China Mass Media 20F 2011 Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

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

For the fiscal year ended: December 31, 2011

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

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

Date of event requiring this shell company report

For the transition period from to

Commission file number: 001-34132

_{CHINA MASS MEDIA CORP.}

(Exact name of Registrant as specified in its charter)

Not Applicable	Cayman Islands
(Translation of Registrant’s name into English)	(Jurisdiction of Incorporation or Organization)

6th Floor, Tower B, Corporate Square, 35 Finance Street Xicheng District, Beijing 100033 People’s Republic of China
(Address of Principal Executive Offices)

Ms. Julie Zhili Sun, Chief Financial Officer Tel: (8610) 8809-1099 Fax: (8610) 8809-1088 Email: juliesun@chinammia.com 6th Floor, Tower B, Corporate Square, 35 Finance Street Xicheng District, Beijing 100033 People’s Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class		Exchange on which registered
Ordinary shares, par value US$0.001 per share		None
American depositary shares, each representing 300 ordinary shares

Securities registered or to be registered pursuant to Section 12(g) of the

Act: None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the

Act: None

Number of outstanding shares of each of the issuer’s classes of capital or common stock as of

December 31, 2011:

751,697,920ordinary shares, par value US$0.001 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¨Nox

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15)(d) of the Securities Exchange Act of 1934. Yes¨ Nox

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. Yesx No¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes¨ No¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer¨ Accelerated Filer¨ Non-Accelerated Filerx

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAPx	International Financial Reporting	Other¨
	Standards as issued by the International
	Accounting Standards Board¨

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17¨ Item 18¨

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes¨ Nox

(APPLICABILITY ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 13, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes¨ No¨

Table of Contents

Part I

		Page

INTRODUCTION		4

FORWARD-LOOKING STATEMENTS		4

ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	5

ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	6

ITEM 3.	KEY INFORMATION	6

ITEM 4.	INFORMATION ON THE COMPANY	33

ITEM 4A	UNRESOLVED STAFF COMMENTS

ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	48

ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	64

ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	73

ITEM 8.	FINANCIAL INFORMATION	74

ITEM 9.	THE OFFER AND LISTING	75

ITEM 10.	ADDITIONAL INFORMATION	76

ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	83

ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	83

ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	85

ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	85

ITEM 15.	CONTROLS AND PROCEDURES	86

ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	86

ITEM 16B.	CODE OF ETHICS	86

ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	86

ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	87

ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	88

ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	88

ITEM 16G.	CORPORATE GOVERNANCE	88

ITEM 16H.	MINE SAFETY DISCLOSURE	88

ITEM 17.	FINANCIAL STATEMENTS	88

ITEM 18.	FINANCIAL STATEMENTS	88

ITEM 19.	EXHIBITS	89

INTRODUCTION

Unless otherwise indicated, references in this annual report to:

“ADRs” are to the American depositary receipts that evidence our ADSs;

“ADSs” are to our American depositary shares, each of which represents 300 ordinary shares;

“China” or the “PRC” are to the People’s Republic of China, excluding, for the purpose of this annual report on Form 20-F only, Taiwan and the special administrative regions of Hong Kong and Macau;

“RMB” and “Renminbi” are to the legal currency of China;

“series A preferred shares” are to our convertible series A preferred shares, par value US$0.001 per share;

“shares” or “ordinary shares” are to our ordinary shares, par value US$0.001 per share; and “US$,” “$” and “U.S. dollars” are to the legal currency of the United States.

Unless the context indicates otherwise, “we,” “us,” “our company” and “our” refer to China Mass Media Corp., or CMM, Universal International Advertising Limited, or UIAL, Mass Media and Universal International Advertising Co., Ltd., or Universal, and, up to December 31, 2007, Mass Media International Advertising Co., Ltd., or Mass Media.

Unless otherwise indicated, all share and per share information in this annual report gives effect to(i) the 1,000-for-one share split of our ordinary shares and series A preferred shares effected in the form of a grant of bonus shares on July 17, 2008, (ii) the distribution of stock dividend in January 2011, under which our shareholders received one additional ordinary share for every ten ordinary shares they held at the time of distribution, and (iii)the adjustment of the ratio of our ordinary shares to ADSs from 30:1 to 300:1 on November 28, 2011.

This annual report on Form 20-F includes our audited consolidated statements of operations data for the years ended December 31, 2009, 2010 and 2011, and consolidated balance sheet data as of December 31, 2009, 2010 and 2011.

We completed the initial public offering of 7,212,500 ADSs, each representing 30 ordinary shares, on August 7, 2008. On August 4, 2008, we listed our ADSs on the New York Stock Exchange Arca, or NYSE Arca, under the symbol “CMM.” On August 25, 2009 we transferred the listing of our ADSs from NYSE Arca to the New York Stock Exchange, or the NYSE.

In March 2012, we received a notice from the staff of NYSE Regulation, Inc. (“NYSE Regulation”) confirming that NYSE Regulation has determined to commence proceedings to delist our ADSs from the NYSE on the grounds that we have fallen below the NYSE’s continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual, which requires our company to maintain an average global market capitalization of not less than $15 million over a consecutive 30-trading day period. The NYSE made public announcement of this decision on March 12, 2012. Trading in our ADSs on the NYSE was suspended on March 19, 2012. Our ADSs are currently quoted on the over-the-counter market.

FORWARD-LOOKING STATEMENTS

This annual report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, with respect to our business, operating results and financial condition as well as our current expectations, assumptions, estimates and projections about our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under “Risk Factors,” which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements.

In some cases, these forward-looking statements can be identified by words or phrases such as “aim,” “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “potential,” “will” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things, statements relating to:

our goals and strategies;

our expectations regarding demand for our services;

our future business development, financial condition and results of operations;

expected changes in our revenues, expenses, profits, earnings and other estimated financial information;

	·	our plan to obtain additional advertising time slots from China Central Television, or CCTV, regional television networks and TV series;

our ability to develop our film and TV drama series businesses;

expected changes in CCTV’s advertising policies or practices;

competition in the PRC advertising market;

the expected growth in the urban population, consumer spending, average income levels and advertising spending levels;

PRC governmental policies and regulations relating to the advertising market;

the recent global financial crisis and economic downturn; and

those other risks identified in “Item 3. Key Information—D. Risk Factors.”

The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this annual report and the documents that we reference in this annual report and have filed as exhibits to the annual report completely and with the understanding that our actual future results may be materially different from what we expect.

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected Financial Data

The following selected consolidated statements of operations data for the three years ended December 31, 2009, 2010 and 2011 and selected consolidated balance sheet data as of December 31, 2009, 2010 and 2011 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The following selected combined statements of operations data for the year ended December 31, 2007, selected consolidated statements of operations data for the year ended December 31, 2008, selected combined balance sheet data as of December 31, 2007 and selected consolidated balance sheet data as of December 31, 2008 have been derived from our audited combined and consolidated financial statements not included in this annual report. These combined and consolidated financial data have been audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, an independent registered public accounting firm.

The selected combined and consolidated financial data should be read in conjunction with, and are qualified in their entirety by reference to, our audited combined and consolidated financial statements and related notes and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report. Our combined and consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.

The basic and diluted earnings per share data for all periods presented below have been adjusted for the one-for-ten stock dividend distribution. The basic and diluted earnings per ADS for all periods presented below have been adjusted for the change of our ordinary share to ADS ratio from 30:1 to 300:1.

	Year Ended December 31,
	2007			2008			2009			2010			2011
	(RMB)			(RMB)			(RMB)			(RMB)			(RMB)			(US$)
	(In thousands, except for per share data)
Selected Combined/Consolidated Statement of Operations Data
Revenues:
Advertising agency services		202,637			334,053			397,279			222,298			185,320			29,444
Special events services		15,991			-			-			-			14,659			2,329
Production and sponsorship services		60,018			34,935			30,305			34,152			25,475			4,048
Total revenues		278,646			368,988			427,584			256,450			225,454			35,821
Less: business tax		(23,110	)		(16,006	)		(16,022	)		(13,047	)		(13,137	)		(2,087	)
Total net revenues		255,536			352,982			411,562			243,403			212,317			33,734
Operating costs and expenses:
Cost of revenues		(30,148	)		(40,200	)		(40,239	)		(127,654	)		(116,883	)		(18,571	)
Cost of revenues – media fees to a related party		-			(163,200	)		(230,000	)		-			-			-
Sales and marketing expenses		(5,600	)		(8,204	)		(17,362	)		(16,994	)		(20,139	)		(3,200	)
General and administrative expenses		(8,505	)		(24,487	)		(33,194	)		(35,832	)		(29,033	)		(4,613	)
Total operating costs and expenses		(44,253	)		(236,091	)		(320,795	)		(180,480	)		(166,055	)		(26,384	)
Operating income		211,283			116,891			90,767			62,923			46,262			7,350
Interest and investment income		10,774			15,103			9,494			5,257			13,747			2,184
Other income (expenses), net		(3,128	)		(1,441	)		533			(6,765	)		(4,686	)		(744	)
Income before tax		218,929			130,553			100,794			61,415			55,323			8,790
Income tax expense		(10,619	)		(20,139	)		(14,328	)		(21,522	)		(40,290	)		(6,402	)
Net income		208,310			110,414			86,466			39,893			15,033			2,388
Net income allocated to participating preferred shares		(36,496	)		(9,752	)		-			-			-			-
Net income available to ordinary shareholders		171,814			100,662			86,466			39,893			15,033			2,388
Earnings per ordinary share, basic and diluted		0.38			0.17			0.11			0.05			0.02			0.003
Earnings per ADS, basic		113.6			51.2			32.9			15.2			5.9			0.94
Earnings per ADS, diluted		113.6			51.2			32.8			15.2			5.9			0.94
Dividends declared per share		0.40			0.19			-			-			0.48			0.07667
Shares used in calculating earnings per ordinary share, basic		453,640			589,764			788,013			787,182			758,715			758,715
Shares used in calculating earnings per ordinary share, dilute		453,640			589,764			789,861			788,662			759,516			759,516
Shares used in calculating earnings per ADS, basic		1,512			1,966			2,627			2,624			2,529			2,529
Shares used in calculating earnings per ADS, diluted		1,512			1,966			2,633			2,629			2,532			2,532

	As of December 31,
	2007		2008		2009		2010		2011
	(RMB)		(RMB)		(RMB)		(RMB)		(RMB)		(US$)
	(In thousands)
Selected Combined/Consolidated Balance Sheet Data
Cash and cash equivalents		138,262		566,889		508,778		544,428		111,713		17,749
Total current assets		385,450		1,150,558		657,652		753,106		407,037		64,672
Total non-current assets		18,092		57,261		55,464		58,603		57,216		9,090
Total assets		403,542		1,207,819		713,116		811,708		464,253		73,762
Total current liabilities		274,827		819,777		236,468		303,086		314,178		49,918
Total liabilities		274,827		819,777		236,468		303,086		314,178		49,918
Total shareholder’s equity		128,715		388,042		476,648		508,622		150,075		23,844
Total liabilities and shareholder’s equity		403,542		1,207,819		713,116		811,708		464,253		73,762
Ordinary Shares		2,812		4,874		4,894		5,381		5,133		815

Exchange Rate Information

We publish our financial statements in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate as of December 30, 2011 as set forth in H.10 statistical release of the Federal Reserve Board, which was RMB 6.2939 to US$1.00. No representation is made that the Renminbi amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On April 20, 2012, the exchange rate as published by the Federal Reserve Board was RMB6.3080 to US$1.00.

The following table sets forth information regarding the noon buying rate in Renminbi per U.S. dollar for the periods indicated.


	Exchange Rate⁽¹⁾
Period	Period End	Average⁽²⁾	High	Low
	(RMB per US$1.00)
2007	7.2946	7.5806	7.8127	7.2946
2008	6.8225	6.9193	7.2946	6.7800
2009	6.8259	6.8295	6.8470	6.8176
2010	6.6000	6.7603	6.8330	6.6000
2011	6.2939	6.4475	6.6364	6.2939
September	6.3780	6.3885	6.3975	6.3780
October	6.3547	6.3710	6.3825	6.3534
November	6.3765	6.3564	6.3839	6.3400
December	6.2939	6.3482	6.3733	6.2939
2012
January	6.3080	6.3119	6.3330	6.2940
February	6.2935	6.2997	6.3120	6.2935
March	6.2975	6.3125	6.3315	6.2975
April (through April 20, 2012)	6.3080	6.3052	6.3150	6.2975

(1)

For periods prior to January 1, 2009, the exchange rates reflect the noon buying rates as reported by the Federal Reserve Bank of New York. For periods after January 1, 2009, the exchange rates reflect the exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board.

(2)

Annual averages are calculated by using the average of the exchange rates at the end of each month during the period. Monthly averages are calculated by using the average of the daily rates during the relevant period.

Capitalization and Indebtedness

Not Applicable.

Reasons for the Offer and Use of Proceeds

Not Applicable.

Risk Factors

Risks Related to Our Business and Industry

Our business substantially depends on CCTV. We rely on our access to advertising time slots on CCTV to broadcast our clients’ advertisements. Any unfavorable change in CCTV’s advertising model, any changes that adversely affect CCTV’s market position or any limitation on our access to desired television advertising time slots could harm the effectiveness and attractiveness of our services.

CCTV is the main television network from which we currently obtain advertising time.We place all of our advertising clients’ advertisements on CCTV, the largest television network in China, which offers 24 public channels in China and around the world. According to China Radio & TV Yearbook, CCTV had the largest market share in China in terms of total television advertising revenues. We believe CCTV is generally perceived as the most influential and reputable television medium by the public in China, due to its central government sponsorship, extensive network coverage and long broadcasting history in China. As such, advertisers often regard CCTV as the television advertising platform from which they can gain the maximum exposure and recognition for their products or services in China. CCTV uses third-party advertising agencies, such as our company, to sell a significant portion of its advertising time slots to advertisers, while selling the remaining portion of its advertising time slots directly by itself or through auctions. Since 2009, CCTV has begun to sell more of its advertising time slots by itself or through auctions under a new initiative. For example, our three-year advertising agency contracts with CCTV for the Daytime Advertising Package and Television Guides program were not renewed upon their expiration on December 31, 2011. Instead, the advertising rights for the Daytime Advertising Package for 2012 were offered by CCTV for bidding at the non-prime time advertising auction event held by CCTV on November 22, 2011, and we did not secure the winning bid. CCTV has also decided to cancel the Television Guides program at the end of 2011. The loss of revenues from the Daytime Advertising Package and Television Guides program is expected to have a material adverse effect on our financial condition and results of operations. As CCTV continues the practice of selling its advertising time slots through auctions, we may lose the advertising time slots for other programs on CCTV that we currently have and we may face increased competition in obtaining the desired advertising time slots in auctions. We may not be able to secure the winning bids at the advertising auction events held by CCTV. As a result, we may lose our advertising clients and our business, which could materially and adversely affect our financial condition and results of operations.

An unfavorable change in CCTV’s market position could materially and adversely affect us.CCTV is owned by PRC central government, and its dominant position in China’s television advertising market is derived primarily from its status as one of the central government’s key channels for communicating with the general public. As a result, CCTV enjoys certain favorable governmental support that is not available to other television networks. For example, the central government mandates that CCTV’s Channel 1, on which we have several advertising time slots, be broadcast by all regional television networks in China, which makes this channel particularly attractive to advertisers who want to achieve nationwide exposure. Nevertheless, CCTV faces increasing competition from regional television networks that strive to offer more attractive television programs to compete with CCTV for television audiences. If CCTV fails to compete successfully against these regional television networks, it may lose its market share. Any changes that could potentially erode CCTV’s dominant market position, such as relaxation of media control by the government or inadequate response to competition from other networks by CCTV, could in turn reduce the attractiveness of our advertising offerings.

CCTV has considerable bargaining power over us.Consistent with industry practice in China, the pricing and payment terms of our advertising contracts with CCTV are typically negotiated annually, including the contracts that have terms of more than one year. Given CCTV’s dominant position in China’s television advertising market, our negotiating power with CCTV is limited. From time to time we enter into contracts with CCTV and commit ourselves to a minimum amount of advertising revenues with respect to certain advertising time slots provided to us. Under all such contracts, we are required to pay the agreed-upon minimum amounts to CCTV even if we do not successfully procure advertisers for the time slots. If we fail to procure sufficient advertising clients for the secured time slots or receive total amounts that are lower than what we have committed ourselves to deliver, we will be required to cover the differences ourselves. As a result, our financial condition and results of operations could be adversely affected. In addition, CCTV adopted a new payment term in 2010 for advertising time slots we obtained through auctions, under which we were required to pay a fixed amount of the annual media fee in advance as deposit with the remaining fee being payable in 12 monthly payments throughout the year.

We rely on access to advertising time slots during a limited number of television programs to place our clients’ advertisements and the desirability of the advertising time slots we obtain depends on the popularity of the relevant television programs and other factors that are difficult to predict.

We rely significantly on our rights to advertising time slots on a limited number of television programs, all of which are broadcast on CCTV. In 2011, we acquired a 30-second time slot in connection with the All Day Classic Package on CCTV Channel 8 starting from 2012. Although we occasionally procure advertising time slots on other programs on CCTV, we substantially rely on the regular daily television programs we have obtained from CCTV to place advertisements for clients and generate revenues. We do not have control over the availability or scheduling of these programs. If any of such programs are rescheduled to times that are less attractive to our clients or if any of such programs are shortened or canceled by CCTV and we cannot obtain alternative media resources, we would face difficulty in marketing our services and our revenues may decline. For example, our contract with CCTV in respect of Guang Er Gao Zhi program were not renewed upon its expiry on June 30, 2011. Our contracts with CCTV for the Daytime Advertising Package and Television Guides program were terminated on December 31, 2011. This type of changes to the advertising time slots currently available to us may cause a decrease in our revenues from advertising agency services in future periods.

In addition, the value of television advertising time slots depends primarily on the popularity, ratings and demographics of the viewership of the programs to which such advertising time slots are attached. Therefore, the perceived effectiveness and desirability of our services to a certain extent depends on the acceptance by the public of the television programs to which our advertising time slots are attached, which is difficult to predict.

The success of a television program also depends on the quality and acceptance of other competing programs, the availability of alternate forms of entertainment, the general trend of leisure time activities and other tangible and intangible factors, many of which are difficult to predict. Poor ratings of a television program in targeted demographics can lead to a reduction in the advertising spending for any advertising time slots related to that program. If any of the television programs to which our advertising time slots are attached becomes unpopular, our service offerings may become less attractive to our clients and our financial condition and results of operations could be materially and adversely impacted as a result.

Our ability to adjust our advertisement costs is limited and any substantial increase in the prices charged by CCTV for the advertising time slots available to us may reduce our revenues and profitability.

In negotiating with our advertising clients, we price the advertising time slots for most daily television programs based on a number of factors, including market demand for such advertising time slots, target audience, the ratings and quality of the relevant television programs and prices charged by our competitors. We also refer to the rate cards published by CCTV for its advertising time slots. For Daytime Advertising Package and Television Guide, we typically negotiate the pricing terms with CCTV in respect to the advertising time slots of such daily television programs available to us on an annual basis. In such contracts, we and CCTV agree on the prices that we will pay to CCTV for these time slots, which are generally lower than the published rate card prices. We typically retain the difference between the prices we charge to our advertising clients and the prices we pay to CCTV as our commission. CCTV usually increases the prices charged to us and the prices on its published rate cards every year. We are typically able to pass on such price increases to our advertising clients. However, there were occasions where we did not successfully pass those price increases to our advertising clients and our total revenues and net income were adversely affected as a result.

Due to its dominant market position, CCTV enjoys much greater bargaining power over price increases than we do and our ability to control such advertisement costs is limited. If CCTV substantially raises the prices charged to us for the advertising time slots available to us and we are unable to pass on such costs to our advertising clients, our revenues would decrease and our profitability may decline. For example, CCTV increased the media fees for Channel 4 programs by approximately 40.9% in 2009, which has negatively affected our operating income from these programs. As a further example, we renewed our agreement with CCTV on the advertising rights to the Periodic China News Package on CCTV Channel 4 in 2012 and if we cannot pass on the cost of the media fees to our customers, we will sustain a loss on that program. From time to time, we enter into contracts with CCTV and commit ourselves to a minimum amount of advertising revenues with respect to certain advertising time slots provided to us. Under all such contracts, we will be required to pay the agreed-upon minimum amounts to CCTV even if we do not successfully procure advertisers for the time slots. If we fail to procure sufficient advertising clients for the time slots provided to us or receive total amounts lower than what we had committed to deliver, we may be required to cover the difference ourselves. As a result, our financial condition and results of operations could be adversely affected.

