subject to U.S. federal and state income tax examinations by tax authorities for years on or after 2007.
  The Company’s foreign subsidiaries and VIEs also file income tax returns with both the National Tax Bureau and the Local Tax Bureaus. The Company is subject to income tax examinations by these foreign tax authorities. The Company has passed all tax examinations by both National and Local tax authorities since the inception of the Company in 2000.
    
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 10 - SHORT TERM LOANS
 
 The short term loans include the following:
  June 30, 2011


June 30, 2010a) Loan payable to Harbin Bank

$
928,300


$
884,768b) Loans payable to Shanghai Pudong Development Bank


2,475,466



884,768c) Loan payable to Dalian Bank Xigang Branch


1,547,166



1,474,613d) Loan payable to Industrial and Commercial Bank of China


-



265,430e) Loan payable to Jinzhou Bank


2,320,749



2,211,920f) Loans payable to Industrial Bank


1,083,016



1,474,613g)Loans payable to Jilin Bank


2,320,749



-h)Loan payable to Dalian Bank Shenyang Branch


928,300



-Total short term loans

$
11,603,746


$
7,196,112
  a) Loan payable to Harbin Bank had an original one-year term from April 14, 2009 to April 13, 2010 at a fixed interest rate of 5.31% per year. The loan has been renewed for another year from May 9, 2011 to May 8, 2012 at a variable interest rate of 7.57% at June 30, 2011. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company.
 
 b) Loan payable to Shanghai Pudong Development bank consists of two loans. One is an original one-year term loan from November 10, 2008 to November 10, 2009 with the amount of RMB 6,000,000 (approximately $928 thousand) at a fixed interest rate of 7.99% per year. This loan has been renewed from November 23, 2010 to November 15, 2011 at a variable interest rate of 7.57% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma.The other loan is a one-year term loan from June 22, 2011 to June 15, 2012 in the amount of RMB 10,000,000 (approximately $1.55 million) at a fixed
interest rate of 8.20% per year. This loan has been guaranteed by an unrelated company, Union Chuangye Guaranty Company and the major stockholders
 
 c) Loan payable to Dalian Bank Xigang Branch had an original one-year term from January 6, 2009 to January 6, 2010 at the fixed interest rate of 6.90% per year. This loan has been repaid and a new loan has been borrowed with one year term from March 14, 2011 to March 11, 2012 at a variable interest rate of 5.56% at June 30, 2011. This loan has been guaranteed by an unrelated company, Dalian Huanbohai Development Credit Guaranty Company. In the guaranty contract, the Company pledged part of its advertising equipment with the approximate value of RMB13, 000,000 (approximately $2.01 million) to Dalian Huanbohai Development Credit Guaranty Company.
  d) Loan payable to Industrial and Commercial Bank of China is a one-year term loan from July 20, 2009 to July 5, 2010 at a fixed interest rate of 6.93% per year. This loan has been repaid on June 2011.
 
 e) Loan payable to Jinzhou Bank is a one-year term loan from April 21, 2010 to April 20, 2011 at a fixed interest rate of 6.90% per year. The loan has been renewed for another year from April 21, 2011 to April 20, 2012 at a fixed interest rate of 8.20% per year. This loan has been guaranteed by the Company’s major Stockholders Mr. Guojun Wang and Ms. Ming Ma. The Company pledged part of its advertising equipment with the value of RMB17,000,000 (approximately $2.6 million).
  f) Loan payable to Industrial Bank consists of two loans. One loan is a one-year term loan from June 25, 2010 to June 24, 2011 with the amount of RMB 10,000,000 (approximately $1.5 million) at a fixed interest rate of 6.10% per year. This loan has been repaid on June 24, 2011. The other loan is a one-year term loan from July 20, 2010 to July 19, 2011 with the amount of RMB 7,000,000 (approximately $1.1 million) at a variable interest rate of 6.11% per year. This loan has been guaranteed by the Company’s major stockholders Mr. Guojun Wang and Ms. Ming Ma and also has been guaranteed by an unrelated company, Union Chuangye Guaranty Company.
  g) Loan payable to Jilin Bank consists of two loans. One loan is a one-year term loan from May 6, 2011 to May 4, 2012 with the amount of RMB 5,000,000 (approximately $0.8 million) at a fixed interest rate of 8.20% per year. The other loan is a one-year term loan from May 9, 2011 to May 8, 2012 with the amount of RMB 10,000,000 (approximately $1.5 million) at a fixed interest rate of 8.20% per year. The two loans have been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Co., Ltd. In the guaranty contract, the Company pledged part of its advertising equipment with the approximate value of RMB43,408,300 (approximately $6.63 million) to Dalian Enterprise Credit Guaranty Co., Ltd.
  h) Loan payable to Dalian Bank Shenyang Branch is a one-year term loan from June 10, 2011 to June 8, 2012 at a fixed interest rate of 8.52% per year. This loan has been guaranteed by Dalian Vastitude Media Group Co., Ltd.
   