We receive a substantial portion of our revenues from a limited number of large clients, and the loss of these clients, or the loss of significant advertisers by our agency clients, could materially and adversely impact our business, financial condition and results of operations.

A relatively small number of clients account for a substantial percentage of our revenues.Most of our large clients are third-party advertising agencies who obtained advertising time slots from us for their advertising clients and may in turn rely on a limited number of large advertisers for their businesses. The performance of such third-party advertising agencies has a direct impact on our operating results. Advertisers who access our advertising time slots through other advertising agencies may reduce advertising and marketing spending or cancel projects at any time for any reason. Any of our advertising clients may not continue to utilize our services to the same extent, or at all, in the future. A significant reduction in advertising and marketing spending by, or the loss of one or more of, our advertising clients, if not replaced by new clients or an increase in business from existing clients, could make it difficult for us to fill the time slot vacancies and our revenues and profits could decline significantly as a result. The third-party advertising agencies may also introduce their advertising clients to other advertising service providers who have obtained other advertising time slots from CCTV or other television networks. As a result, any loss of our significant clients, or the loss of significant advertisers by our agency clients, could have a material and adverse effect on our financial condition and results of operations. In addition, if any client with whom we have a substantial amount of business experiences financial difficulty, we could be unable to collect accounts receivable on a timely basis, if at all. This may result in an increase in our bad debt expenses and adversely affect our results of operations.

Our media resources portfolio varies from year to year due to program cancellations and other events and circumstances which may lead to significant uncertainty and volatility to our revenues.

Our business substantially depends on CCTV. Any significant decreases in our CCTV advertising time slot resources as a result of our failure to renew or extend our existing contracts with CCTV could materially and adversely affect the effectiveness and attractiveness of our advertising offerings.As our existing contracts expire, we may be unable to renew or extend the terms of contracts for desirable advertising time slots on desirable CCTV channels or at favorable price levels, if at all. For example, we terminated our contract with CCTV for the advertising time on CCTV-E and CCTV-F in June 2011 because we did not reach an agreement with CCTV on the terms of that contract. As a result, our total advertising time for the second half of 2011 decreased significantly. However, since the advertising time sold on CCTV-E and CCTV-F channels was limited in the past, our overall revenues were not significantly adversely affected.

Moreover, our three-year advertising agency contracts with CCTV for the Daytime Advertising Package and Television Guides program were not renewed upon their expiration on December 31, 2011. Instead, the advertising rights for the Daytime Advertising Package for 2012 were offered by CCTV for bidding at the non-prime time advertising auction event held by CCTV on November 22, 2011, and we did not secure the winning bid. CCTV also decided to cancel the Television Guides program at the end of 2011. For the years ended December 31, 2009 and 2010 and 2011, revenues generated from these two programs amounted to RMB158.8 million, RMB109.0 million and RMB91.5 million (US$14.5 million), respectively, representing 37.1%, 42.5% and 40.6% of our revenues in those periods, respectively. The loss of revenues from the Daytime Advertising Package and Television Guides program is expected to have a material adverse effect on our financial condition and results of operations. In addition, the Periodic China News Package on CCTV-4 for 2013will be made available at the non-prime time advertising auction event in 2012. There is no assurance that we can obtain the exclusive advertising rights of the Periodic China News Package in such auction event.

Due to the program changes by CCTV, our contract with CCTV in respect of the Guang Er Gao Zhi program were not renewed after its expiry on June 30, 2011. This had a material adverse effect on our results of operations in the second half of 2011. For each of the years ended December 31, 2009, 2010 and 2011, revenues from our advertising production and sponsorship service in relation to the Guang Er Gao Zhi program amounted to RMB8.5 million, RMB12.2 million and RMB9.1 million (US$1.4 million), respectively, representing 2.0%, 4.8% and 4.0% of our total revenues in those periods, respectively.

Our mixed portfolio of media resources varies from year to year and is expected to continue to vary according to different factors, including market conditions in the future. As a result, our results of operations may vary from year to year and may fluctuate significantly in the future.

We face significant competition, and if we do not compete successfully against existing and new competitors, we may lose our market share and our profitability may be materially harmed.

The advertising industry is highly competitive and fragmented in China. As an increasing number of companies enter the industry, competition continues to intensify. Our direct competitors are other national or regional advertising or marketing services providers that offer television airtime to advertisers, primarily including SinoMedia Holding Limited, AVIC Culture Co., Ltd. and Charm Communication Corp. We compete with other television advertising agencies for the limited time slots available on CCTV or other television networks on the basis of sales and marketing capabilities, operating track record and service quality. In particular, some of our advertising clients are other advertising agencies who could become our competitors seeking the same limited media resources. Since 2009, CCTV has begun a new initiative to sell more of its advertising time slots either by itself or through auctions. As CCTV continues to sell its advertising time slots through auctions, we are facing more intense competition in obtaining desired advertising time slots from CCTV. For example, we did not secure the winning bid for the 2012 advertising rights for the Daytime Advertising Package at the non-prime time advertising auction event held by CCTV on November 22, 2011 and our contract with CCTV for the Daytime Advertising Package was terminated upon its expiry on December 31, 2011. We also compete with other television advertising agencies for advertisers’ spending on the basis of desirability of time slots offered, television network coverage, service quality, reputation, pricing and relationships with television networks.

We face competition from new entrants in the television advertising sector. Wholly foreign-owned advertising companies have been allowed to operate in China since December 2005, which exposes us to increased competition from international advertising companies that have greater financial and other resources than us. Fixed costs in the advertising industry are generally low, and it is customary that advertising service contracts with advertising clients, such as ours, are entered into on a short-term and non-exclusive basis. It is possible that our competitors, including new market entrants, could acquire a significant number of clients and establish a significant presence in our markets.

Some of our existing and potential competitors may have competitive advantages, such as closer cooperative relationships with CCTV, longer operating histories, larger market shares, access to larger client bases or media resources, or greater financial, sales and marketing, distribution, technical or other resources, than we do. Increased competition will provide potential clients with a wider choice of advertising and marketing service providers, which could lead to lower prices and decreased revenues and profits for us. We may not be able to successfully compete against new or existing competitors and failure to do so may cause our market share and our revenues to decline significantly.

Television networks, upon which we depend for our business, also compete with other forms of advertising media, such as radio, newspapers, magazines, the Internet, indoor or outdoor flat panel displays, billboards and public transport advertising, for overall advertising spending. In particular, we believe that the Internet is becoming increasingly popular as an alternative advertising medium among advertisers. In addition, technology in television, video, data services and other media used in the entertainment industry is changing rapidly, and advances in technology have led to alternative methods of content delivery and storage. Certain changes in the behavior of television viewers driven by these methods of delivery and storage could have a negative effect on the television advertising revenues. For example, devices that enable users to view television programs on a time-delayed basis or allow them to fast-forward or skip advertisements may cause changes in consumer behavior that could adversely affect the advertising revenues of television networks and our results of operations.

We derive substantially all of our revenues from the provision of advertising services, a business that is particularly sensitive to changes in economic conditions and other general trends.

We derive substantially all of our revenues from a single business, the provision of advertising services. Demand for our services and the resulting advertising spending by our clients are highly sensitive to changes in general economic conditions and other general trends, including changes in lifestyle patterns and consumers’ tastes and preferences. Recessionary economic cycles may adversely affect the businesses of our advertising clients, which can have the effect of reducing the volume of advertising time slots and other services advertisers purchase from us. For example, the recent global economic downturn starting from the second quarter of 2011 may have a negative effect on the business investment and consumer spending in China and the demand for advertising may be materially and adversely affected as a result. In the past, advertising clients have responded to weakening economic conditions with reductions to their advertising budgets because advertising expenses are generally considered as discretionary components in corporate budgeting and are easier to reduce in the short term than other operating expenses. Additionally, advertisers could also decide to spend more of their advertising budget on non-television advertising media because of perceived changes in consumers’ lifestyles or their tastes and preferences. A general decrease in total advertising spending, or a decrease in the demand for our advertising services in particular, would materially and adversely affect our ability to generate revenues and have a significant negative effect on our financial condition and results of operations.

Advertising clients periodically review and change their advertising or marketing models and strategies and the advertising service contracts with clients are generally entered into on a short-term and non-exclusive basis, and if we fail to adapt quickly to such changes, we may be unable to attract advertisers and increase the demand for our services, and therefore be unable to maintain or increase our revenues and profits.

Advertising service contracts with clients are generally entered into on a short-term and non-exclusive basis. Clients may move their accounts to another agency on relatively short notice. In many cases, we represent a client for only a portion of its advertising or marketing needs or only in specific advertisements or marketing campaigns, thus enabling the client to continually compare the effectiveness of our services against that of other agencies. A client’s decision to place its advertisements through us is affected by a number of factors, including the desirability of time slots we offer, the extent of television network coverage we provide, our service packages and pricing structure and the client’s perception of the effectiveness and quality of our services. If we fail to retain our existing clients or increase advertisers’ awareness and utilization of our services, or to formulate attractive service packages and pricing structures to attract new clients, the demand for our services will not grow and may even decrease. Advertisers might be unwilling to seek time slots from us or to pay the levels of advertising fees we require to generate profits, which could materially and adversely affect our ability to increase our revenues and our profitability.

We experienced significant fluctuation in revenue and net income in the past and expect similar significant fluctuation in the future .

We recorded total revenues of RMB427.6 million, RMB256.5 million and RMB225.5 million for the years ended December 31, 2009, 2010 and 2011, respectively, and net income of RMB86.5 million in 2009, RMB39.9 million in 2010 and RMB15.0 million in 2011. The substantial decrease in revenues from 2009 to 2010 was mainly due to our company ceasing to be the exclusive advertising agent of the Chinese New Year Gala program of CCTV, reduction of investment in advertising time on CCTV-4 related programs, and decrease in sales of advertising time slots as a result of intense price competition. Our profitability was affected accordingly. The decrease in revenues from 2010 to 2011 was mainly due to the intense price competition and the decrease in the time slots on Periodic China News Package. Similarly, our revenues and net income is expected to continue to fall in future periods due to competition and other factors.

We depend on the services of key personnel, including Mr. Shengcheng Wang, who is our chairman and chief executive officer, and our business and growth prospects may be severely disrupted if we lose their services.

Mr. Shengcheng Wang, our chairman and chief executive officer, has led our company since our establishment. Our business and operations depend to a significant extent on his business vision, industry expertise, experience with our business operations and management skills, as well as his relationships with CCTV, many of our key clients and our employees. We do not maintain key-man life insurance for Mr. Shengcheng Wang. If he becomes unable or unwilling to continue in his present position, we may not be able to replace him in a timely manner or at all, which would have a material adverse effect on our business and growth prospect. We also rely on the performance of a number of other key employees. Although we believe that we have established a reputation in the industry that attracts talented personnel, we are still vulnerable to adverse consequences from the loss of key employees due to competition among providers of advertising services for talented personnel.

A significant percentage of our outstanding ordinary shares is beneficially owned by Mr. Shengcheng Wang, our chairman and chief executive officer, and, as a result, he has substantial influence over our company and his interests may not be aligned with the interests of our other shareholders.

As of April 27, 2012, Mr. Shengcheng Wang, our chairman and chief executive officer, beneficially owned approximately 73.5% of our outstanding ordinary shares. Accordingly, he has significant influence in determining the outcome of any corporate transaction or other matters submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Mr. Wang also has the power to prevent or cause a change in control. In addition, without the consent of Mr. Wang, we could be prevented from entering into transactions that could be beneficial to us. Mr. Wang may cause us to take actions that are opposed by other shareholders as his interests may differ from those of other shareholders, including those who hold our ADSs.

Moreover, certain of Mr. Wang’s family members, including his parents, have owned or controlled a number of companies that conduct businesses similar to ours and enter into transactions with us from time to time. Although Mr. Wang and his parents and spouse have agreed not to engage in any business that directly or indirectly competes with us, such undertakings may not be as effective as we expect, and any breach of such undertakings by Mr. Wang or his immediate family members may result in conflicts of interests and harm the interests of our other shareholders.

If we fail to maintain an effective and adequate sales and marketing team, our sales and revenues could materially decrease.

We depend on our sales personnel to increase advertisers’ awareness, acceptance and utilization of our services, which are crucial to our revenues, business and growth. As of December 31, 2011, we had 56 employees directly engaged in sales. Consistent with the industry norm, we typically experience a high turnover rate among our sales personnel, and we cannot assure you that our current sales personnel will remain effective or loyal to us. We face intense competition for experienced sales personnel both from our direct competitors and other advertising and media companies. Furthermore, we will need to continue expanding our sales force if our business continues to grow. We may not be able to hire, retain, integrate or motivate an adequate number of qualified new sales personnel as we grow our business, which could disrupt our business and cause our revenues to materially decrease.

We enter into fixed-price contracts with respect to our content production services, and our failure to accurately estimate the resources required for the execution of these contracts could negatively affect our results of operations.

All of our content production services are provided on a fixed-price basis. Such contracts require us to undertake projections and planning related to resource utilization and costs, and we bear the risk of cost overruns in connection with our production projects. If we cannot secure a price increase from our clients and try to complete our production within a restricted budget, we may not be able to deliver the content at the quality expected from us. Any failure to accurately estimate the resources required for a project or any other factors that may impact our costs to complete the project, or any failure to complete our production at the committed performance level, could adversely affect our profitability and results of operations.

Our strategy to acquire complementary businesses and assets involves significant risks and uncertainty that may prevent us from achieving our objectives and harm our financial conditions and results of operations.

Our business strategy includes selective acquisitions of businesses and assets that are complementary to our current advertising business. The implementation of this strategy involves significant risks and uncertainties, including our ability to:

identify and acquire suitable businesses or assets on commercially reasonable terms or at all;

raise sufficient capital to fund the acquisitions;

integrate acquired services, products or operations into our organization effectively;

retain and motivate key personnel and retain the clients of acquired entities; and

derive the intended financial benefits from our acquisitions.

Our management may be required to devote significant time and attention to acquisitions and to integrating newly acquired companies into our existing operations. There are other risks associated with acquisitions, including:

unforeseen or hidden liabilities, including exposure to lawsuits, associated with newly acquired businesses or assets;

short-term deterioration in our operating results due to new acquisitions of unprofitable companies;

failure to generate sufficient revenues to offset the costs and expenses of acquisitions;

potential impairment losses or amortization expenses relating to intangible assets arising from any of such acquisitions, which may materially reduce our net income;

potential conflicts with our existing employees and advertising clients as a result of our integration of newly acquired companies; and

our inexperience in carrying out acquisitions, as we have not previously engaged in any such transactions.

Any of these risks could materially increase our costs and expenses associated with any such acquisitions, which in turn could harm our financial condition and results of operations, and we may be unable to recover our investment in the acquired business or assets.

We may encounter difficulties in expanding into regional television networks, which may materially and adversely affect our business, financial condition and results of operations.

We currently obtain all of our advertising time slots from CCTV. One element of our strategy is to expand our presence on regional television networks. Our implementation of this strategy will be subject to many risks, including, but not limited to, the following:

we have no track record in obtaining advertisement resources from regional television networks;

our experience and expertise gained from our cooperation with CCTV may not be successfully applied to the regional television networks;

we do not have a long-standing history with these regional television networks as we do with CCTV;

we will face intense competition from advertising companies that are already well-established in those markets;

we may not be able to accurately assess and adjust to the consumer tastes, preferences and demands in the relevant regional markets; and

we may not be able to generate enough revenues to offset our costs.

These and other risks may make our expansion into regional television networks unsuccessful. In addition, implementing this strategy may require us to devote significant resources to promoting advertising time slots we obtain from regional television networks, which may divert our management’s attention from our existing business. If we are not successful in expanding into regional television networks, our business, financial condition and results of operations may be materially and adversely affected.

We may need additional capital to fund the growth of our business, which may not be available on terms acceptable to us or at all, and which, if available, could dilute your interest in our company.

Capital requirements are difficult to plan in this rapidly changing industry. We expect that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, prepayment of the media fee to CCTV, working capital and capital expenditures, for the foreseeable future. If, however, there are unforeseen changes in general business conditions or unexpected developments in our business or expansion, we may require additional cash resources.

Our ability to obtain additional capital on commercially acceptable terms is subject to significant risks and uncertainties, including:

investors’ perception of, and demand for, our securities;

prevailing conditions of the capital markets in which we seek to raise funds;

our future results of operations, financial condition and cash flows;

PRC governmental regulation of foreign investment in advertising companies in China;

PRC governmental policies relating to foreign exchange; and

economic, political and other conditions in China.

Financing may not be available in amounts or on terms acceptable to us, if at all. Any failure to raise additional funds when needed could limit our ability to expand or develop our operations to respond to market demand or competitive challenges.

If we are unable to adapt to changing technological developments in the media and advertising industries, our competitiveness, business and results of operations may be materially and adversely affected.

Technology used in advertisement content production is evolving rapidly and we need to keep pace with changes in technology and service features to meet the needs of advertisers and to remain competitive. For example, cutting edge filming equipment and editing tools, including advanced computer applications, are increasingly utilized in the content production process to achieve high quality and eye-catching visual effects. However, we may not have the financial or other resources necessary to finance and implement future technological developments or to replace obsolete technology. If we fail to identify, develop and incorporate new features or technologies in our services and operations in a timely and cost-effective manner, we may lose our competitiveness and demand for our services may decrease, which would have a material and adverse effect on our revenues and profitability. To keep pace with new technological developments, we may be required to expend significant amounts of funds to develop or acquire new technologies, which could significantly increase our costs and operating expenses and materially strain our capital resources.

Our quarterly operating results are difficult to predict and may fluctuate significantly from period to period in the future.

Our quarterly results of operations are difficult to predict and may fluctuate significantly from period to period based on the seasonality of advertising spending. Factors that are likely to cause our operating results to fluctuate, such as a deterioration of economic conditions in China, are discussed elsewhere in this annual report. If our revenues for a particular quarter are lower than we expect, we may be unable to reduce our operating expenses for that quarter by a corresponding amount, which would harm our operating results for that quarter. As a result of the foregoing, our quarterly results of operations may fluctuate significantly from period to period and you should not rely on period-to-period comparisons of our historical results of operations as an indication of our future performance.

We may become subject to government actions due to our advertising content, which may have a material adverse effect on our financial condition and results of operations.

PRC advertising laws and regulations require advertisers, advertising distributors and advertising service providers, such as our company, to ensure that the content of the advertisements prepared or distributed are fair, accurate and in full compliance with applicable laws. Violation of these laws or regulations may result in penalties against us, including fines, confiscation of advertising fees, orders to cease disseminating the advertisements and orders to publish public announcements to correct the misleading information. In circumstances involving serious violations, the PRC government may revoke our license to operate advertising business. In addition, such non-compliance can constitute a violation of criminal law and criminal proceedings could be brought against us as a result.

Under the relevant PRC regulations, we are required to independently review and verify the content of our clients’ advertisements for compliance and to confirm that any required government review has been performed and that all necessary approvals have been obtained. In addition, for advertising content related to certain types of products, such as tobacco, alcohol, cosmetics, pharmaceuticals and medical instruments, we are required to confirm that the advertisers have obtained requisite government approvals relating to their operations, including the advertisers’ operating qualifications and proofs of quality inspection. Under our contracts with advertising clients, our advertisers are responsible for obtaining any PRC government approvals or licenses required for their advertisements and providing us with proof of such approvals or licenses prior to our placing their advertisements. While we review advertising content for compliance with relevant PRC laws and regulations, some advertisement that we place may still not be in compliance with the relevant PRC laws and regulations or the supporting documentation and government approvals provided to us by our advertising clients may not be true and complete. Our failure to conduct such review may subject us to governmental inspections or actions.

Governmental proceedings may harm our reputation and may divert significant amounts of our management’s time and other resources. It may be difficult and expensive to defend against such proceedings. We may not be able to defend such claims, and if we fail to do so we would have to bear the costs of all such actions as well as any fines imposed on us. In addition, some of our existing contracts with our advertising clients do not provide us with any indemnity from our clients for claims relating to advertising content. As a result of the foregoing, any governmental proceedings brought against us could have a material adverse effect on our business, financial condition and results of operations.

We may be exposed to liabilities from allegations that certain of our clients’ advertisements may be false or misleading or that our clients’ products may be defective.

We may become, or may be joined as, a defendant in litigations or administrative proceedings brought against our clients by third parties, our clients’ competitors, regulatory authorities or consumers. These actions could involve claims alleging, among other things, that:

advertisements made with respect to our advertising clients’ products or services are false, deceptive, misleading, libelous, injurious to the public welfare or otherwise offensive

our advertising clients’ products are defective or injurious and may be harmful to others; or

marketing, communications or advertising materials created for our advertising clients infringe on the intellectual proprietary rights of third parties.

The damages, costs, expenses or attorney’s fees arising from any of these claims could have an adverse effect on our business, financial condition and results of operations to the extent that we are not adequately insured against such risks or indemnified by our clients. In any case, our reputation may be negatively affected by such allegations.

We are using the brand name “Guang Er Gao Zhi” in Chinese characters in our company logo. We may not be able to adequately protect “Guang Er Gao Zhi” brand name and logo, which would have an adverse effect on our operations.

We believe market recognition of the “Guang Er Gao Zhi (广而告之)” brand has contributed significantly to the success of our business. “Guang Er Gao Zhi” means “to spread the message far and wide”. We have registered our logo “广而告之MMIA”with the State Trademark Bureau in the PRC for use in publishing, advertising and entertainment services, including radio and television program production.

Under PRC law, the protection of our registered trademark is limited to the categories of goods and services as to which such trademark is registered. Consequently, the legal remedy available to us against unauthorized uses of our trademark in other categories of goods and services by other companies is limited. In addition, we are aware of several companies in China that are unrelated to us and have been using the Chinese characters of “Guang Er Gao Zhi” as part of their company names for a period of time. We may not be able to prevent the use of the phrase in the corporate names of these other companies, unless our trademark is legally recognized as a “well-known trademark.” The public may be confused and may mistakenly associate the products, services or activities of those companies with us, which may result in harm to the reputation of our company.

We may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt our business and operations.

We place advertisements provided by our advertising clients on television and also produce television advertisements based on the information provided to us by our advertising clients. In doing so, we may employ information, software programs, technology or equipment supplied by other parties, to which such parties may not have intellectual property rights. Some of our existing contracts with our advertising clients do not provide us with indemnity from our clients for any intellectual property infringement claims relating to the advertisements provided by our clients. We cannot be certain that our operations or any aspects of our business do not or will not infringe upon patents, copyrights or other intellectual property rights held by third parties. Although we are not aware of any such claims, we may become subject to legal proceedings and claims from time to time relating to the intellectual property rights of others. If we are found to have violated the intellectual property rights of others, we may be subject to liability for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these third-party infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our business and operations by restricting or prohibiting our use of the intellectual property in question.

If we fail to protect our intellectual property rights, it could harm our business and competitive position.

We operate in an industry that places a premium on creative abilities and artistic talents. Many of our work products resulting from our creative activities are the subject of intellectual property rights, on which our business relies to stay competitive in the marketplace. We rely on a combination of copyright, trade secrets, confidentiality procedures and contractual provisions to protect our intellectual property rights. Nevertheless, these provide only limited protection and policing unauthorized use of proprietary information can be difficult and expensive. In addition, intellectual property rights historically have not been enforced in the PRC to the same extent as in the United States. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights and this could have a material adverse effect on our business, operating results and financial condition.

The discontinuation of any of the preferential tax treatments or the financial incentives currently available to us in the PRC and a newly enacted PRC tax law could adversely affect our overall results of operations.

The PRC government has provided various tax incentives to our subsidiary in China. These incentives include income tax exemption and reduced enterprise income tax rates. For example, under the PRC enterprise income tax law effective prior to January 1, 2008, our PRC subsidiary, Universal, as a wholly foreign-owned enterprise established in the Shenzhen Special Economic Zone, was entitled to a preferential income tax rate of 15% on the income generated by its offices in Shenzhen and an income tax rate of 30% on the income generated by its offices outside of Shenzhen, as compared to the statutory income tax rate of 33%. In addition, Universal was fully exempted from PRC income tax commencing from its first profit-making year, followed by a 50% reduction in PRC income tax for the next two years. As a result, Universal was exempted from PRC income tax for the year ended December 31, 2007 and was entitled to a 50% income tax reduction for each of the years ending December 31, 2008 and 2009.

On March 16, 2007, the PRC National People’s Congress enacted the Enterprise Income Tax Law, and on December 6, 2007, the PRC State Council issued the Implementation Regulations of the Enterprise Income Tax Law, both of which became effective on January 1, 2008. The Enterprise Income Tax Law and its Implementation Regulations, or the new EIT law, imposes a uniform tax rate of 25% on all PRC enterprises, including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions, reductions and preferential treatments available under the previous tax laws and regulations. Under the new EIT law, enterprises that were established before March 16, 2007 and already enjoyed preferential tax treatments (i) in the case of preferential tax rates, continue to enjoy the tax rates which are being gradually increased to the new tax rates within five years from January 1, 2008 or (ii) in the case of preferential tax exemption or reduction for a specified term, continue to enjoy the preferential tax holiday until the expiration of such term. In accordance with a directive issued by the State Council in December 2007, the 15% preferential income tax we enjoyed prior to 2008 was increased to 18% in 2008, 20% in 2009, and 22% in 2010, and 24% in 2011 and will be increased to 25% in 2012. As a result of the discontinuation of the preferential tax treatment and the new EIT law, our effective tax rate has substantially increased , which could have a significant adverse effect on our net income. For 2009, 2010 and 2011, our effective tax rate increased to 12.6%, 26.1% and 55.7%, respectively, mainly due to the expiration on January 1, 2008 of the income tax exemption that Universal had enjoyed in 2007 and the imposition of withholding tax on dividends payable by our PRC subsidiary in 2008 and 2009.

Any increase in the enterprise income tax rate applicable to us or discontinuation or reduction of any of the preferential tax treatments or financial incentives currently enjoyed by our subsidiary in the PRC could adversely affect our business, operating results and financial condition.

The dividends we receive from our PRC subsidiary and our global income may be subject to PRC tax under the new EIT law, which would have a material adverse effect on our results of operations; our foreign ADS holders may be subject to a PRC withholding tax upon the dividends payable by us and upon gains realized on the sale of our ADSs, if we are classified as a PRC “resident enterprise.”

Under the new EIT law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise are subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The British Virgin Islands, where UIAL, our PRC subsidiary’s direct holding company, is incorporated, does not have such a tax treaty with the PRC. If UIAL is considered a non-resident enterprise, this 10% withholding tax imposed on our dividend income received from our PRC subsidiary would reduce our net income and have an adverse effect on our operating results. As we intend to reinvest part of the earnings made by our PRC subsidiary, starting from January 1, 2008, we accrued 10% withholding tax on those earnings from our PRC subsidiary that we have no intention to permanently reinvest, which represents 30% of the earnings made by our PRC subsidiary. We accrued withholding tax of RMB2.3 million and RMB1.9 million for the years ended December 31, 2009 and 2010, respectively. On October 28, 2011, we declared a special cash dividend of US$0.07667 per ordinary share. Due to this special cash dividend distribution, our reinvestment plan for the unremitted earnings was changed from 70% to 0% and we accrued a withholding tax of RMB20.6 million for the year ended December 31, 2011.

Under the new EIT law, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise and will be subject to the enterprise income tax at the rate of 25% on its worldwide income. The “de facto management body” is defined as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a broad definition . If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our worldwide income will be subject to income tax at a uniform rate of 25%, which may have a material adverse effect on our financial condition and results of operations. Notwithstanding the foregoing provision, the new EIT law also provides that, if a resident enterprise directly invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested enterprise are exempted from income tax, subject to certain conditions. Therefore, if CMM and UIAL are classified as resident enterprises, the dividends received from our PRC subsidiary may be exempted from income tax. However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an offshore company, like us, having indirect ownership interests in PRC enterprises through intermediary holding vehicles.

Moreover, under the new EIT law, foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains realized on the sale or other disposition of ADSs or ordinary shares, if such income is sourced from within the PRC. Although CMM is incorporated in the Cayman Islands, it remains unclear whether the dividends payable by us or the gains our foreign ADS holders may realize will be regarded as income from sources within the PRC if we are classified as a PRC resident enterprise. Any such tax will reduce the returns on your investment in our ADSs.

Our insurance coverage is limited and we may incur substantial costs as a result of a severe business liability or disruption or other unexpected events, which could have a material adverse effect on our financial condition and results of operations.

Insurance companies in China offer limited business insurance products and generally do not, to our knowledge, offer business liability insurance. Business disruption insurance is available to a limited extent in China, but we have determined that the risks of disruption, the cost of such insurance and the difficulties associated with acquiring such insurance make it impractical for us to have such insurance. We do not maintain insurance coverage for any kinds of business liabilities or disruptions and would have to bear the costs and expenses associated with any such events out of our own resources.

Any failure to achieve and maintain effective internal controls could have a material adverse effect on our business, results of operations and the market price of our ADSs.

The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting.

We cannot assure you that in the future our management will not identify material weaknesses during the Section 404 of the Sarbanes-Oxley Act audit process or for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. As a result, if we fail to maintain effective internal controls over financial reporting or should we be unable to prevent or detect material misstatements due to error or fraud on a timely basis, investors could lose confidence in the reliability of our financial statements, which in turn could harm our business, results of operations and negatively impact the market price of our ADSs, and harm our reputation. Furthermore, we have incurred and expected to continue to incur considerable costs and to use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

We have granted employee stock options under our equity incentive plan and may continue to grant stock options and other share-based compensation in the future. Our net income could be adversely affected as a result.

We adopted an equity incentive plan in July 2008 that permits the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares, and other share-based awards to employees, directors and consultants of our company. We have granted to our employees options under the 2008 equity inventive plan and as of April 27, 2012, options to purchase 26,633,450 ordinary shares are outstanding. As a result of these option grants and potential future grants under the 2008 equity incentive plan, we have incurred share-based compensation expenses and expect to incur such expenses in future periods. The amount of these expenses will be based on the fair value of the share-based awards. We have adopted ASC 718 and ASC 505-50 for the accounting treatment of our equity incentive plan. As a result, we are required to account for compensation costs for all stock options, including stock options granted to our directors and employees, using a fair-value based method and recognize expenses in our consolidated statement of income in accordance with the relevant rules under U.S. GAAP, which may have a material adverse effect on our net income. Moreover, the additional expenses associated with share based compensation may reduce the attractiveness of such incentive plan to us. Employee stock options or other share- based compensation we may grant in the future may have a material adverse effect on our profitability.

We may be a passive foreign investment company, or PFIC, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or ordinary shares.

Depending upon the value of our ordinary shares and ADSs and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, by the U.S. Internal Revenue Service, or IRS, for U.S. federal income tax purposes. Based on the composition of our income and valuation of our assets, we believe we were a PFIC during the taxable year ended December 31, 2011. In addition, we believe we are likely be to a PFIC for the taxable year ending December 31, 2012, as PFIC status is tested after the close of each year and depends on our assets and income in such year.

We will be classified as a PFIC in any taxable year if either: (1) the average quarterly percentage value of our gross assets during the taxable year that produce passive income or are held for the production of passive income is at least 50% of the value of our total gross assets or (2) 75% or more of our gross income for the taxable year is passive income. The value of our assets for a taxable year is determined based on the sum of our average market capitalization, which is our share price multiplied by the total number of our outstanding shares, and our average liabilities over that taxable year. Accordingly, we would be a PFIC for the taxable year ending December 31, 2011 if the average quarterly value of our assets for the taxable year is not more than twice the average quarterly value of our cash, cash equivalents and other assets that produce passive income or are held for the production of passive income.

If we are classified as a PFIC in any taxable year in which you hold our ADSs or ordinary shares and you are a U.S. Holder (as defined under “Item 10. Additional Information Taxation—U.S. Federal Income Taxation”), you generally will become subject to increased U.S. federal income tax liabilities and special U.S. federal income tax reporting requirements, unless you have made a timely “mark-to-market” election to mitigate some of the applicable consequences. For more information on the U.S. federal income tax consequences to you that would result from our classification as a PFIC, see “Item 10. Additional Information Taxation—U.S. Federal Income Taxation—Passive Foreign Investment Company.”

We have limited experience and operating history in the film and TV drama production business, which expose us to potential risks.

In 2011, we began to conduct film and TV drama production and other related businesses through our PRC affiliated entities. These businesses allow us to generate synergies with our television advertising business through in-program advertisement. While we continue our efforts to identify and develop new business opportunities in the film and TV drama production business, we have limited experience and operating history in the industry and may not be able to successfully integrate our TV drama production business into our existing operations. Moreover, the production and distribution of television programs is regulated extensively in China, and the production and distribution of film and TV drama products are subject to various PRC laws, rules and regulations. Further, the production and distribution of film and TV drama series is a lengthy and capital-intensive process, and our capacity to generate cash or obtain financing on favorable terms may be insufficient to meet our anticipated cash requirements. Piracy, including digital and Internet piracy, may further reduce our profitability. In addition, the film and TV drama production industry in China is fragmented and highly competitive. Our competitors include not only privately owned companies, but also state-owned enterprises that have strong and long-term relationship with major television channels in China. All those potential risks could have a material adverse impact upon our business, financial condition and results of operations.

We rely on contractual arrangements with our variable interest entity, or VIE, in China and its shareholder for our film and TV drama series production business, which may not be as effective as direct ownership in providing operational control.

We rely on contractual arrangements with the VIE and its shareholder to operate our film and TV drama series production business. These contractual arrangements may not be as effective as direct ownership in providing control over our VIE. Under these contractual arrangements, if the VIE or its shareholder fail to perform their respective obligations, we may have to incur costs and resources to enforce such arrangements and rely on legal remedies under PRC law, including seeking specific performance or injunctive relief and claiming damages, which may not be effective.

The PRC government may determine that our contractual arrangements with Beijing Mass Universal Film Production Company Limited (the “VIE”) relating to our film and TV drama series production business are not in compliance with applicable PRC laws and regulations.

Current PRC laws and regulations prohibit foreign investment in the film and TV drama series production business. As a result, we operate our film and TV drama series production business through contractual agreements with a VIE and its shareholder, Xiaofang Zhang. In case the contractual arrangements with the VIE are considered to be in violation of any existing or future PRC laws or regulations or governmental policy, the relevant regulatory authorities would have broad discretion in taking actions to deal with such violation, including but not limited to:

• imposing economic penalties;

• discontinuing or restricting the operations of the VIE;

• imposing conditions or requirements in respect of the contractual arrangements with the VIEs with which we may not be able to comply;

• requiring our company to restructure the relevant ownership structure or operations;

• taking other regulatory or enforcement actions that could adversely affect our business; and

• revoking the business licenses and/or the licenses or certificates of VIE and/or voiding the contractual arrangements with the VIE.

Any of these actions could have an adverse effect on our business, financial condition and results of operations.

Risks Related to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could have a material adverse effect on our business and operations.

Substantially all of our assets are located in and all of our revenues are sourced from the PRC. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in the PRC generally and by continued economic growth in the PRC as a whole.

The PRC economy differs from the economies of most developed countries in many respects, including the level of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate governance in business enterprises, a substantial portion of productive assets in the PRC is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over the PRC’s economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.

While the PRC economy has experienced significant growth over the past decades, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. The PRC government has implemented certain measures, including interest rate increases, to control the pace of economic growth. These measures may cause decreased economic activity in the PRC, which could in turn reduce the demand for our services and adversely affect our operating results and financial condition.

The PRC government also regulates television broadcasts, including the amount of broadcast time that may be set aside for advertisements. Changes in these regulations, and particularly any reduction in the amount of broadcast time that may be set aside for advertisements, could have a material adverse impact on our business and operations.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which legal decisions have limited value as precedents. In the late 1970s, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in the PRC. Our PRC operating subsidiary, Universal, is a wholly foreign-owned enterprise and is subject to laws and regulations applicable to foreign investment in the PRC as well as laws and regulations applicable to foreign-invested enterprises. Universal is a privately owned company and is subject to various PRC laws and regulations that are generally applicable to companies in the PRC. These laws and regulations are still evolving, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy in the PRC legal system than in more developed legal systems. These uncertainties may also impede our ability to enforce the contracts we have entered into. As a result, these uncertainties could materially and adversely affect our business and operations.

The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with our initial public offering that was completed in August 2008; the failure to obtain this approval, if required, could have a material adverse effect on our business, operating results and reputation as well as the trading price of our ADSs.

On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, or MOFCOM, the State-owned Assets Supervision and Administration Commission of the State Council, the State Administration for Taxation, the State Administration for Industry and Commerce, or the SAIC, the CSRC and the State Administration of Foreign Exchange, or SAFE, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006. The M&A Rules, among other things, include provisions that purport to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicle’s securities on an overseas stock exchange. On September 21, 2006, the CSRC published on its official website procedures regarding its approval of overseas listings by special purpose vehicles. The CSRC approval procedures require the filing of an application and supporting documents with the CSRC.

We completed our initial public offering in August 2008. The application of the M&A Rules with respect to our initial public offering remained unclear. Our PRC counsel had advised us that, because we were owned by non-PRC residents, our company was not viewed as a special purpose vehicle that was subject to the M&A Rules, thus we were not required to apply to the CSRC for approval. However, if a CSRC approval was required or is retroactively required under new PRC rules or regulations but not obtained, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. Any uncertainties or negative publicity regarding this CSRC approval requirement could have an adverse effect on the trading price of our ADSs.

The M&A Rules set forth complex procedures for acquisitions conducted by foreign investors, which could make it more difficult to pursue growth through acquisitions.

The M&A Rules, among other things, set forth complex procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the Ministry of Commerce be notified in advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise. Part of our growth strategy includes acquiring complementary businesses or assets. Complying with the requirements of the M&A Rules to complete such transactions could be time-consuming, and any required approval processes, including obtaining approval from the Ministry of Commerce, may delay or inhibit the completion of such transactions, which could affect our ability to expand our business or maintain our market share. In addition, in the future, if any of our acquisitions were subject to the M&A Rules and were found not to be in compliance with the requirements of the M&A Rules, relevant PRC regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operating privileges in the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects.

PRC regulations relating to offshore investment activities by PRC residents may increase the administrative burden we face and may subject our PRC resident beneficial owners or employees to personal liabilities, limit our subsidiary’s ability to increase its registered capital or distribute profits to us, limit our ability to inject capital into our PRC subsidiary, or may otherwise expose us to liability under PRC law.

SAFE has promulgated regulations that require PRC residents and PRC corporate entities to register with local branches of SAFE in connection with their direct or indirect offshore investment activities. These regulations may apply to our shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

SAFE regulations require PRC residents who make, or have previously made, direct or indirect investments in offshore companies to register those investments. In addition, any PRC resident who is a direct or indirect shareholder of an offshore company is required to update his registration with the relevant SAFE branches, with respect to that offshore company, any material change involving increase or decrease of capital, transfer or swap of shares, merger, division, equity or debt investment or creation of any security interest. Moreover, the PRC subsidiaries of that offshore company are required to coordinate and supervise the filing of SAFE registrations by the offshore company’s shareholders who are PRC residents in a timely manner. If a PRC shareholder with a direct or indirect stake in an offshore parent company fails to make the required SAFE registration, the PRC subsidiaries of such offshore parent company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries, and the offshore parent company may also be prohibited from injecting additional capital into its PRC subsidiaries. Furthermore, failure to comply with the various SAFE registration requirements described above may result in liability for the PRC shareholders and the PRC subsidiary under PRC law for foreign exchange registration evasion.

We have been advised by our PRC legal counsel that Mr. Wang, our controlling shareholder and a Canadian citizen, is not subject to SAFE registration. However, the PRC government authorities may interpret Mr. Wang’s status differently or Mr. Wang’s status may change in the future. Moreover, we may not be fully informed of the identities of the beneficial owners of our company and we cannot assure you that all of our PRC resident beneficial owners will comply with the SAFE regulations. The failure of our beneficial owners who are PRC residents to make any required registrations may subject us to fines and legal sanctions, and prevent us from being able to make distributions or pay dividends, as a result of which our business operations and our ability to distribute profits to you could be materially and adversely affected.