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11 - LONG TERM LOANS
 
 The long term loans include the following:
 
 June 30, 2011


June 30, 2010a) Loan payable to China Development Bank

$
-


$
294,923b) Loan payable to Dalian Bank

$
464,150


$
884,768Total long term loans

$
464,150


$
1,179,691Less: current portion

$
464,150


$
737,307Total long term loans noncurrent portion

$
-


$
442,384
  a) Loan payable to China Development Bank was repaid on December 27, 2010.
 
 b) Loan payable to Dalian Bank mature on June 25, 2012 at a variable interest rate of 4.95% at June 30, 2011. This loan has been guaranteed by an unrelated company, Dalian Enterprise Credit Guaranty Company.
  NOTE 12 - RELATED PARTY TRANSACTIONS
 
 Amounts due to related parties are as follows:
  June 30, 2011


June 30, 2010Ma, Ming

$
-


$
97,562Modern Trailer Company






309,669Wang, Caiqin


116,038



-Wang, Guojun


42,259



29,890Total

$
158,297


$
437,121
 
 Modern Trailer Company is the minority stockholder of Dalian Vastitude Modern Transit Media Co., Ltd., which is one of Dalian V-Media’s subsidiaries. The stockholders provide funds for the Company’s operations for advertising material and equipment purchase. These amounts due are generally unsecured, non-interest bearing and due upon demand.
    
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 13 - STOCKHOLDERS’ EQUITY
  (1) Preferred Stock
 
 In conjunction with the reversed merger on December 8, 2009, the Company issued 1,000,000 shares of Series A preferred stock, which have an aggregate voting power of 40% of the combined voting power of the entire Company’s shares, Common Stock and Preferred Stock as long as the Company is in existence. These preferred shares are not convertible into common shares of the Company and are not freely traded in the market. The preferred shares also do not contain any dividend right, liquidation preference right, redemption right or preemptive right.
 
 (2) Issuance of Stocks
 
 On March 26, 2011, the Company granted 40,000 restricted shares of its common stock, which should be vested one year from the date of issue to its employee in consideration for services rendered from February 19, 2010. The fair value of the awards is measured based on the grant date stock price of $0.42 per share with an aggregate amount of $16,800. The amortization of share-based compensation expense was $3,867 and $-0- for the years ended June 30, 2011 and 2010, respectively.
  On March 7, 2011, the Company appointed Mr. Stephen Monticelli as an independent director of the Company. Mr. Monticelli will receive an annual grant of 33,333 restricted shares of its common stock which will be vested one year from the date of the grant. The fair value of the awards is measured based on the grant date stock price of $0.52 per share with an aggregate amount of $17,333. The amortization of share-based compensation expense was $5,461 and $-0- for the years ended June 30, 2011 and 2010, respectively.
  (3) Warrants
 
 On November 23, 2009, prior to and in conjunction with the Merger, Fortune-Rich entered into a Securities Purchase Agreement (“SPA”) with an institutional investor and pursuant to the SPA, Fortune-Rich issued 10,415,000 shares of its common stock in exchange for $3,500,000 in cash. These shares of Fortune-Rich were convertible into 5,497,933 shares of the common stock of the Company upon completion of the Merger mentioned above. In addition, the investor was entitled to receive 6,249,000 warrants of Fortune-Rich, which were exchanged for 3,298,760 warrants of the Company upon the completion of the Merger with an exercise price of 0.95. These warrants are exercisable immediately for the same number of
common shares of the Company. The warrants, which were assumed by the Company upon the Merger, expire in four years. The warrants issued in connection with the Merger meet the conditions for equity classification pursuant to ASC 815, “Derivatives and Hedging”; therefore, these warrants were classified as equity and included in Additional Paid-in Capital.
 
 On March 7, 2011, the Company granted its independent director, Stephen Monticelli warrants to purchase up to 50,000 shares of the Company’s common stock at an exercise price of $1.80 per share. The Warrant Shares for the first year (up to an aggregate total of 16,666 shares) will be vested following a full year of service as a Non-Executive Director. The Warrant Shares for the second year (up to an aggregate total for years one and two of 33,333 shares) will be vested following a second full year of service as a Non-Executive Director. The Warrant Shares for years three through five (up to an aggregate total for all five
years of 50,000 shares) will be vested following the third full year of service as a Non-Executive Director.
 
 The fair value of warrants granted was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions: expected life 4.69 years, expected volatility 130%, dividend yield 0.00%, risk free interest rate 1.76% and the exercise price of $1.8. The fair value of the warrants to the director was $18,988 at the grant date. There were no estimated forfeitures as the Company has a short history of issuing options. Stock compensation expenses recognized were $18,988 and -0- for the fiscal years ended June 30, 2011 and 2010, respectively.
    
 CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 13 - STOCKHOLDERS’ EQUITY (Continued)
  The following is a summary of the status of warrant activities as of June 30, 2011:
 
 Warrants

Outstanding


Weighted Average

Exercise Price


Average Remaining

Life in yearsOutstanding, June 30, 2010


3,298,760


$
0.95



2.4Granted


50,000


$
1.80



4.69Forfeited


-



-



-Exercised


-



-



-Outstanding, June 30, 2011


3,348,760


$
0.96



2.4Exercisable, June 30, 2011


3,298,760


$
0.95



2.4
 
 NOTE 14 - NONCONTROLLING INTEREST ACQUISITION
 
 On July 5, 2010, China New Media Corp. established a new subsidiary Shanghai Vastitude Advertising & Media Co., Ltd. V-Media Group held 80% of the new subsidiary’s equity, and Ni, Huiwei held 20% of its equity till on April 1, 2011 when V-Media Group acquired the remaining 20% equity with a consideration of RMB 3,200,000 (approximately $0.5 million). Accordingly Shanghai Vestitude Advertising & Media Co., Ltd became wholly-owned subsidiary of V-Media Group. The Company recorded the RMB0.2 million ($38,965) excess of the fair value of the net assets acquired over the purchase price as additional paid in capital.
  NOTE 15 - EARNINGS PER SHARE
 
 Basic earnings per share excludes dilution is computed by dividing income available to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock using the treasury method.
 
 Common stock equivalents represent the dilutive effect of the assumed exercise of the outstanding stock options and warrants, using the treasury stock method, at either the beginning of the respective period presented or the date of issuance, whichever is later, and only if the common stock equivalents are considered dilutive based upon the Company’s net income position at the calculation date.
 
 As of June 30, 2011, the Company had 1,000,000 shares of preferred stock, that have not been included in diluted weighted average shares calculation because pursuant to the Merger agreement, no preferred shares can be converted to any securities as of June 30, 2011.
 
 The Company’s outstanding warrants to acquire 3,298,760 shares of common stock at exercise price of $0.95 were considered dilutive and were included in the weighted average shares-diluted calculation using the treasury stock method.
 
   
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 15 - EARNINGS PER SHARE (Continued)
  The warrants issued on March 7, 2011 to acquire 50,000 shares of common stock with exercise price of $1.80, were out of the money as of June 30, 2011 and therefore were not included in the diluted weighted average shares calculation.
 
 The following table sets forth earnings per share calculation for the fiscal years ended June 30, 2011 and 2010:
 
 For the years endedJune 30,2011


2010Basic earnings per shareNet income attributable to China New Media Corp.

$
4,871,885


$
4,215,368Weighted average number of common shares outstanding - Basic


27,550,701



27,031,218Earnings per share - Basic

$
0.18


$
0.16Diluted earnings per shareNet income attributable to China New Media Corp.

$
4,871,885


$
4,215,368Weighted average number of common shares outstanding - Basic


27,550,701



27,031,218Effect of diluted securities - warrants


646,203



1,117,369Weighted average number of common shares outstanding - Diluted


28,196,904



28,148,587Earnings per share - Diluted

$
0.17


$
0.15
 
 NOTE 16 - SEGMENT INFORMATION
 
 ASC 280, "Segment Reporting", establishes standards for reporting information about operating segments on a basis consistent with the Company's internal organizational structure as well as information about geographical areas, business segments and major customers in financial statements for details on the Company's business segments.
 
 The Company is an outdoor advertising company in China which provides a full range of integrated outdoor advertising services including art design, advertising publishing, daily maintenance and technical upgrading. The Company's chief operating decision maker ("CODM") has been identified as the CEO who reviews the financial information of separate operating segments when making decisions about allocating resources and assessing performance of the group. Based on management's assessment, the Company has determined that its operating segments can be categorized by geographic locations as well as the format of the outdoor media
platforms.
 
 The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The CODM evaluates performance based on each reporting segment's revenues, cost of revenues, and gross profit.  Selling expenses and G&A expenses are not separated reviewed to each segment. The CODM does not review balance sheet information to measure the performance of the reportable segments, nor is this part of the segment information regularly provided to the CODM.
   
  CHINA NEW MEDIA CORP. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 16 - SEGMENT INFORMATION (Continued)
 
 Revenue and cost of revenues by segment were as follows:
  For fiscal year ended June 30, 2011Dalian District


Shenyang District

Beijing District


Tianjin District

Shanghai District


TotalRevenue

$
18,823,163


$
619,133


$
54,330


$
203,473


$
878,265


$
20,578,364Cost of Revenue


(7,755,520
)


(359,354
)


(109,827
)


(130,889
)


(621,360
)


(8,976,950
)Gross Profit

$
11,067,643


$
259,778


$
-55,496


$
72,584


$
256,905


$
11,601,414
  For fiscal year ended June 30, 2010Dalian District


Shenyang District

Beijing District


Tianjin District

Shanghai District


TotalRevenue

$
13,460,507


$
480,009



-


$
39,400



-


$
13,979,916Cost of Revenue


(5,602,380
)


(199,340
)


-



(20,251
)


-



(5,821,971
)Gross Profit

$
7,858,127


$
280,669


$
-


$
19,149


$
-


$
8,157,945
  NOTE 17 - SUBSEQUENT EVENT
 
 On August 18, 2011, the Company invested RMB 600,000 or approximately $94,000, in Le Tian Net (www.letian.net, “Letian”), to acquire 20% of the operating rights of the Letian. Letian is a large online advertising platform in Dalian.








F-21