On February 15, 2012, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic Individuals Participating in an Employees Share Incentive Plan of an Overseas-Listed Company (which replaces the previous circular, “Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in an Employee Stock Holding Plan or Stock Option Plan of an Overseas-Listed Company”, which was issued in 2007), or the new Share Incentive Rule. Under the new Share Incentive Rule, PRC citizens who participate in a share incentive plan of an overseas publicly listed company are required to register with SAFE and complete certain other procedures. All such participants need to retain a PRC agent through PRC subsidiary to register with SAFE and handle foreign exchange matters such as opening accounts, transferring and settlement of the relevant proceeds. The Share Incentive Rule further requires that an offshore agent should also be designated to handle matters in connection with the exercise or sale of share options and proceeds transferring for the share incentive plan participants. We and our PRC employees who have been granted stock options are subject to the Share Incentive Rule. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and legal sanctions. See “Regulation—SAFE Regulations on Offshore Investment by PRC Residents and Employee Stock Options.”

We rely principally on dividends and other distributions on equity paid by our wholly owned operating subsidiary to fund any cash and financing requirements we may have, and any limitation on the ability of our operating subsidiary to pay dividends to us could have a material adverse effect on our ability to borrow money or pay dividends.

As a holding company, we rely principally on dividends and other distributions on equity paid by Universal for our cash requirements, including funds necessary to service any debt we may incur. If Universal incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Furthermore, relevant PRC laws and regulations permit payments of dividends by Universal only out of its retained earnings, if any, determined in accordance with PRC accounting standards and regulations. Under PRC laws and regulations, Universal is required to set aside a portion of its net income each year to fund a statutory surplus reserve. This reserve is not distributable as dividends until the accumulated amount of such reserve has exceeded 50% of its registered capital. Limitation on the ability of Universal to pay dividends to us could materially and adversely limit our ability to borrow money outside of the PRC or pay dividends to holders of our ADSs. Also see “—Risks Related to Our Business and Industry—The dividends we receive from our PRC subsidiary and our global income may be subject to PRC tax under the new EIT law, which would have a material adverse effect on our results of operations; our foreign ADS holders may be subject to a PRC withholding tax upon the dividends payable by us and upon gains realized on the sale of our ADSs, if we are classified as a PRC ‘resident enterprise.’”

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC operating subsidiary.

We, as an offshore holding company of our PRC operating subsidiary, may make loans to our PRC subsidiary, or we may make additional capital contributions to our PRC subsidiary. Any loans to our PRC subsidiary are subject to PRC regulations and approvals. For example, loans by us to finance the activities of Universal, a wholly foreign-owned enterprise, cannot exceed statutory limits and must be registered with SAFE or its local counterpart.

We may also decide to finance our PRC subsidiary by means of capital contributions. Any additional capital contributions to Universal must be approved by MOFCOM or its local counterpart. We cannot assure you that we can obtain the necessary government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to Universal. If we fail to timely receive such registrations or approvals, or at all, our ability to capitalize our PRC operations would be adversely affected, which in turn would adversely and materially affect our business prospects and growth plan.

The audit report included in this annual report is prepared by an auditor who is not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection

Auditors of companies that are registered with the US Securities and Exchange Commission and traded publicly in the United States, including our independent registered public accounting firm, must be registered with the US Public Company Accounting Oversight Board (United States) (“the “PCAOB”) and are required by the laws of the United States to undergo regular inspections by the PCAOB to assess their compliance with the laws of the United States and professional standards. Because our auditors are located in the Peoples’ Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.

This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating audits and quality control procedures of any auditors operating in China, including our auditors. As a result, investors may be deprived of the benefits of PCAOB inspections.

The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our financial statements.

Restrictions on currency exchange under PRC laws may limit our ability to convert cash derived from our operating activities into foreign currencies and may materially and adversely affect the value of your investment.

Substantially all of our revenues and operating expenses are denominated in Renminbi. Under the relevant foreign exchange restrictions in the PRC, conversion of the Renminbi is permitted, without the need for SAFE approval, for “current account” transactions, which includes dividends, trade, and service-related foreign exchange transactions. Conversion of the Renminbi for “capital account” transactions, which includes foreign direct investment and loans, is still subject to significant limitations and requires approvals from and registration with SAFE and other PRC regulatory authorities. We cannot assure you that SAFE or other PRC governmental authorities will not further limit, or eliminate, our ability to purchase foreign currencies in the future. Any existing and future restrictions on currency exchange in the PRC may limit our ability to convert cash derived from our operating activities into foreign currencies to fund expenditures denominated in foreign currencies. If the foreign exchange restrictions in the PRC prevent us from obtaining U.S. dollars or other foreign currencies as required, we may not be able to pay dividends in U.S. dollars or other foreign currencies to our shareholders, including holders of our ADSs. Furthermore, foreign exchange transactions under the capital account transactions could affect Universal’s ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us.

Fluctuations in exchange rates could result in foreign currency exchange losses.

As substantially all of our cash and cash equivalents are denominated in Renminbi and the net proceeds from our initial public offering were denominated in U.S. dollars, fluctuations in exchange rates between the U.S. dollar and the Renminbi will affect the relative purchasing power of these proceeds and our balance sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business, financial condition or results of operations. The Renminbi is reported to be pegged against a basket of currencies, determined by the People’s Bank of China. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the fluctuation of the basket of currencies against which it is currently valued, or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar. Fluctuations in the exchange rate will also affect the relative value of any dividend we pay, which will be exchanged into U.S. dollars, and earnings from and the value of any U.S. dollar-denominated investments we make in the future.

Only limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to successfully hedge our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.

We face risks related to epidemics, which may severely disrupt our business and operations.

Our business could be materially and adversely affected by epidemics. For example, from December 2002 to June 2003, PRC and certain other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. During May and June of 2003, the PRC government closed many businesses in the PRC to prevent transmission of SARS. Since 2003, there have been reports of occurrences of avian flu and swine flu in various parts of the PRC, many of which have resulted in fatalities. Any actual or threatened outbreak of epidemics in the PRC may, among other things, significantly disrupt our and our clients’ business operations and severely restrict the level of economic activities in affected areas, which will in turn reduce the demand for advertising services.

Our business may be adversely affected by unforeseen events or natural disasters that are beyond our control.

Our business may be adversely affected by certain events or natural disasters beyond our control, such as the magnitude 8.0 earthquake that struck Sichuan Province on May 12, 2008. Many television stations in China significantly changed their programming after the earthquake to broadcast developments and rescue operations relating to the earthquake. All television channels in China ceased to broadcast any advertisements during a three-day national mourning period. In addition, certain television advertisements with content that was deemed to be inappropriate for broadcast during coverage of this tragic event were suspended in May and June 2008. Any natural disasters or unforeseen events in the future may cause similar changes to the programming and broadcasting schedules of television stations in China and may adversely affect the broadcast of our clients’ advertisements, which may have a material adverse effect on our business, financial condition and results of operations.

Risks Related to Our Ordinary Shares and ADSs

The trading prices of our ADSs are likely to be volatile, which could result in substantial losses to investors.

The trading prices of our ADSs experienced, and may continue to experience, significant volatility. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in the PRC that have listed their securities in the United States. A number of PRC companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for factors specific to our own operations, including the following:

variations in our revenues, earnings and cash flow;

announcements of new investments, acquisitions, strategic partnerships, or joint ventures;

announcements of new services and expansions by us or our competitors;

changes in financial estimates by securities analysts;

additions or departures of key personnel;

release of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

potential litigation or regulatory investigations; and

fluctuations in market prices for our services.

Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. We cannot assure you that these factors will not occur in the future.

Substantial future sales or perceived sales of our ADSs or ordinary shares in the public market could cause the price of our ADSs to decline.

Sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of April 27, 2012, we had 751,697,920 ordinary shares outstanding, including 201,697,920 ordinary shares represented by 672,326 ADSs, and 26,633,450 ordinary shares issuable upon the exercise of options.All ADSs are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding will be available for sale and, in the case of the ordinary shares that certain option holders will receive when they exercise their share options, until the later of (i) the first anniversary of the grant date, and (ii) the expiration of any relevant lock-up periods, subject to volume and other restrictions that may be applicable under Rule 144 and Rule 701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.

Our ADSs lack a significant trading market.

Our ADSs are not eligible for trading on any national securities exchange. Our ADSs are currently traded on the over-the-counter market commonly referred to as “pink sheets”. However, there is no active market for our ADSs at this time. The over-the-counter markets are highly illiquid. There is no assurance that an active trading market in our ADSs will develop, or if such a market develops, that it will be sustained. In addition, there is a greater chance for market volatility for securities quoted on the over-the-counter market as opposed to securities traded on a national securities exchange. This volatility may be caused by a variety of factors, including the lack of readily available quotations, the absence of consistent administrative supervision of “bid” and “ask” quotations and generally lower trading volume. As a result, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of, our ADSs, or to obtain coverage for significant news events concerning us, and the ADSs could become substantially less attractive for margin loans, for investment by financial institutions, as consideration in future capital raising transactions or for other purposes.

The application of the “penny stock” rules could adversely affect the market price of our ADSs and increase your transaction costs to sell those shares.

Our ADSs may be subject to the “penny stock” rules adopted under Section 15(g) of the Securities Exchange Act of 1934, or the Exchange Act. The penny stock rules apply to issuers whose common stock does not trade on a national securities exchange and trades at less than $5.00 per share, or that have a tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC describing the risk of investing in penny stocks.

The penny stock rules further 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 acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks and a signed and dated copy of a written suitability statement.

Due to the requirements of the penny stock rules, many broker-dealers have decided not to trade penny stocks. As a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Moreover, if our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

Our articles of association contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and ADSs.

Our currently effective articles of association is our fourth amended and restated memorandum and articles of association which limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

You may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law.

We are an exempted company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Law of the Cayman Islands (2011 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.

Although there is no statutory enforcement in the Cayman Islands of judgments obtained in the federal or state courts of the United States (and the Cayman Islands are not a party to any treaties for the reciprocal enforcement or recognition of such judgments), a judgment obtained in such jurisdiction will be recognised and enforced in the courts of the Cayman Islands at common law, without any re-examination of the merits of the underlying dispute, by an action commenced on the foreign judgment debt in the Grand Court of the Cayman Islands, provided such judgment (a) is given by a foreign court of competent jurisdiction, (b) imposes on the judgment debtor a liability to pay a liquidated sum for which the judgment has been given, (c) is final, (d) is not in respect of taxes, a fine or a penalty; and (e) was not obtained in a manner and is not of a kind the enforcement of which is contrary to natural justice or the public policy of the Cayman Islands.

As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a company incorporated in the United States.

Certain judgments obtained against us by our shareholders may not be enforceable.

We are a Cayman Islands company and all of our assets are located outside of the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind in the United States, the laws of the Cayman Islands and of the PRC may render you unable to enforce a judgment against our assets or the assets of our directors and officers in the Cayman Islands and the PRC.

The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to vote your ordinary shares.

As a holder of our ADSs, you will only be able to exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under the deposit agreement, you must vote by giving voting instructions to the depositary. Upon receipt of your voting instructions, the depositary will vote the underlying ordinary shares in accordance with these instructions. You will not be able to directly exercise your right to vote with respect to the underlying shares unless you withdraw the shares. Under our currently effective articles of association, the minimum notice period required for convening a general meeting is 14 days. When a general meeting is convened, you may not receive sufficient advance notice to withdraw the shares underlying your ADSs to allow you to vote with respect to any specific matter. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to vote and you may have no legal remedy if the shares underlying your ADSs are not voted as you requested.

The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.

Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders’ meetings unless:

we have failed to timely provide the depositary with notice of meeting and related voting materials;

we have instructed the depositary that we do not wish a discretionary proxy to be given;

we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

the voting at the meeting is to be made on a show of hands.

The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may experience dilution of your holdings.

We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parities, and may allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.

In November 2011, our shareholders approved the issuance of up to 20% of our total outstanding shares to the management team upon the satisfaction of certain conditions. Such share issuance will dilute your holdings on a pro rata basis.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by American depositary receipts, or ADRs, are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of our ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company

We began conducting our business through two companies in the PRC, Universal, established in August 2006, and Mass Media, established in October 2003. Prior to December 31, 2007, both Universal and Mass Media were under common management, operated on an integrated basis and ultimately controlled by Mr. Shengcheng Wang, our chairman and chief executive officer, and his immediate family members. Since the establishment of Universal, the advertising business of Mass Media was gradually assumed by Universal. Pursuant to an asset transfer agreement between Mass Media and Universal dated December 29, 2007, Mass Media ceased to conduct any business relating to television advertising and transferred certain of its assets relating to television advertising to Universal. Effective from December 31, 2007, Mass Media is no longer part of our company and is not involved in our continued business operations.

Previously, Universal was 70% owned by UIAL, a British Virgin Islands company established by Mr. Shengcheng Wang’s father, and 30% owned by Shenzhen Guang Er Gao Zhi Co., Ltd., a PRC domestic holding company beneficially owned by Mr. Shengcheng Wang’s immediate family members. In connection with our initial public offering, we reorganized our corporate and shareholding structure. In November 2007, a new holding company, CMM, was established by Mr. Shengcheng Wang in the Cayman Islands to serve as our entity for listing on NYSE Arca. At the same time, Mr. Shengcheng Wang’s father transferred all of the outstanding shares of UIAL to CMM for nominal consideration of US$1.0, and UIAL became a wholly owned subsidiary of CMM. UIAL subsequently purchased the remaining 30% equity interests of Universal held by Shenzhen Guang Er Gao Zhi Co., Ltd. for RMB15.0 million (US$2.1 million).

Under PRC laws, a foreign investor is permitted to own a 100% equity interest in advertising companies in China if such foreign investor is in the advertising business and has at least three years of operations outside of China before becoming the shareholder of the domestic advertising company. UIAL satisfied this requirement and obtained the government approval to become the sole shareholder of Universal in June 2008.

In August 2008, we completed the initial public offering of our ADSs representing our ordinary shares and listed on NYSE Arca. In August 2009, we transferred the listing of our ADSs from NYSE Arca to NYSE.

In January 2009, UIAL established a subsidiary, Mass Universal Film Production (Hong Kong) Limited, formerly known as Greatwall Film Production (Hong Kong) Limited, in Hong Kong for the purpose of securing potential television program production related business opportunities outside China.

In April 2009, we changed our corporate name from China Mass Media International Advertising Corp. to China Mass Media Corp.

In July 2011, Universal, our PRC subsidiary, entered into a series of contractual arrangements with Beijing Mass Universal Film Production Company Limited (“Beijing Film Production”), a film and TV drama series production company established in May 2011, and its shareholder Xiaofang Zhang, an independent third party. These contractual agreements enable us to (i) effectively control Beijing Film Production; (ii) derive substantially all of the economic benefits from it; and (iii) have an exclusive option to purchase all or part of the equity interests in Beijing Film Production when and to the extent permitted by PRC laws. As a result of the contractual arrangements, we are able to treat Beijing Film Production as our variable interest entity under U.S. GAAP and consolidate its operating results.

In March 2012, we received a notice from the staff of NYSE Regulation confirming that NYSE Regulation determined to commence proceedings to delist our ADSs from the NYSE on the grounds that we had fallen below the NYSE’s continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual, which requires us to maintain an average global market capitalization of not less than $15 million over a consecutive 30-trading day period. The NYSE made public announcement of this decision on March 12, 2012. Trading in our ADSs on the NYSE was suspended on March 19, 2012. Our ADSs are currently traded on the over-the-counter market.

The following diagram illustrates our current corporate structure:

Contractual arrangements

Equity interest

(1) Wholly owned by Xiaofang Zhang, an independent third party with whom we entered into a series of contractual arrangements, and as a result we effectively control Beijing Mass Universal Film Production Company Limited.

Our principal executive offices are located at 6th Floor, Tower B, Corporate Square, 35 Finance Street, Xicheng District, Beijing 100033, People’s Republic of China. Our telephone number at this address is (86-10) 8809-1099 and our fax number is (86-10) 8809-1088. Our registered office in the Cayman Islands is at the offices of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website iswww.chinammia.com.The information contained on our website does not constitute a part of this annual report.Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

B. Business Overview

Overview

We are an independent television advertising company in China. We provide a full range of integrated television advertising services, mainly including advertising agency services and production and sponsorship services. We have extensive experience in media planning, packaging and sales and provide advertising services on an integrated basis that are tailored to advertisers’ needs. For our advertising agency services, we obtain advertising time slots on selected nationally broadcast television channels of CCTV, and procure advertisers to place advertisements during such time slots. For our production and sponsorship services, we design, produce and package content for public service announcements or commercial advertisements. In addition, we solicit sponsors for the public service announcements we produce and arrange for such announcements, as well as announcements supplied by certain of our clients, to be broadcast on CCTV.

We obtained advertising rights to an average of 532 minutes per day in 2009, 482 minutes per day in 2010 for regular daily programs on CCTV Channel 1, 2, 4, E and F. Advertising time slots obtained from CCTV were 474 minutes per day in the first half of 2011 and 41 minutes in the second half of 2011. The advertising time slots from CCTV decreased in the second half of 2011 as we ceased to be the advertising agency of CCTV-E and CCTV-F from July 1, 2011.

Our direct and indirect clients span a wide spectrum of industries, including food and beverages, telecommunications, pharmaceuticals, financial services, and other consumer product industries. Our advertisers include many well-known companies in China. We have also established business relationships with many domestic and international advertising agencies, some of which are members of the American Association of Advertising Agencies, who introduce clients to us for all of its services.

We are a producer of public service announcements and commercial television advertisements in China. Our production team has extensive experience in content creation and production and designed and produced over 90 public service announcements and commercial television advertisements in 2011.

We are looking for opportunities to acquire other suitable advertising or media companies that provide access to new media platforms, attractive time slots or new customer relationships in desired industries.

In 2011, we began to conduct film and TV drama series production and other related businesses. These businesses allow us to generate synergies with our television advertising business through in-program advertisements.

Our Services

We offer a full range of integrated television advertising services, including advertising agency services and production and sponsorship services.

Our Advertising Agency Services

We provide advertising agency services to our clients by providing them with the advertising time slots we have obtained from CCTV. Advertisers purchase advertising time slots either directly from us or through their advertising agencies. Our advertising agency services typically start with an initial discussion between our sales and marketing personnel and a potential advertiser. After learning more about the advertiser, including its business and its goals for placing the advertisements, we conduct the relevant market research for them and propose a marketing and advertising plan, which includes our recommendations of advertising strategies and specific television channels and time slots on which to place the advertisement to maximize the desired effect. After the advertiser approves such a plan, we enter into an advertising agency contract with the client who agrees to engage us as its agent to procure the relevant advertising time slots. The contract will specify, in the case of acquiring advertising time slots from us, the time slots or the programs within which the advertisements will be broadcast and the relevant price for the advertising time slots allocated to such client. For those advertisers who use their advertising agents to seek access to the advertising time slots from us, we enter into contracts with similar terms with such advertising agents after negotiation. For those clients who engage us to help them bid for other prime advertising time slots from CCTV, the contracts specify the scope of the services we provide to these clients and we submit the bid on behalf of our clients to seek the desired CCTV time slots.

For those clients whose goals can be better served by having their television advertisements broadcast on other television channels or during time slots other than those we have obtained from CCTV, we perform the same services as we do for clients obtaining the advertising time slots from us, except that after our client approves the advertising plan, we act as an agent for such clients to procure advertising time slots from other advertising companies.

After we enter into contracts with CCTV to broadcast the relevant television advertisements of our clients, our media relationship department will review such television advertisements to ensure that the contents of the relevant advertisements are in compliance with the applicable regulatory requirements in China and the specific content or technical requirements of CCTV. We also help our clients prepare and collect the relevant legal documents required by CCTV for the release of the advertisements, including the business licenses and trademark certificates of our clients. After receiving approvals from CCTV, such advertisements will be broadcast. Our media relationship department monitors the broadcasts of our advertisements every day to ensure they are broadcast during the time slots and for the duration specified in the relevant contracts. We also provide certain advertising clients with reports that analyze and evaluate the advertising effect after the advertisements are broadcast.

Our Production and Sponsorship Services

Our ability to provide “one-stop shop” services by rendering a full range of services, including designing, producing and packaging television advertisements to our clients distinguishes us from other advertising agencies that compete with us. In many cases, we provide production and sponsorship services as a part of the integrated advertising services package we offer to our advertising clients. We produced over 90 public service announcements and commercial television advertisements in 2011.

We provide production services directly at the request of our clients, including both corporations and government agencies or non-governmental organizations, who either aim to promote their corporate brand names, products and services through commercial advertisements or intend to raise social consciousness or improve their company image through public service announcement. In addition, prior to June 30, 2011, we provided sponsorship services in connection with the production of Guang Er Gao Zhi (广而告之), a 30-second daily program on CCTV Channels 1 and 2 that broadcasts exclusively the public service announcements we produce. The production of this program was entirely funded by us and we solicited sponsors for the public service announcements we already produced in exchange for a sponsorship fee and we showed the sponsor’s name at the end of the announcement broadcast on the program. Due to the program changes by CCTV, our contract with CCTV in respect of Guang Er Gao Zhi was terminated after its expiry on June 30, 2011, which had a material adverse effect on our financial condition and results of operations in the second half of 2011.

The production of public service announcements and commercial advertisements involves various stages, including identifying concepts, formulating ideas, drafting advertising strategies and story books, organizing pre-production meetings, drafting and finalizing the shooting book, shooting, editing and post-production procedures. For the production of commercial advertisements, we usually engage professional third parties in certain production stages to help us accomplish certain complex technical tasks with high quality standards. Such tasks include drafting and finalizing the shooting book, shooting, editing and post-production procedures. We generally involve our advertising clients or sponsors who commission a public service announcement, in every production stage and receive their feedback throughout the production process to ensure that the public service announcements and commercial advertisements satisfy the specific needs and requirements of our sponsors and advertising clients.

Content-based Business

In addition to our advertising agency services, we began to engage in film and TV drama series production and other related content-based businesses. We have completed the on-site filming stage of a TV drama, and entered into the off-site post-production stage. Currently we are in active discussions with a few major TV stations for the drama’s distribution and aim to broadcast it in the second half of 2012. So far, we have not recognized any revenue from our content-based businesses. We plan to invest in the production of one or two additional TV dramas in 2012.

We also provided special events services to CCTV from 2004 to 2008. We had contractual arrangements with CCTV to assist CCTV in the sale and marketing of advertising time slots on CCTV Channels 1 and 2 during special sporting events that are broadcasted on these channels. We received a certain percentage of the total advertising revenues from the events as our compensation for such special event services. We no longer provide this service since 2009. In 2011, we received RMB14.7 million as service fee from CCTV for our special event service in connection with the Beijing Olympic Games in 2008. Because of CCTV’s slow internal examination and approval procedures, this service fee was paid to us in the third quarter of 2011.

Our Media Resources

Our media resources primarily consist of the advertising time slots we acquire from CCTV. We directly enter into contracts with CCTV to obtain exclusive advertising rights to a number of television programs on CCTV Channels 1, 2, 4, E and F, with contract terms ranging from one year to five years. In addition, in 2008 and 2009, we also indirectly acquired advertising time slots from CCTV through Guang Er Gao Zhi Film and Television Production Co., Ltd., or FTP, a company 50% owned by CCTV and 50% owned by the immediate family member of our chairman.

The following table sets forth the regular daily television programs for which we have obtained from CCTV the exclusive rights to market the advertising time slots in 2011 and 2012:

Program	CCTV channel	2011 ratings⁽¹⁾⁽²⁾	Advertising time per day	Broadcast frequency per day⁽³⁾		Total advertising time per day⁽⁴⁾		Contract Term
				Weekday	Weekend	Weekday	Weekend
			(minutes)	(times)	(times)	(minutes)	(minutes)
Daytime Advertising Package	1,2	3.91	3	10	10	30	30	1 year, expired on December 31, 2011
Television Guide	1,2	5.56	0.5	9	9	4.5	7	1 year, expired on December 31, 2011
Guang Er Gao Zhi	1,2	1.15	0.5⁽⁵⁾	4	4	2	2	3 years, expired on June 30, 2011
Periodic China News Package	4	0.85	9.4	10	8	10	8	1 year, expiring on December 31, 2012
CCTV-E and CCTV-F⁽⁶⁾	E,F	-	-	-	-	432	432	3 years, expired on June 30, 2011
All Day Classic Package	8	3.35	7	14	14	7	7	1 year, expiring on December 31, 2012

(1)

Cumulative ratings at selected broadcasting times of the programs, including reruns that we calculated based on the data from Infosys TV, a television program rating analyzing system developed by TNS Group and operated in China by CSM Media Research Co., Ltd. A television program rating is an audience measurement that refers to the percentage of the number of viewers watching a program within a specific duration of time out of the total number of viewers.

(2)

The rating covers 29 provinces and cities, including Anhui, Beijing, Gansu, Guangdong, Guangxi, Guizhou, Henan, Heilongjiang, Jilin, Jiangxi, Liaoning, Inner Mongolia, Shanxi, Shaanxi, Shanghai, Tianjin, Yunnan, Chongqing, Fujian, Hainan, Hubei, Hunan, Jiangsu, Ningxia, Shandong, Sichuan, Xinjiang, Zhejiang.

(3)

Represents the minimum number of reruns per day we agree with our advertising clients to broadcast on CCTV.

(4)

Total daily advertising time is calculated as an aggregate of all the available advertising time during different advertising time slots when the relevant program is broadcast, including reruns, within the same day.

(5)

Represents the duration of the program. We do not sell the advertising time slots of this program to advertisers; instead, we solicit sponsorships for the public service announcements broadcast on the program.

(6)

Represents the total available advertising time slots on CCTV-E and CCTV-F. Rating information is not available due to their limited viewership in China.

Periodic China News Package. The Periodic China News Package is a package of advertisements that are broadcast at least ten times per weekday and eight times per weekend on periodic China News programs on CCTV Channel 4. We obtained the advertising time slots for the Periodic China News Package in a non-prime time advertising auction event conducted by CCTV in 2009 and renewed the contract for 2012 at the end of 2011. Our current contract with CCTV for Periodic China News Package has a term of one year expiring on December 31, 2012. Under the contract, we are required to pay CCTV a fixed media fee of RMB81.3 million which is payable in 12 equal installments. In addition, we are required to make a deposit with CCTV amounting to 10% of the annual media fee, which is deductible from the last installment. We retain the premium over the media fee as profit. The Periodic China News Package on CCTV-4 for 2013 will be made available at the non-prime time advertising auction event in 2012.

All Day Classic Package.The All Day Classic Package is a package of advertisements that are broadcast at least 14 times per day on CCTV Channel 8 and covers all time slots from morning to evening. In September 2011, we acquired a 30-second time slot in connection with the “All Day Classic Package” on CCTV Channel 8 starting from 2012. CCTV Channel 8 is the only national TV drama series channel in China. It ranks third among all channels in China in terms of audience share in 2009 according to 2010 China TV & Radio Yearbook, and is ideal for advertising family consumer products.

In 2011, our advertising rights to several regular daily television programs on CCTV were terminated. Our contracts with CCTV for the Daytime Advertising and Television Guides were not renewed upon their expiration on December 31, 2011. CCTV offered the advertising rights for the Daytime Advertising Package for bidding at the non-prime time advertising auction event held by CCTV in November 2011 and we did not secure the winning bid. CCTV also decided to cancel the Television Guide program at the end of 2011. Our revenues generated from these two programs amounted to RMB158.8 million in 2009, RMB109.0 million in 2010 and RMB91.5 million in 2011, representing 37.1%, 42.5% and 40.6% of our total revenues in those periods, respectively. Moreover, due the program changes, our contract with CCTV in respect of the Guang Er Gao Zhi program was not renewed upon its expiration on June 30, 2011. Our revenues from production and sponsorship services in relation to the Guang Er Gao Zhi program amounted to RMB8.5 million in 2009, RMB12.2 million in 2010 and RMB9.1 million in 2011. In June 2011, we also terminated our contracts with CCTV for the advertising time on CCTV-E and CCTV-F. Our revenues generated from CCTV-E and CCTV-F amounted to RMB5.7 million in 2009, RMB0.4 million in 2010 and RMB0.1 million in 2011.

Since 2009, we have not obtained the advertising rights to a number of programs on CCTV, including Chinese New Year Gala, because CCTV began to sell advertising time slots for these programs directly by itself or through auctions. Since 2009, CCTV has increased the use of auction in selling its prime time as well as non-prime time media resources. When participating in these auctions and making procurement decisions, we continue to implement our policy of prudently evaluating the value of available television programs, their costs and historical and potential sales volumes, among other factors. We believe we will be able to maintain a stable supply of high quality advertising time slots from CCTV through auctions.

Our Clients

Our clients span a wide spectrum of industries, including telecommunications, pharmaceuticals, financial services, and garment, alcohol, food and other consumer product industries. Our advertisers include many well-known companies in China. A number of these clients utilize the full range of our advertising services, including both agency and production services. We have also established business relationships with many leading domestic and international advertising agencies, some of which are members of the American Association of Advertising Agencies, who introduce clients to us for all of our services. Our access to advertising time slots on CCTV is a primary attraction for these advertising agency clients.

The following table sets forth the breakdown of revenue contributions in 2011 by the industries in which our clients operate:

	Percentage of Total Revenues in 2011
Industry
Food and beverages		21.2	%
Household products, electronic appliances and home decorations		15.5	%
Pharmaceuticals		20.8	%
Tourism		10.5	%
Automotive		7.2	%
Industrial		5.3	%
Telecommunications and information technology		4.8	%
Government		4.0	%
Special event services		3.2	%
Transportation		2.0	%
Fashion		1.0	%
Finance and services		0.9	%
Others		3.6	%
Total		100.0	%

Many government agencies in China formulate an annual plan to produce a certain number of announcements to be broadcast on national and regional television networks. As a public service announcement producer, we have been engaged by governmental agencies and non-governmental organizations to produce public service announcements for them.

Client Concentration

None of our customers accounted for more than 10% of our total revenues in the years ended December 31, 2009, 2010 and 2011 because we recorded our advertising revenues from CCTV Channel 4 programs on a gross basis, which increased our revenue basis. See Note 3(b) to our consolidated financial statements included elsewhere in this annual report. Although our revenues from these clients generally constitute a substantial part of our total revenues, we believe our business is not dependent on any individual advertising client.

Pricing

For our advertising agency services, we set the prices of our available advertising time slots based on the quality, rating and target audience of the relevant television programs where the advertisements will be broadcast, the sales prices of our competitors, general market conditions and market demand. Different advertising time slots are sold at different prices. CCTV annually publishes rate cards for its advertising time slots after taking into account the input from its advertising agencies, including our company. We use these rate cards as a basis for negotiations with our clients and we typically provide discounts to our clients. We typically require the agreed advertising fees to be paid in advance before the advertisements are broadcast. CCTV has been increasing the prices charged to us for many of its advertising time slots every year since our establishment, and we expect that CCTV will continue to raise such prices in the future. We believe that we will be able to pass on these price increases to our clients. For our clients who engage us as the agent to seek advertising time slots from other advertising companies, we typically charge a certain percentage of the total payment made by our clients to these advertising companies as our commission.

We price our production and sponsorship services after taking into account the added value and the related production costs of the content we produce and the value we create for the sponsors of our public service announcements. We typically require a deposit equal to the production cost of the advertisement to be paid by the client at the time of the execution of the advertising production agreement and prior to our commencement of work. We typically require our clients to make payment in full at the time of delivery of our products. For clients who have established good relationships with us and have solid credit histories, we may, on a case-by-case basis, offer them a limited credit period.

Sales and Marketing

As of December 31, 2011, we employed 56 sales representatives devoted to the sale and marketing of our services, whose compensation is based, to a large extent, on the sales revenues they achieve for our company. More than 50% of our sales representatives have more than five years experience in the advertising industry. We have dedicated sales teams focusing on the sales of advertising time slots we have obtained from CCTV to advertising agency companies or directly to our corporate clients. We also actively seek advertising time slots from other third party agencies if our clients’ goals can be better served by having their television advertisements broadcast at time slots other than those we have obtained from CCTV. Our Shenzhen office is responsible for the advertising sales in five provinces in southern China. We also have dedicated personnel responsible for the sales of our public service announcements. We believe that our extensive experience in media planning, packaging and sales, our access to desirable advertising time slots and our excellent production capabilities have attracted a broad base of advertising clients and facilitated our sales efforts. We also have client service teams within our sales department to serve our important clients.

In addition, when we provide any of our advertising agency services or advertisement production services to our clients, we seek opportunities to provide a full range of integrated advertising services to them. Some clients that initially engage us only to provide advertising agency services ultimately hire us to produce the relevant television advertisements. Similarly, our production department also seeks opportunities to introduce clients to the sales representatives of our advertising agency services.

We market our services primarily through direct marketing, trade shows and other media events, which include:

participating in various nationwide advertisement promotional fairs, including the annual Prime Time Advertising Resources Auction organized by CCTV in the fourth quarter of each year, to promote our advertising agency services;

providing our public service announcements to regional television networks to enhance the awareness among the public regarding the public service announcements we produce; and

participating in industry award competitions, trade shows, advertisement festivals, academic seminars and conferences to promote the awareness of our company and our advertisement production capabilities.

Information Technology

We use information technology and operating tools to support our business operations. We have purchased several databases from third-party market research firms and employed these databases regularly to conduct relevant research as a basis to formulate the advertising plans for our clients. The databases we currently use include Adex Power and Infosys TV. Adex Power is an advertisement monitoring database that contains original data for each advertisement on almost all of the television stations across China, such as the length of the advertisement, the content of the advertisement and the television programs within or between which such advertisement was broadcast. We can also perform analysis under this Adex Power system to produce the relevant data or comparison we need in order to provide advice to our clients. Infosys has the largest samples of television programs of CCTV, including the rating and the target audience of each television program. We use the data provided by Infosys TV to form the basis of our recommendations to our clients regarding the placement of relevant advertisements.

Service Quality Control

We aim to provide the highest quality agency and production services to our clients. Our media relationship department reviews the content of the television advertisements to ensure their compliance with the applicable legal requirements of China and the specific requirements of CCTV or the regional television networks broadcasting the advertisement. In addition, our media relationship department monitors the broadcasts of our advertisements every day to ensure they are broadcast at the time slots and for the duration as specified in the relevant contracts. We also provide certain advertising clients with reports that analyze and evaluate the advertising effect after the advertisements are broadcast.

Moreover, in order to ensure the quality of our agency services, we provide regular training to our sales force and our administrative staff with respect to the changes in general market conditions, recent developments in different industries in China and client communication skills. We also hold regular meetings with our clients to receive their feedback on our services.

In order to ensure the quality of the television advertisements and public service announcements we produce, we closely analyze market trends and clients needs, and employ advanced film and sound technology to deliver rich content. In particular, when engaging a third-party producer is necessary in the production of the advertisement, we typically select production crews that we have previously worked with in the past and have proved to be able to provide high quality production services.

Competition

The advertising industry in China is intensely competitive and highly fragmented. We compete with other industry participants mainly on the basis of service quality, available advertising time slots, price, reputation and relationships with television networks. We face significant competition mainly from domestic advertising companies such as SinoMedia Holding Limited, AVIC Culture Co., Ltd. and Charm Communication Group. We compete with other television advertising agencies for the limited time slots available on the CCTV channels or other television networks. In particular, some of our advertising clients are large advertising agencies who could become our competitors for the same limited media resources. We also compete with other television advertising agencies for advertising clients’ spending on the basis of desirability of time slots offered, television network coverage, service quality, brand name and pricing.

We also face competition from new entrants in the television advertising sector, including the wholly foreign-owned advertising companies that have been allowed to operate in China since December 2005, which exposes us to increased competition from international advertising media companies that have greater financial and other resources than we do. In addition, television, upon which we depend for our business, also competes with other forms of advertising media, such as radio, newspapers, magazines, the Internet, indoor or outdoor flat panel displays, billboards and public transport advertising, for overall advertising spending.

We believe that our ability to execute important advertising events and to provide integrated advertising services, ranging from the formulation of marketing plan to television advertisement production to advertisement release and broadcasting, represents a significant advantage over our competitors. However, we may not be able to maintain our competitiveness in this industry. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—We face significant competition, and if we do not compete successfully against existing and new competitors, we may lose our market share and our profitability may be materially harmed.”

Insurance

We maintain property insurance for our automobiles. We do not maintain business interruption insurance or key-man life insurance. We believe our insurance coverage is customary and standard for companies of comparable size in comparable industries in China. However, we cannot assure you that our existing insurance policies are sufficient to insulate us from all losses and liabilities that we may incur. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry—Our insurance coverage is limited and we may incur substantial costs as a result of a severe business liability or disruption or other unexpected events, which could have a material adverse effect on our financial condition and results of operations.”

Intellectual Property

We own the copyrights to the public service announcements we produce for broadcast on CCTV and regional television networks. Advertisers who choose to become the sponsors to such public service announcements do not have intellectual property rights with respect to such announcements. However, advertisers who engage us for the production of television advertisements to meet their specific content and production requirements generally hold the copyright to the relevant television advertisements or public service announcements, while we only have the right to identify our company in such advertisements or announcements as the producer of these advertisements or announcements.

Mass Media has registered the trademark relating to our logo “广而告之MMIA” in the category of publishing, advertising, entertainment services including radio and television program production. The registered trademark in the former category is valid from 2007 to 2017 and in the latter category is from 2009 to 2019. According to the asset transfer agreement dated December 29, 2007 between Mass Media and Universal, Mass Media transferred the registered trademark to Universal on February 27, 2011.

Regulation

This section sets forth a summary of the most significant PRC regulations that affect the business and the industries in which we operate.

We operate our business in China under a legal regime consisting of the State Council, which is the highest authority of the executive branch of the PRC central government, and several ministries and agencies under its authority including the State Administration for Industry and Commerce, or the SAIC, and the State Administration of Radio, Film and Television, or the SARFT. China’s Advertising Law was promulgated in 1994. From time to time, the State Council, the SAIC and other ministries and agencies have issued additional regulations that apply to our business.

Regulation of Advertising Services

Business License for Advertising Companies

The principal regulations governing advertising businesses in China include:

The Advertising Law (1994);

The Advertising Administrative Regulations (1987); and

The Implementing Rules for the Advertising Administrative Regulations (2004).

Pursuant to these regulations, companies that engage in advertising activities must obtain from the SAIC or its local branches a business license which includes the operation of an advertising business within its business scope. Companies conducting advertising activities without such a license may be subject to penalties, including fines, confiscation of advertising income and orders to cease advertising operations. The business license of an advertising company is valid for the duration of its existence, unless the license is suspended or revoked due to a violation of any relevant laws or regulations. Our PRC subsidiary has obtained such a business license from local SAIC branch and we do not expect it to encounter any difficulties in maintaining its business license.

Advertising Content

PRC advertising laws and regulations set forth certain content requirements for advertisements in China, which include prohibitions on, among other things, misleading content, superlative wording, socially destabilizing content or content involving obscenities, superstition, violence, discrimination or infringement of the public interest. Advertisements for anesthetic, psychotropic, toxic or radioactive drugs are also prohibited. It is prohibited to disseminate tobacco advertisements via broadcast, film, television or print media, or in any waiting lounge, theater, cinema, conference hall, stadium or other public area. There are also specific restrictions and requirements regarding advertisements that relate to matters such as patented products or processes, pharmaceuticals, medical instruments, agrochemicals, foodstuff, alcohol and cosmetics. In addition, all advertisements relating to pharmaceuticals, medical instruments, agrochemicals and veterinary pharmaceuticals advertised through broadcast, film, television, newspaper, magazine and other forms of media, together with any other advertisements which are subject to censorship by administrative authorities according to relevant laws and administrative regulations, must be submitted to the relevant administrative authorities for content approval prior to dissemination.

Advertisers, advertising service providers and advertising distributors are each required by PRC advertising laws and regulations to ensure that the content of the advertisements they prepare or distribute are true and accurate as well as in full compliance with applicable laws and regulations. In providing advertising services, advertising service providers and advertising distributors must review the prescribed supporting documents provided by advertisers for advertisements and verify that the content of the advertisements complies with applicable PRC laws and regulations. In addition, prior to distributing advertisements for certain commodities which are subject to government censorship and approval, advertising distributors are obligated to ensure that such censorship has been performed and approval has been obtained. Violation of these regulations may result in penalties, including fines of not more than RMB3,000, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the SAIC or its local branches may revoke violators’ licenses or permits for advertising business operations. Furthermore, advertisers, advertising service providers 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.

Television Advertising

The principal regulations governing television advertising in China include:

The Regulations on Radio and Television Administration (1997); and

The Interim Measures on Administration for Broadcasting of Radio and Television Advertisement (2003).

Consistent with the principles provided in the Advertising Law of 1994, these regulations set forth certain special requirements for television advertising in China, which include, among other things, limitation on time and content of advertisements. The aggregate time for broadcasting commercial advertisements must not exceed 12 minutes per hour on each television channel. In particular, the aggregate time for broadcasting commercial advertisements during the period from 19:00 to 21:00 must not exceed 18 minutes per hour on each TV channel. Television stations are also required to keep regular television programs uninterrupted and may not interpose advertisements except during normal breaks between programs. Furthermore, the broadcasting of television shall be formatted reasonably, and the quantity of commercial advertisements shall be controlled in balance. Television commercial advertisements must not include disturbing content during meal times: from 6:30 to 7:30, from 11:30 to 12:30 and from 18:30 to 20:00. There are also specific requirements regarding commercial advertisements that relate to certain special merchandise and/or services. For example, alcohol commercial advertisement is strictly restricted with a daily maximum limit of 12 advertisements and a maximum limit of two advertisements from 19:00 to 21:00 for each television channel. In addition, each television channel is required to broadcast public service announcements for no less than 3% of its commercial advertising time.

Limitations on Foreign Ownership in the Advertising Industry

The principal regulations governing foreign ownership in the advertising industry in China include:

The Catalogue for Guiding Foreign Investment in Industry (as amended in 2007);

The Measures on Administration for Foreign-invested Advertising Enterprises (2008); and

The Notice Regarding Investment in the Advertising Enterprises by Foreign Investors through Equity Acquisitions (2006).

These regulations require foreign entities that directly invest in the advertising industry in China to have at least two years of direct operations in the advertising industry outside of China. Since December 10, 2005, foreign investors have been permitted to own directly a 100% interest in advertising companies in China, but such foreign investors are required to be a company with advertising as its main business and to have at least three years of operations outside of China. PRC laws and regulations do not permit the transfer of any approvals, licenses or permits, including business licenses containing a scope of business that permits engaging in the advertising business.

The establishment of a foreign-invested advertising enterprise, by means of either new establishment or equity acquisition of an existing domestic advertising company, is subject to examination by the SAIC or its authorized branch at the provincial level and the issuance of an Opinion on the Examination and Approval of the Foreign-invested Advertising Enterprise Project. Upon obtaining such opinion from the SAIC or its relevant branch, an approval from the MOFCOM or its competent local counterparts is required before a foreign-invested advertising enterprise may apply for its business license. In addition, if a foreign-invested advertising enterprise intends to set up any branch, it must meet the requirements that (i) its registered capital has been fully subscribed and (ii) its annual advertising sales revenues are not less than RMB20 million.

Regulations on Trademarks

Both the PRC Trademark Law, adopted in 1982 and revised in 1993 and 2001, and the Implementation Regulation of the PRC Trademark Law, adopted in 2002, give protection to the holders of registered trademarks. The State Trademark Bureau, under the authority of the SAIC, handles trademark registrations and grants rights of a term of 10 years in connection with registered trademarks. License agreements with respect to registered trademark shall be filed with the State Trademark Bureau.

Regulations on Foreign Currency Exchange

Under the Foreign Currency Administration Rules (1996), as amended, and various regulations issued by the SAFE, and other relevant PRC government authorities, the Renminbi is convertible into other currencies for the purpose of current account items, such as trade related receipts and payments, interest payments and dividend distributions. The conversion of Renminbi into other currencies and the remittance of converted foreign currency outside China for the purpose of capital account items, such as direct equity investments, loans and repatriation of investment, require prior approval from SAFE or its qualified local offices. Payments for transactions that take place within China must be made in Renminbi. PRC companies may repatriate foreign currency received from abroad or retain such foreign currencies offshore. The terms and conditions of repatriating or retaining offshore relevant foreign currency shall be stipulated by SAFE. Foreign-invested enterprises may retain foreign exchange in accounts with designated foreign exchange banks subject to a cap set by SAFE or its local offices.

Regulations on Dividend Distributions

The principal regulations governing dividend distributions by wholly foreign-owned enterprises and Sino-foreign equity joint ventures include:

The Wholly Foreign-Owned Enterprise Law (1986), as amended;

Rules for the Implementation of the Wholly Foreign-Owned Enterprise Law (1990), as amended;

The Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures (1979), as amended;

Regulations for the Implementation of the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures (1983), as amended; and

The Enterprise Income Tax Law (2007) and its Implementation Regulations (2007).

Under these laws and regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. Additionally, these enterprises are required to set aside at least 10% of their after-tax profits each year, if any, to fund certain statutory reserve funds until their cumulative total reserve funds are equal to at least 50% of the enterprises’ registered capitals. At the discretion of these wholly foreign-owned enterprises, they may allocate a portion of their after-tax profits based on PRC accounting standards to staff welfare and bonus funds.

According to these laws and regulations, a Sino-foreign equity joint venture company established in the PRC is required to pay the income tax applicable in the PRC and make allocations of retained earnings to the reserve fund, enterprise development fund and employee bonus and welfare fund each at a percentage determined by the board of directors of such Sino-foreign equity joint venture company at each fiscal year prior to the payment of dividends.

On March 16, 2007, the PRC National People’s Congress enacted the Enterprise Income Tax Law, and on December 6, 2007, the PRC State Council issued the Implementation Regulations of the Enterprise Income Tax Law, both of which became effective on January 1, 2008. Under the new EIT law, dividends payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise are subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a lower withholding tax rate. However, the new EIT law also provides that, if a resident enterprise directly invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested enterprise are exempted from income tax, subjected to certain conditions. Therefore, if CMM and UIAL are classified as resident enterprise, the dividends received from our PRC subsidiary may be exempted from income tax. However, it remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an offshore company, like us, having indirect ownership interests in PRC enterprises through intermediary holding vehicles. See “Item 3. Key Information—D. Risk Factors—Risks Related to our Business—The dividends we receive from our PRC subsidiary and our global income may be subject to PRC tax under the new EIT law, which would have a material adverse effect on our results of operations; our foreign ADS holders may be subject to a PRC withholding tax upon the dividends payable by us and upon gains realized on the sale of our ADSs, if we are classified as a PRC “resident enterprise”.

SAFE Regulations on Offshore Investment by PRC Residents and Employee Stock Options

On October 21, 2005, SAFE issued the Notice on Issues Relating to the Administration of Foreign Exchange in Fund-raising and Reverse Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies, or Notice No. 75, which became effective as of November 1, 2005.

According to Notice No. 75, prior to establishing or assuming control of an offshore company for the purpose of financing that offshore company with assets or equity interests in an onshore enterprise in the PRC, each PRC resident, whether a natural or legal person, must complete certain overseas investment foreign exchange registration procedures with the relevant local SAFE branch. An amendment to the registration with the local SAFE branch is required to be filed by any PRC resident that directly or indirectly holds interests in that offshore company upon either (i) the injection of equity interests or assets of an onshore enterprise to the offshore company or (ii) the completion of any overseas fund raising by such offshore company. An amendment to the registration with the local SAFE branch is also required to be filed by such PRC resident when there is any material change involving a change in the capital of the offshore company, such as (i) an increase or decrease in its capital, (ii) a transfer or swap of shares, (iii) a merger or division, (iv) a long-term equity or debt investment or (v) the creation of any security interests.

Notice No. 75 applies retroactively. As a result, PRC residents who established or acquired control of offshore companies that made onshore investments in the PRC in the past were required to complete the relevant overseas investment foreign exchange registration procedures by March 31, 2006. Under Notice No. 75, failure to comply with the registration procedures may result in restrictions on the relevant onshore entity, including restrictions on the payment of dividends and other distributions to its offshore parent or affiliate and restrictions on the capital inflow from the offshore entity, and may also subject relevant PRC residents to penalties under Chinese foreign exchange administration regulations.

As a Cayman Islands company, and therefore a foreign entity, if we purchase the assets or equity interest of a PRC company owned by PRC residents in exchange for our equity interests, such PRC residents will be subject to the registration procedures described in Notice No. 75. Moreover, PRC residents who are beneficial holders of our shares are required to register with SAFE in connection with their investment in us.

In December 2006, the People’s Bank of China promulgated the Administrative Measures of Foreign Exchange Matters for Individuals, or the PBOC Regulation, setting forth the respective requirements for foreign exchange transactions by PRC individuals under either the current account or the capital account. In January 2007, SAFE issued implementing rules for the PBOC Regulation, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen’s participation in the equity incentive plan of an overseas publicly listed company. On March 28, 2007, SAFE issued the Operating Procedures on Administration of Foreign Exchange regarding PRC Individuals’ Participation in Employee Share Ownership Plans and Employee Stock Option Plans of Overseas Listed Companies, or the Stock Option Rule. The purpose of the Stock Option Rule is to regulate foreign exchange administration of PRC citizens who participate in equity incentive plans of overseas-listed companies.

According to the Stock Option Rule, if a PRC citizen participates in any equity incentive plan of an overseas-listed company, a PRC domestic agent or the PRC related company of such overseas listed company (such as the overseas-listed company itself, its parent company or its subsidiaries or branches in China) must, among others things, file an application with SAFE on behalf of such individual to obtain approval for an annual allowance with respect to the purchase of foreign exchange in connection with stock holding or stock option exercises. This is because PRC citizens may not directly use overseas funds to purchase stock or exercise stock options. Concurrent with the filing of such application with SAFE, the PRC domestic agent or the PRC-related company must obtain approval from SAFE to open a special foreign exchange account at a PRC domestic bank to hold the funds required in connection with the stock purchase or option exercise, any returned principal or profits upon sales of stock, any dividends issued upon the stock and any other income or expenditures approved by SAFE. The PRC domestic agent is also required to obtain approval from SAFE to open an overseas special foreign exchange account at an overseas trust bank to hold overseas funds used in connection with any stock purchase.

All proceeds obtained by PRC citizens from dividends acquired from the overseas-listed company through employee stock holding plan or stock option plans or sales of the overseas-listed company’s stock acquired through other methods must be fully remitted back to China after relevant overseas expenses are deducted. The foreign exchange proceeds from these sales can be converted into Renminbi or transferred to the PRC citizen’s foreign exchange savings account after the proceeds have been remitted back to the special foreign exchange account opened at the PRC domestic bank. If a stock option is exercised in a cashless transaction, the PRC citizen is required to remit the proceeds to the special foreign exchange account.

On February 15, 2012, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange Administration for Domestic Individuals Participating in an Employees Share Incentive Plan of an Overseas-Listed Company (which replaces the previous relevant circular, “Application Procedure of Foreign Exchange Administration for Domestic Individuals Participating in an Employee Stock Holding Plan or Stock Option Plan of an Overseas-Listed Company”, which was issued in 2007), or the new Share Incentive Rule. Under the new Share Incentive Rule, PRC citizens who participate in a share incentive plan of an overseas publicly listed company are required to register with SAFE and complete certain other procedures. All such participants need to retain a PRC agent through PRC subsidiary to register with SAFE and handle foreign exchange matters such as opening accounts, transferring and settlement of the relevant proceeds. The Share Incentive Rule further requires that an offshore agent should also be designated to handle matters in connection with the exercise or sale of share options and proceeds transferring for the share incentive plan participants.

We and our PRC employees who have been granted stock options will be subject to the Stock Option Rule. If we or our PRC employees fail to comply with the Stock Option Rule, we and/or our PRC employees may face sanctions imposed by SAFE or other PRC government authorities.

In addition, the State Administration for Taxation has issued circulars concerning employee stock options. Under these circulars, our employees working in the PRC who exercise stock options will be subject to PRC individual income tax. Our PRC subsidiary has obligations to file documents related to employee stock options with relevant tax authorities and to withhold individual income taxes of those employees who exercise their stock options. If our employees fail to pay their income taxes, or we fail to withhold them, we may face sanctions imposed by the tax authorities or other PRC government authorities.

C. Organizational Structure

For a description of our organizational structure, See “Item 4. Information on the Company—A. History and Development of the Company.”

D. Property, Plant and Equipment

Our corporate headquarters are located in approximately 1,564 square meters of office space in Beijing, which we rented from related parties under two leases before November 2008. In November 2008, we purchased such properties from the related parties at their fair market value as determined by an independent property valuation company. In addition, our Shenzhen office rents approximately 53 square meters of office space in Shenzhen, and its lease expires in December 2012. We believe that our existing facilities are adequate and suitable to meet our present needs and that additional space can be obtained on commercially reasonable terms to meet our future requirements.

ITEM 4A UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our audited consolidated financial statements and related notes for the years ended December 31, 2009, 2010 and 2011, included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements that involve risks and uncertainties. We caution you that our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information provided in “Item 3. Key Information—D. Risk Factors.”

A. Operating Results

Overview

As an independent television advertising company in China, we provide a full range of integrated television advertising services, mainly including advertising agency services and production and sponsorship services.

We derive a substantial majority of our revenues from our advertising agency services, in which we mainly procure advertisers for the time slots we have obtained on the national channels of CCTV. Our advertisers purchase these services either directly from us or through advertising agencies. In the years ended December 31, 2009, 2010 and 2011, we derived 92.9% , 86.7% and 82.2%, respectively, of our total revenues from advertising agency services. Substantially all of our revenues from advertising agency services are derived from the advertising time slots on CCTV. We obtained advertising rights to an average of approximately 532 minutes per day in 2009, 482 minutes per day in 2010 for regular daily programs on CCTV. Advertising from CCTV were approximately 474 minutes per day in the first half of 2011 and 41 minutes in the second half of 2011, as we ceased to be the advertising agency of CCTV-E and CCTV-F from July 1, 2011.

We also derive revenues from producing public service announcements and commercial television advertisements for advertisers, and soliciting sponsors for the public service announcements we produce and arranging for such announcements, as well as announcements supplied by certain of our clients, to be broadcast on CCTV.

From 2004 to 2008, we provided special event services to CCTV in assisting the sales and marketing of advertising time slots on CCTV channel 1 and channel 2 during special sporting events broadcast on these channels. We received a certain percentage of the total advertising revenues from the events. We no longer provide special event services since 2009.

Factors Affecting Our Financial Performance and Results of Operations

We believe that the main factors affecting our financial performance and results of operations are:

overall demand for our services;

our ability to obtain high quality advertising time slots on favorable terms;

our ability to increase the size, quality and the level of diversification of our advertising client base;

pricing of our services; and

seasonality.

Overall Demand for Our Services

Demand for our services and, as a result, growth in our revenues are driven by overall advertising spending in China, which is influenced by the pace of overall economic growth. Any slowdown in China’s economic growth may slow our revenue growth. In 2008, the global financial crisis gave rise to a worldwide economic recession which also significantly slowed down China’s economic growth.

In addition, the demand for our services is affected by the level of television advertising spending in China, which is in turn affected by the popularity of television programs in China and advertisers’ perceptions regarding the effectiveness of television advertising. Television advertising also competes with other advertising media, such as billboards, the Internet, mobile phones and out-of-home advertising networks. If television advertising becomes a less favorable choice for advertisers in China, we may not be able to successfully attract enough advertisers for our advertising time slots and our revenues and earnings growth may be affected.

Ability to Obtain High Quality Advertising Time Slots on Favorable Terms

We depend on the high quality advertising time slots we obtain from CCTV for our advertising agency services. Substantially all of our revenues for our advertising agency services are derived from the advertising time slots we obtain from CCTV. Our ability to continue to obtain our existing advertising time slots and to add additional high quality advertising time slots will have a significant effect on our results of operations. In the year ended December 31, 2009, we indirectly acquired certain advertising time on CCTV-2 and CCTV-4 through FTP. We incurred losses of RMB65.7 million in 2009, for advertising time slots on CCTV-4 related programs. In 2010, we reduced our investment on CCTV-4 related programs to one product, Periodic China News Package, which became a profit contributor in 2010.

Since 2009, CCTV increased the use of auction and direct sales, as opposed to using third-party agencies, to sell its time slots, which may limit our ability to obtain desirable advertising time. For example, in 2010, without engaging any advertising agencies, CCTV began to directly sell to advertising clients the time slots for the Chinese New Year Gala program, to which we had exclusive advertising rights between 2004 to 2009. We expect this trend of increased direct sales by CCTV to continue.

In addition, our advertising agency contracts with CCTV for the Daytime Advertising Package and Television Guides were not renewed upon their expiration on December 31, 2011, and our contract with CCTV in respect of the Guang Er Gao Zhi program was also terminated on June 30, 2011 due to the cancellation of this program by CCTV, both of which had a material adverse effect on our revenues. For each of the three years ended December 31, 2009, 2010 and 2011, revenues generated from the Daytime Advertising Package and Television Guides accounted for 37.1%, 42.5% and 40.6% of our total revenues in those periods, respectively, and revenues from our advertising production and sponsorship services in relation to the Guang Er Gao Zhi program accounted for 2.0%, 4.8% and 4.0% of our total revenues in those periods. Sales of outdoor media started to contribute to our revenues and net profit in 2011. As such, the mix of our media resources portfolio varies from year to year, which affects our results of operations. See “Item 3-Key Information- D. Risk Factors- Risk Related to Our Business and Industry-Our media resources portfolio varies from year to year due to program cancellations and other events and circumstances which may lead to significant uncertainty and volatility to our revenues.”

The quality of advertising time slots available to us is measured based on the perceived effectiveness of advertisements placed during such time slots, which is in turn affected by the ratings and the geographical and demographic coverage of the relevant television programs. Our results of operations will be affected by any changes with respect to the popularity, rating or coverage of the television programs during which our advertising time slots occur.

Our profitability also depends on the price of advertising time slots charged to us by CCTV or other agencies. CCTV has been increasing the prices for many of its advertising time slots in recent years, and we expect that CCTV will continue to raise such prices in the future. In addition, as CCTV continues the practice of selling more of its advertising time slots through auctions, we are facing more intense pricing competition to obtain desired advertising time slots. Our profit margin may be affected if we are not able to obtain the rights to these advertising time slots on favorable terms or pass on the increasing costs to our clients. If any other advertising agency is able to obtain such high quality advertising time slots on terms more favorable than ours, we may lose our clients and our revenues may decline.

Ability to Increase the Size, Quality and the Level of Diversification of Our Advertising Client Base

We compete for the advertising spending of advertisers with other advertising agencies, including both international advertising agencies and domestic Chinese advertising agencies, some of which are also our clients. From time to time these agencies introduce their clients to us, primarily due to our exclusive rights over certain advertising time slots on CCTV. We believe that we distinguish ourselves from other advertising agencies in China by our ability to provide integrated advertising services that encompass media planning, packaging, creative content production and access to desirable advertising time slots to reach targeted audiences. We plan to continue to attract new business from potential clients, as well as to gain more business from our existing corporate clients, by increasing our sales efforts and by seeking opportunities to provide these clients with the full range of our services. We also intend to strategically adjust our advertising client portfolio by increasing the ratio of corporate advertising clients to advertising agency clients and by diversifying the industry mix of our advertisers, to better balance and optimize the profile of our client base. We will continue to improve the size, quality and level of diversification of our client base, leveraging our ability to provide integrated advertising services and the high quality advertising time slots we have obtained from CCTV.

Pricing of Our Services and Media Fee Payment Terms

Our results of operations significantly depend on the price of our advertising agency services, particularly the price we charge to our advertising clients for advertising time slots and, to a lesser extent, the price of our production and sponsorship services. We typically retain the difference between the price we charge to advertising clients and the price we pay for the advertising time slots as the premium for our advertising agency services. We price the advertising time slots of CCTV’s daily television programs available to us based on a number of factors, including market demand for such advertising time slots, target audiences, ratings and the quality of the relevant television programs as well as prices charged by our competitors. We price our production and sponsorship services by taking into account the added value and the related production costs of the content we provide or the value created by us for the sponsors of our public service announcements. Any factors that influence the pricing of our services will in turn affect our revenues, profitability and other operating results.

In addition, changes in the payment terms for our media fee payable to CCTV have a significant impact on our cash flow. For example, we obtained the advertising rights to the Periodic China News Package on CCTV Channel 4 in 2010. Under the auction arrangements, we are required to make a deposit in advance with CCTV amounting to 30% of the media fee with the remaining media fee payable in 12 monthly installments throughout the year. We renewed our contract for 2012 and the advance deposit payment was reduced to 10% of the media fee. We also prepaid RMB60.5 million for advertising rights of All Day Classic Package on CCTV Channel 8 for 2012. We expect such payment terms to have an impact upon our cash flow.

Seasonality

Aside from fluctuations in the level of advertising spending resulting from changes in the overall economic and market conditions in China, our revenues are affected by seasonal fluctuations in consumer spending that also affect the level of advertising spending in China. Historically our total revenues were typically higher in the first quarter than in other quarters of the year because the Chinese New Year Gala program, which generates significant revenues for us, falls in that period each year. However, in 2010 CCTV sold the advertising time slots for the 2010 Chinese New Year Gala program by itself. As a result, our results of operations for the first quarter of 2010 decreased significantly compared to the first quarter in 2009. Moreover, we provided services to CCTV on an ad hoc basis in the sales and marketing of the advertising time slots for certain sporting events. We did not recognize any revenues from special event services to CCTV in connection with the 2008 Beijing Olympic Games, which amounted to RMB14.7 million, until the third quarter of 2011 when we received payments for such services. Due to the seasonal fluctuations in advertising spending, the ad hoc basis of special event services and other factors, our quarterly results of operations may fluctuate significantly from period to period.

In addition, our results of operations may be affected by certain government regulations that regulate, among others, advertising content, acquisitions conducted by foreign investors or general economic and political conditions in China. For example, we may be subject to government inspections or actions if the advertising content we distribute does not comply with relevant regulations. Our business expansion may be hindered if we fail to comply with the complex regulatory procedures for merger and acquisition activities by foreign investors. Although these regulations did not materially affect our results of operations in the past, our future operations depend on our continuing compliance with such regulations.In addition, a new regulation prohibiting advertisements during TV drama broadcasting became effective in January 2012, which may have an unfavorable impact on our results of operations.

Despite the unfavorable developments in 2011, we concluded that our current liquidity is sufficient for the foreseeable future based on our business plan in place.

Revenues

The table below sets forth the breakdown of our revenue sources for the periods indicated:

	Year Ended December 31,
	2009						2010						2011
	Amount			% of Total Revenues			Amount			% of Total Revenues			Amount						% of Total Revenues
	(RMB)						(RMB)						(RMB)			(US$)
	(In thousands, except percentages)
Revenues:
Advertising agency services		397,279			92.9	%		222,298			86.7	%		185,320			29,444			82.2	%
Special event services⁽¹⁾		—			0	%		—			0	%		14,659			2,329			6.5	%
Production and sponsorship services		30,305			7.1	%		34,152			13.3	%		25,475			4,048			11.3	%
Total revenues		427,584			100	%		256,450			100	%		225,454			35,821			100	%
Less: business tax		(16,022	)		(3.7	%)		(13,047	)		(5.1	%)		(13,137	)		(2,087	)		(5.8	%)
Total net revenues		411,562			96.3	%		243,403			94.9	%		212,317			33,734			94.2	%

(1) Represents the revenues we received from CCTV for the advertising and promotional services we provided in connection with the 2008 Beijing Olympic Games. As a result of CCTV’s slow internal examination and approval procedures, this service fee was paid to us in the third quarter of 2011

We derive revenues mainly from the following sources:

Advertising agency services

We currently derive a substantial majority of our revenues from providing advertising agency services, in which we obtain advertising time slots on popular television channels of CCTV and procure advertisers to place advertisements on such time slots.

Our commission for advertising agency services typically represents the difference between the price we charge to our advertising clients and the price we pay for the available advertising time slots. Our advertising clients typically make payments for our agency services at least one week before the relevant advertisements are broadcast, but we only recognize revenues when those advertisements are broadcast. If the advertisements are not broadcast, for instance due to CCTV’s change of program schedule, the advance payments will be returned to our clients.

We generally record revenue with amounts of billings to our clients net of media fees because we believe that the media supplier, not us, is the primary obligor and bears the majority of the risks and rewards in these arrangements. However, when we purchase blocks of advertising time slots, such as for CCTV-4 programs, and attempt to sell these advertising time slots to advertisers, we bear the majority of the risks and rewards in these arrangements. In such cases, revenues are recognized at gross billings to our clients and the cost for purchasing the advertising time slots is allocated to cost of revenues on a straight-line basis. We also assist some of our advertising clients in bidding for prime advertising time slots from CCTV, for which we receive a certain percentage of our clients’ related advertising expenditures as our fees.

Production and sponsorship services

We derive a portion of our revenues from our production and sponsorship services. We design, produce and package content for public service announcements and commercial advertisements. We also solicit sponsors for the public service announcements we produce and arrange for such announcements, as well as announcements supplied by certain of our clients, to be broadcast on CCTV. The sponsor’s name will be shown at the end of the announcement.

For commercial television advertisements, advertisers will pay for our production services and sometimes for the broadcast of the advertisements produced by us if we also arrange for such broadcast. For public service announcements, advertisers will pay for the sponsorships. We typically require a prepayment from our clients at the time of the execution of the advertising production agreements and prior to the commencement of our work, but our revenues are typically recognized at the time the final work products are delivered to our clients or are broadcast.

Operating Costs and Expenses

The following table sets forth our operating costs and expenses for the periods indicated, both in absolute amounts and as percentages of our net revenues:

	Year Ended December 31,
	2009					2010					2011
	Amount		% of Net Revenues			Amount		% of Net Revenues			Amount				% of Net Revenues
	(RMB)					(RMB)					(RMB)		(US$)
	(In thousands, except percentages)
Cost of revenues		270,239		65.7	%		127,654		52.4	%		116,883		18,571		51.9	%
Sales and marketing expenses		17,362		4.2	%		16,994		7.0	%		20,139		3,200		8.9	%
General and administrative expenses		33,194		8.1	%		35,832		14.7	%		29,033		4,613		12.9	%
Total operating costs and expenses		320,795		78.0	%		180,480		74.1	%		166,055		26,384		73.7	%

Cost of Revenues

Our cost of revenues consisted primarily of media fees for the time slots on CCTV-4, the costs that we incurred to produce our public service announcements, commercial advertisements and TV dramas and production and promotional costs related to the Chinese New Year Gala program, including wages of production personnel, costs and depreciation of the production equipment, office rental expenses directly related to our production services, wages of media research and relationship personnel and costs associated with the monitoring, assessment and evaluation of the advertisements. Our cost of revenues was RMB116.9 million in 2011, a decrease of 8.4% as compared to RMB127.7 million in 2010. The decrease was attributable to the reduction of CCTV-4 media resources which decreased from 90 seconds in 2010 to 60 seconds in 2011. The decrease was partially offset by an additional RMB6.6 million production cost of the TV drama. The decrease in cost of revenues from 2009 to 2010 was attributable to the fact that we no longer incurred production costs for the Chinese New Year Gala program in 2010 and a decline in media fees for CCTV-4 media resources to RMB96.5 million as we reduced our investment in CCTV-4 media resources from six programs to one program in 2010. We only retained time slots for the Periodic China News Package on CCTV-4 in 2010 and 2011.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of salaries and benefits for our sales and marketing personnel, office rental expenses directly related to our sales and marketing activities, traveling expenses incurred by our sales personnel and promotional and entertainment expenses. Our sales personnel receive performance-based compensation and we market our services primarily through the efforts of our sales and marketing personnel. Our sales and marketing expenses increased in 2011 primarily due to a special bonus of RMB2.0 million to Mr.Wang, our Chief Executive Officer, for his contribution to the Special Event Services revenue recorded during the year. Our sales and marketing expenses decreased in 2010 primarily due to a decrease in sales commission in 2010, which was partly offset by an increase in staff costs and travel expenses as we expanded our sales team and strengthened sales efforts.

General and Administrative Expenses

Our general and administrative expenses primarily consist of salaries and benefits for our management, accounting and administrative personnel, professional service fees, office rental and maintenance expenses directly related to our general office administration activities, depreciation of office equipment, other administrative expenses and allowances for doubtful accounts. In addition, we also incurred, and will continue to incur, costs associated with public company reporting requirements, such as the requirements to file an annual report and other event-related reports with the SEC.

Share-Based Compensation Expenses

We adopted an equity incentive plan in July 2008, pursuant to which we may issue up to 50,000,000 ordinary shares upon exercise of awards granted under the plan. On July 1, 2008, options to purchase 42,891,000 ordinary shares were granted under this plan at an exercise price of US$0.685 per ordinary share. On February 21, 2009, our board of directors resolved to offer to the grantees of our stock options the opportunity to modify the terms of their existing options through (i) resetting the exercise price of each option to US$0.0726 per ordinary share, which equals one-thirtieth (owing to the 30 to one ordinary share to ADS ratio) of the average closing trading price per ADS of our company as reported on NYSE Arca in the last 60 days immediately prior to February 13, 2009; and (ii) reducing the number of each award of options by 50%. No other changes were made to the terms and conditions of the stock options. All grantees of our stock options accepted this offer.

In October 2011, we declared a special cash dividend of US$0.07667 per ordinary share. Pursuant to the 2008 share incentive plan, we adjusted the exercise price of the outstanding options to US$0.001 to prevent dilution of benefits intended to be made under the plan in the event of dividend distribution. The option held by each participant was modified as of December 30, 2011. No other change were made to the terms and conditions of the options granted. As of April 27, 2012, options to purchase 26,633,450 ordinary shares were outstanding, at an exercise price of US$0.001 per ordinary share.

We have adopted Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 718 and ASC 505-50 for the accounting treatment of our stock option plan and we will record compensation expenses based on the fair value of the award. See “—Critical Accounting Policies—Share-Based Compensation” and “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers.” We expect to amortize the total amount of share-based compensation expenses over the vesting period on a straight line basis over the requisite service period for each separately vesting portion of the awards. We recorded RMB 1.7 million (US$ 0.3 million) in share-based compensation expenses in 2011.

Taxation

Taxation in the Cayman Islands and the British Virgin Islands

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties that are applicable to any payments made to or by our company. There is no exchange control legislation under Cayman Islands law and accordingly there are no exchange control regulations imposed under Cayman Islands law.

Companies incorporated or registered under the BVI Business Companies Act, 2004 are currently exempt from income and corporate tax. In addition, the British Virgin Islands currently does not levy capital gains tax on companies incorporated or registered under the BVI Business Companies Act, 2004.

PRC Enterprise Income Tax

Prior to January 1, 2008, both Mass Media and Universal were subject to the PRC Enterprise Income Tax Law Concerning Foreign-Invested Enterprises and Foreign Enterprises, or the old EIT law. Under the old EIT law, each of Mass Media and Universal, as a foreign-invested enterprise established in the Shenzhen Special Economic Zone, was entitled to a preferential income tax rate of 15% on the income generated by its offices based in Shenzhen and an income tax rate of 30% on the income generated by its offices based outside of Shenzhen, as compared to the statutory enterprise income tax rate of 33%. In addition, each of Mass Media and Universal was fully exempted from PRC income tax commencing from its first profit-making year, followed by a 50% reduction in PRC income tax for the next two years. As a result, Universal was entitled to a 50% income tax reduction for the years ended December 31, 2008 and 2009.

The new EIT law imposes a uniform tax rate of 25% on all PRC enterprises, including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions, reductions and preferential treatments available under the old EIT law. Under the new EIT law, enterprises that were established before March 16, 2007 and already enjoyed preferential tax treatments, in accordance with any detailed directives to be issued by the State Council, (i) in the case of preferential tax rates, continue to enjoy the preferential tax rates which are being gradually increased to the new tax rates within five years from January 1, 2008 or (ii) in the case of preferential tax exemption or reduction for a specified term, continue to enjoy the preferential tax holiday until the expiration of such term. According to the new EIT law, Universal’s 50% income tax reduction treatment expired on December 31, 2009. However, Universal continues to enjoy the preferential tax rates which are being gradually increased to the new tax rates within five years from January 1, 2008.

Under the old EIT law, dividend payments to foreign investors made by foreign-invested enterprises in the PRC, such as our PRC subsidiary, were exempted from PRC withholding tax. Under the new EIT law, however, dividends, interest, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise are subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The British Virgin Islands, where UIAL is incorporated, does not have such a tax treaty with the PRC. If UIAL is considered a non-resident enterprise, the 10% withholding tax impacted on divided income received from our PRC subsidiary would reduce our net income and have an adverse effect on our operating results.

We intend to permanently reinvest part of the earnings made by our PRC subsidiary. Starting from January 1, 2008, we accrued 10% withholding tax on those earnings from our PRC subsidiary that we have no intention to permanently reinvest, which represents 30% of the earnings made by our PRC subsidiary. We accrued withholding tax of RMB2.3 million and RMB1.9 million for the years ended December 31, 2009 and 2010, respectively. On October 28, 2011, we declared a special cash dividend of US$0.07667 per ordinary share. Due to this special cash dividend distribution, our reinvestment plan for the unremitted earnings was changed from 70% to zero and we accrued a withholding tax of RMB20.6 million for the year ended December 31, 2011.

Under the new EIT law, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise and is subject to the enterprise income tax at the rate of 25% on its worldwide income. The “de facto management body” is defined as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a broad definition. Substantially all of our management members are based in the PRC. If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our worldwide income will be subject to income tax at a uniform rate of 25%, which may have a material adverse effect on our financial condition and results of operations. Notwithstanding the foregoing provision, the new EIT law also provides that, if a resident enterprise directly invests in another resident enterprise, the dividends received by the investing resident enterprise from the invested enterprise are exempted from income tax, subject to certain conditions. Therefore, if CMM and UIAL, our PRC subsidiary’s direct holding company, are classified as resident enterprises, the dividends received from our PRC subsidiary may be exempted from income tax. However, it remains unclear how the PRC tax authorities will interpret the treatment of an offshore company, like us, having indirect ownership interests in PRC enterprises through intermediary holding vehicles.

PRC Business Tax and Related Surcharges

Our PRC subsidiary is required to pay business tax at a rate of 5.0%, and related surcharges at a rate of 3.0%, on our revenues from providing advertising services. Under the PRC tax law, business tax is levied on the net amount of total advertising revenues less media fees paid to the media providers. As we reported revenues from certain of our advertising time slots on a gross basis, our actual business tax rate was 5.1% of our total revenues in 2010.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities as of the date of our financial statements and our revenues and expenses during the financial reporting period. Our estimates and assumptions are based on available information and our historical experience, as well as other estimates and assumptions that we believe to be reasonable. The estimates and assumptions that form the basis for our judgments may not be readily apparent from other sources. We continually evaluate these estimates and assumptions based on the most recently available information, our own experience and other assumptions that we believe to be reasonable. Our actual results may differ significantly from estimated amounts as a result of changes in our estimates or changes in the facts or circumstances underlying our estimates and assumptions. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management’s judgment. When reviewing our consolidated financial statements, you should take into account:

our critical accounting policies discussed below;

the related judgments made by our management and other uncertainties affecting the application of these policies;

the sensitivity of our reported results to changes in prevailing facts and circumstances and our related estimates and assumptions; and

the risks and uncertainties described under “Risk Factors.”

See note 2 to our consolidated financial statements included elsewhere in this annual report for additional information regarding our critical accounting policies.

Revenue Recognition

We derive revenues primarily from providing services in two areas: (i) advertising agency services, in which we procure advertising clients to place television advertisements in the time slots we have obtained from CCTV; and (ii) production and sponsorship services, in which we produce public service announcements, or commercial advertisements, for our clients or solicit sponsors for the public service announcements we produce and arrange for such announcements, as well as announcements supplied by certain of our clients, to be broadcast on CCTV.

We recognize revenues when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured. Revenue arrangements involving multiple deliverables are broken down into single-element arrangements based on their relative fair value for revenue recognition purposes, when possible. We recognize revenues on the elements delivered and defer the recognition of revenues for the fair value of the undelivered elements until the remaining obligations have been satisfied. When there is no objective and reliable evidence of the fair value of the undelivered items, we recognize revenues of the elements delivered as a single unit of accounting. Generally, we receive advanced payments for our advertising services and record them as customer advances. Such prepayments are only recognized as revenues when the services are rendered.

We have adopted the net presentation for business tax and related surcharges. Business tax and related surcharges are deducted from revenues before arriving at net revenues. Alternatively, we could adopt the gross presentation and present our revenues gross of business tax and related surcharges, while recording the business tax and related surcharges in cost of revenues. However, we believe that the net presentation better reflects our results of operations, since we consider business tax and related surcharges as taxes based on revenues collected from customers that reduce revenues earned by us.

Advertising agency services. In the substantial majority of our advertising agency arrangements, we contract separately with our clients and the media supplier and are responsible for the payments to the media supplier and collections from our clients. In compliance with ASC 605-45, “Revenue Recognition: Principal Agent Considerations”, or ASC 605-45, we assess whether we or the media supplier is the primary obligor in these service contracts. We evaluate the terms of our agreements with our clients and give appropriate consideration to other key indicators, such as inventory risk, latitude in establishing price, variability of earnings, ability to change the programs the media supplier provides, discretion in supplier selection and credit risk to the vendor.

Since the first year of operation, we have been arranging our clients’ advertisements on the advertising time slots of the regular daily programs on CCTV Channel 1 and Channel 2 and the annual Chinese New Year Gala program. In general, we are not obligated to pay the media fees until we have sold the advertising time slots to our clients. In these cases, we record the net amounts of the gross billings to our clients less media fees as revenues on the dates of broadcast in accordance with the guidance in ASC 605-45 because we believe that the media supplier, not us, is the primary obligor and bears the majority of the risks and rewards under such arrangements.

In order to obtain exclusive access to the advertising time slots on certain CCTV Channel 4, CCTV Channel 8, CCTV-E and CCTV-F programs, starting from 2008, we purchase the advertising time slots on certain CCTV Channel 4, CCTV Channel 8, CCTV-E and CCTV-F programs with a fixed media cost for a certain period of time and attempt to sell these advertising time slots to our clients. We believe we bear the majority of the risks and rewards under such arrangements. Therefore, revenues are recognized at gross billings to our clients in accordance with the guidance in ASC 605-45 on the dates of broadcast of the advertisements. Cost for purchasing the advertising time slots from the media supplier is recorded as our cost of revenues on a straight-line basis. If we had recorded all revenues from advertising agency services on a gross basis, total revenues and cost of revenues would have been higher. However, operating income would remain unchanged for the periods presented. We regularly evaluate our commitment for purchase of advertising time slots (including those with a fixed media cost and a term of not less than one year), and we will accrue for any loses during the period in which such losses are anticipated.

Production and sponsorship services.We recognize revenues from production services at the time the productions are completed. For sponsorship services, we either provide sponsors with a pool of public service announcements already produced by us to choose from, or produce new announcements based on sponsors’ original ideas, and arrange to broadcast such public service announcements, as well as announcements supplied by clients themselves, in which sponsors’ names will be shown. We recognize revenues from sponsorship services only at the time such announcements with sponsors’ names are broadcast on the time slots we obtain from CCTV and other criteria, such as the execution of sponsorship agreements, are met.

Income Tax

On January 1, 2007, we adopted ASC 740-10, “Income Taxes,” or ASC 740-10. ASC 740-10 clarified the accounting for uncertainty in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires management to evaluate its open tax positions that exist on the date of initial adoption in each jurisdiction. We did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations as a result of implementing ASC 740-10.

Under the new EIT law adopted by the Chinese National People’s Congress in March 2007, effective from January 1, 2008, dividends from earnings made after January 1, 2008, interest, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise are subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The British Virgin Islands, where UIAL is incorporated, does not have such a tax treaty with the PRC. This 10% withholding tax imposed on the dividend income received from our PRC subsidiary will reduce our net income in accordance with ASC 740-30. It is our intention to permanently reinvest part of the earnings made by our PRC foreign-invested enterprise. Starting from January 1, 2008, we have accrued the 10% withholding tax on those earnings from China operations that we have no intention to permanently reinvest. As we only distribute up to 30% of our PRC subsidiary’s annual income as dividends, our actual withholding tax rate is approximately 3% in 2008, 2009 and 2010. On October 28, 2011, we declared a special cash dividend of US$0.07667 per ordinary share. Due to this special cash dividend distribution, our reinvestment plan for the unremitted earnings was changed from 70% to 0% and we recognized a withholding tax of RMB20.6 million for the year ended December 31, 2011.

We make assumptions, judgments and estimates in the recognition and measurement of a tax position taken or expected to be taken in a tax return. These judgments, assumptions and estimates take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly impact the amounts of unrecognized, uncertain tax positions, if any, provided or to be provided for in our consolidated financial statements.

Share-Based Compensation

Share-based compensation is accounted for in accordance with ASC 718, “Compensation-Stock Compensation”, or ASC 718, for share-based payment transactions with employees. For service-based share option awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a graded-vesting basis, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. For performance-based share option awards, our board of directors determines the performance goals and vesting schedule of these awards and an evaluation is made each quarter as to the likelihood of the performance criteria being met; share-based compensation cost is then recorded based on the fair value for the number of options expected to vest on a graded-vesting basis, net of estimated forfeitures, over the requisite service period, which is generally the vesting period.

We use the Black-Scholes option pricing model to determine the fair value of share options. The determination of the fair value of share-based compensation awards on the date of grant using the Black-Scholes option pricing model is affected by the share price as well as assumptions regarding a number of complex and subjective variables, including the expected term of the awards, the expected share price volatility over the expected term of the awards, actual and projected employee share option exercise behavior, risk-free interest rates and expected dividends.

If we use different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the change in our stock-based compensation expense could materially affect our operating income, net income and net income per share. Furthermore, we are required to estimate forfeitures at the time of grant and record stock-based compensation expense only for those awards that are expected to vest. If actual forfeitures differ materially from our estimated forfeitures, we may need to revise those estimates used in subsequent periods.

Results of Operations

The following tables present our summary consolidated statements of operations for each of the years ended December 31, 2009, 2010 and 2011. Our historical results presented below are not necessarily indicative of the results for any future periods.

	Year Ended December 31,
	2009			2010			2011
	(RMB)			(RMB)			(RMB)			(US$)
	(In thousands)
Revenues:
Advertising agency services		397,279			222,298			185,320			29,444
Special event services		—			—			14,659			2,329
Production and sponsorship services		30,305			34,152			25,475			4,048
Total revenues		427,584			256,450			225,454			35,821
Less: business tax		(16,022	)		(13,047	)		(13,137	)		(2,087	)
Total net revenues		411,562			243,403			212,317			33,734
Operating costs and expenses:
Cost of revenues		(40,239	)		(127,654	)		(116,883	)		(18,571	)
Cost of revenues – media fees to a related party		(230,000	)		—			—			—
Sales and marketing expenses		(17,362	)		(16,993	)		(20,139	)		(3,200	)
General and administrative expenses		(33,194	)		(35,832	)		(29,033	)		(4,613	)
Total operating costs and expenses		(320,795	)		(180,480	)		(166,055	)		(26,384	)
Operating income		90,767			62,923			46,262			7,350
Interest and investment income		9,494			5,257			13,747			2,184
Other expenses, net		533			(6,765	)		(4,686	)		(744	)
Income before tax		100,794			61,415			55,323			8,790
Income tax expense		(14,328	)		(21,522	)		(40,290	)		(6,402	)
Net income		86,466			39,893			15,033			2,388

The table below sets forth certain operating data in connection with our advertising agency services:

	Year Ended December 31,
	2009		2010		2011
Number of programs secured during the period⁽¹⁾		41		35		3
Total advertising time obtained (seconds)⁽²⁾		11,660,760		10,515,960		5,581,470
Total advertising time sold (seconds)		2,127,473		578,275		542,700

(1)	We ceased to be the advertising agency of CCTV-E and CCTV-F from July 1, 2011. The number of programs secured and total advertising time obtained decreased from 35 to 3 accordingly.
(2)	Represents the total amount of advertising time during regular television programs secured from CCTV.

Year ended December 31, 2011 compared to year ended December 31, 2010

Revenues

Our total revenues for 2011 were RMB225.5 million (US$35.8 million), a decrease of 12.1% from RMB256.5 million in 2010. The decrease was mainly due to the decrease in revenues generated from our advertising agency services.

Revenue from advertising agency services decreased by 16.6% to RMB185.3 million (US$29.4 million) in 2011 from RMB222.3 million in 2010. The decrease was primarily due to the intense price competition and the decrease in time slots on Periodic China News Package from 90 seconds in 2010 to 60 seconds in 2011. These two factors resulted in a significant decrease in revenues from advertising services, although the overall sales rate of all media resources increased compared to 2010. Revenue from Daytime Advertising Package and Television Guide Package amounted to RMB91.5 million in 2011, representing a decrease of 15.8% from 2010. The decrease was mainly due to the price competition, which led to a lower sales price of the advertising time slots. Revenue from Periodic China News Package were RMB87.3 million, a decrease of 22.3% from RMB112.3 million in 2010. The decrease was mainly because time slots available on Periodic China News Package decreased from 90 seconds in 2010 to 60 seconds in 2011. Our three-year advertising agency contracts with CCTV for the Daytime Advertising Package and Television Guides program were not renewed upon their expiration on December 31, 2011. Instead, the advertising rights for the Daytime Advertising Package for 2012 were offered by CCTV for bidding at the non-prime time advertising auction event held by CCTV on November 22, 2011, and we did not secure the winning bid. CCTV also decided to cancel the Television Guides program at the end of 2011.

Revenues from advertisement production and sponsorship services decreased by 25.4% to RMB25.5 million (US$4.0 million) as compared to RMB34.2 million in 2010. The decrease was mainly because our contract with CCTV in respect of Guang Er Gao Zhi program was not renewed upon its expiry on June 30, 2011. Such adverse event had a material adverse effect on our results of operations in the second half of 2011. For each of the three years ended December 31, 2009, 2010 and 2011, revenues from our advertising production and sponsorship service in relation to the Guang Er Gao Zhi program amounted to RMB8.5 million, RMB12.2 million and RMB9.1 million (US$1.4 million), respectively, representing 2.0%, 4.8% and 4.0% of our total revenues in those periods, respectively.

Revenues from special event services were RMB14.7 million (US$2.3 million) in 2011, which was the service fee paid by CCTV for our services in advertising and promotional activities for the 2008 Beijing Olympic Games. We recognized this revenue when we received payment from CCTV during the third quarter of 2011. No special event services revenue were recognized in 2010.

Net Revenues

Our total net revenues were RMB212.3 million (US$33.7 million) in 2011, a decrease of 12.8% from RMB243.4 million in 2010. This was mainly due to the decrease in revenues from advertising agency services.

Gross Margin

Our gross margins for 2010 and 2011 were 47.6% and 44.9%, respectively. The slight decrease of gross margin was mainly due to the reduction of our service charge driven by pricing pressue across the industry.

Operating Costs and Expenses

Our operating costs and expenses decreased by 8.0% to RMB166.1 million (US$26.4 million) in 2011 from RMB180.5 million in 2010.

Cost of revenue

Our cost of revenues was RMB116.9 million (US$18.6 million) in 2011, a decrease of 8.4% as compared to RMB127.7 million in 2010. The decrease was attributable to the decline in media fees for CCTV-4 media resources as the time slots available decreased from 90 seconds in 2010 to 60 seconds in 2011. The decrease was partially offset by an additional RMB6.6 million production cost of our TV drama series.

Sales and marketing expenses

Our sales and marketing expenses, mainly comprising personnel expenses and promotional and marketing expenses that include market research, traveling and customer tracking services, were RMB20.1 million (US$3.2 million), an increase of 18.5% as compared to RMB17.0 million in 2010. The increase was primarily due to a bonus of RMB2.0 million paid to our chief executive officer for his contribution in our receipt of service fee from CCTV in the third quarter of 2011 in connection with the special event services we provided in 2008.

General and administrative expenses

Our general and administrative expenses, mainly comprising personnel expenses, professional fees and other expenses, were RMB29.0 million (US$4.6 million) in 2011, a decrease of 19.0% as compared to RMB35.8 million in 2010. The decrease was mainly due to fewer professional fees incurred in 2011.

Operating Income

As a result of the foregoing, our operating income for the year ended December 31, 2011 decreased by 26.5% to RMB46.3 million (US$7.4 million) as compared to RMB62.9 million in 2010. Our operating margin decreased from 25.9% in 2010 to 21.8% in 2011.

Interest and Investment Income

Our interest and investment income was RMB13.7 million (US$2.2 million), an increase of 161.5% from RMB5.3 million in 2010. The increase was partly attributable to the increase in interest income generated from our increased average amount of short-term investments with PRC financial institutions in 2011. The increase was also partly because we placed fixed deposits of US dollar and Renminbi in our offshore bank account in 2011.

Income Tax Expenses

Our income tax expenses increased by 87.2% to RMB40.3 million (US$6.4 million) in 2011 from RMB21.5 million in 2010. The significant increase in income tax expenses was mainly attributable to the income tax expenses of RMB20.6 million recorded in 2011, which was primarily due to the change of our reinvestment plan for the unremitted earnings from 70% to 0% in 2010 . Our effective tax rate in 2011 was 55.7%. This increased effective tax rate was also primarily attributable to the withholding tax expenses of RMB20.6 million recorded in 2011.

Net Income

As a result of the foregoing, our net income decreased by 62.3% to RMB15.0 million (US$2.4 million) in 2011 from RMB39.9 million in 2010. The net profit margin decreased to 7.1% in 2011 from 16.4% in 2010.

Year ended December 31, 2010 compared to year ended December 31, 2009

Revenues

Our total revenues in 2010 were RMB256.5 million (US$38.9 million), a decrease of 40.0% from RMB427.6 million in 2009. The decrease was mainly due to the decrease in the revenues generated from our advertising agency services.

Revenues from advertising agency services decreased by 44.0% to RMB222.3 million (US$33.7 million) in 2010 from RMB397.3 million in 2009. The decrease was primarily attributable to our ceasing to own the exclusive advertising rights for the CCTV’s Chinese New Year Gala program in 2010 and our reduction in investment on CCTV-4 programs. Moreover, the sales of the Daytime Advertising Package and Television Guide Package during 2010 were hampered by price competition, which led to low pricing and low utilization rates. Revenues from the Daytime Advertising Package and Television Guides amounted to RMB109.0 million in 2010, representing a decrease of 31.4% from 2009. The decrease was primarily because our competitor offered a similar product with a lower price and thereby lured away some of our customers. Revenues from Chinese New Year Gala program were RMB60.2 million in 2009. Revenues from Periodic China News Package were RMB112.0 million in 2010, while revenues from CCTV-4 related news programs amounted to RMB164.3 million in 2009. Revenues from CCTV-E and CCTV-F were RMB0.4 million, representing a decrease of 93.0% from RMB5.7 million 2009.

Revenues from advertisement production and sponsorship services increased by 12.7% to RMB34.2 million (US$5.2 million) in 2010 as compared to RMB30.3 million in 2009. Although we generated advertisement production revenues of RMB13.1 million for a series of 2008 Beijing Olympic Games-related advertisements and production films in 2009, no such income was recorded in 2010. We successfully produced a number of new commercial advertisements for clients and secured several new clients for sponsorship of public service announcements, which resulted in a growth in revenues from sponsorship services.

Net Revenues

Our total net revenues were RMB243.4 million (US$36.9 million) in 2010, a decrease of 40.9% from RMB411.6 million in 2009. This was mainly due to the decrease in revenues from advertising agency services as described above.

Gross Margin

Our gross margins for 2009 and 2010 were 34.3% and 47.6%, respectively. The higher gross margin in 2010 was mainly due to the fact that we recorded gross profit from the Periodic China News Package program on CCTV-4 in 2010, while we incurred a gross loss of RMB65.7 million from six programs on CCTV-4 in 2009, which was mainly due to the low utilization rate.

Operating Costs and Expenses

Our operating costs and expenses decreased by 43.7% to RMB180.5 million (US$27.3 million) in 2010 from RMB320.8 million in 2009.

Cost of revenues.Our cost of revenues was RMB127.7 million (US$19.3 million) in 2010, a decrease of 52.8% as compared to RMB270.2 million in 2009. The decrease was attributable to the fact that we no longer incurred production costs for the Chinese New Year Gala program in 2010 as compared to RMB10.8 million in 2009 and a decline in media fees for CCTV-4 media resources to RMB96.5 million (US$14.6 million) as we reduced our investment on CCTV-4 media resources from six programs to one program in 2010. We only retained time slots for the Periodic China News Package on CCTV-4 in 2010.

Sales and marketing expenses.Our sales and marketing expenses, mainly comprising personnel expenses and promotional and marketing expenses that include market research, traveling and customer tracking services, were RMB17.0 million (US$2.6 million) in 2010, a decrease of 2.1% as compared to RMB17.4 million in 2009. The decrease was primarily due to a decrease of RMB1.5 million in payroll expense following the decline in sales performance in 2010, which was partly offset by an increase of RMB1.0 million in travel expenses, office rental and electricity as we expanded our sales team and strengthened sales efforts.

General and administrative expenses.Our general and administrative expenses, mainly comprising personnel expenses, professional fees and other expenses, were RMB35.8 million (US$5.4 million) in 2010, an increase of 7.9% as compared to RMB33.2 million in 2009. The increase was mainly due to the professional fees in connection with the preparation for our proposed SEHK listing.

Operating Income

As a result of the foregoing, our operating income for the year ended December 31, 2010 decreased by 30.7% to RMB62.9 million (US$9.5 million) as compared to RMB90.8 million in 2009. Our operating margin increased to 25.9% in 2010 from 22.1% in 2009.

Interest and Investment Income

Our interest and investment income was RMB5.3 million (US$0.8 million) in 2010, a decrease of 44.6% as compared to RMB9.5 million in 2009. The decrease was partly attributable to the decrease in interest income generated from our reduced deposits with PRC financial institutions. The decrease was also partly due to the decrease in investment income generated from the decreased average amount of short-term investments that we held in 2010.

Income Tax Expenses

Our income tax expenses increased by 50.2% to RMB21.5 million (US$3.3 million) in 2010 from RMB14.3 million in 2009. Our effective tax rate in 2010 was 26.1% compared to an effective tax rate of 12.6% in 2009. The effective tax rate was higher in 2010 than the PRC statutory tax rate mainly due to the effect of withholding income tax in relation to net income attributable to the foreign investor of our PRC operations. The increase in income tax expenses in 2010 was mainly due to the expiration of Universal’s income tax exemption status on December 31, 2009.

Net Income

As a result of the foregoing, our net income decreased by 53.9% to RMB39.9 million (US$6.0 million) in 2010 from RMB86.5 million in 2009. The net profit margin decreased to 16.4% in 2010 from 21.0% in 2009.

B. Liquidity and Capital Resources

Liquidity

The following table sets forth a summary of our cash flows for the periods indicated:

	Year Ended December 31,
	2009			2010			2011
	(RMB)			(RMB)			(RMB)			(US$)
	(In thousands)
Net cash (used in)/ provided by operating activities		(349,550	)		161,863			(190,929	)		(30,336	)
Net cash provided by/ (used in) investing activities		403,152			(109,056	)		(26,944	)		(4,281	)
Net cash (used in)/ provided by financing activities		(111,335	)		(9,529	)		(210,202	)		(33,398	)
Effect of foreign currency exchange		(378	)		(7,628	)		(4,640	)		(737	)
Cash and cash equivalents at beginning of year		566,889			508,778			544,428			86,501
Cash and cash equivalents at end of year		508,778			544,428			111,713			17,749
Net (decrease)/ increase in cash and cash equivalents		(58,111	)		35,650			(432,715	)		(68,752	)

Cash flow from operating activities

Our cash provided by or used in operating activities primarily consists of net income, as adjusted by depreciation expenses, share-based compensation expenses, investment income, exchange loss and changes in assets and liabilities, which include accounts receivable, prepaid expenses and other current assets, other non-current assets, accounts payable, customer advances, accrued expenses and other current liabilities, taxes payable and amounts due from, and due to, related parties.

Net cash used in operating activities for the year ended December 31, 2011 was RMB190.9 million (US$30.3 million) which was mainly derived from the net income of RMB15.0 million (US$2.4million), as adjusted by an increase in prepaid expenses and other current assets of RMB62.2 million, a reduction of RMB86.1 million in accounts payable, a decrease of customer advances of RMB11.2 million and a decrease of RMB42.4 million in amount due to related parties. The increase in prepaid expenses and other current assets was mainly the prepayment we made in relation to the media fee of All Day Classic Package on CCTV-8 for 2012. The decrease in accounts payable was mainly due to our payment of media fees of the Daytime Advertising Package program for 2010 . The decrease in customer advances was mainly because we received less advances from customers for the advertising time slots in 2012. The decrease in amount due to related parties resulted from our repayment of RMB42.4 million to FTP.

Net cash provided by operating activities for the year ended December 31, 2010 was RMB161.9 million (US$24.5 million) which was mainly derived from the net income of RMB39.9 million (US$6.0million), as adjusted by a reduction in prepaid expenses and other current assets of RMB30.7 million, an increase of RMB106.0 million in accounts payable, an increase of customer advances of RMB18.7 million and a decrease of RMB47.5 million in amount due to related parties. The decrease in prepaid expenses and other current assets was mainly due to the fact that the deposit we were required to make with CCTV in connection with the advertising time slots in 2011 for the Periodic China News Package program on CCTV-4 was reduced. The increase in accounts payable was mainly due to the fact that a majority of the media cost of the Daytime Advertising Package program in 2010 had not been settled. The increase in customer advances was mainly because we received more advances from customers for the advertising time slots in 2011. The decrease of amount due to related parties resulted from the fact that we ceased to obtain advertising time slots from FTP in 2010.

Net cash used in the operating activities for the year ended December 31, 2009 was RMB349.5 million, which was derived from net income of RMB86.5 million, as adjusted primarily by adding back a decrease of RMB14.0 million in accounts receivable and by deducting a decrease of RMB280.0 million in accounts payable, a decrease of RMB88.0 million in amount due to related parties, a decrease of RMB54.8 million in customer advances and an increase of RMB29.5 million in prepaid expenses and other current assets. The decrease in accounts receivable resulted from the successful collections of fees from certain advertising clients. The significant decrease of accounts payable reflected the fact that we made significant amounts of payments to CCTV for advertising fees owed to CCTV for the past three years. The decrease in amount due to related parties resulted from our payments to FTP for the advertising time slots on CCTV programs we secured through FTP. The decrease in customer advances was mainly due to the fact that we did not obtain the advertising time slots for the 2010 Chinese New Year Gala program and for certain programs on CCTV-2 and CCTV-4 in 2010 and as a result, we did not receive any advances from our customers relating to such advertising time slots. The increase in prepaid expenses and other current assets primarily resulted from the deposit we were required to make with CCTV in connection with the advertising time slots in 2010 for the Periodic China News Package on CCTV-4 that we obtained.

Cash flow from investing activities

Net cash used in investing activities was RMB26.9 million (US$4.3 million) for the year ended December 31, 2011. These activities included the fixed deposit of the equivalent of RMB163.7 million in foreign currency placed in our offshore bank account in 2011 which was partially offset by the redemption of a short-term investment fund of RMB120.0 million from a PRC financial institution.

Net cash used in investing activities was RMB109.1 million (US$16.5 million) for the year ended December 31, 2010. These activities included the purchase of a short-term investment fund of RMB70.0 million from a PRC financial institution, and the payment of RMB32.5 million in connection with a property purchase agreement entered into in 2008.

Net cash provided by investing activities was RMB403.2 million for the year ended December 31, 2009. We redeemed the short-term investment funds of RMB420.0 million from a PRC financial institution to satisfy the payment obligations to CCTV with respect to historical unpaid media fees. In addition, we also received proceeds of RMB6.6 million from the short-term investment funds issued by a PRC financial institution. We used RMB23.5 million to pay for certain fixed assets, which principally included the office premises purchased from a related party.

Cash flow from financing activities

Our net cash used in financing activities for the year ended December 31, 2011 was RMB210.2 million (US$33.4 million), which primarily included RMB198.4 million used for dividend distribution and RMB12.5 million used for repurchase of our ordinary shares in 2011.

Our net cash used in financing activities for the year ended December 31, 2010 was RMB9.5 million (US$1.4 million), which we used to repurchase our ordinary shares in the fourth quarter of 2010.

Net cash used in our financing activities was RMB111.3 million in the year ended December 31, 2009. We paid dividends of RMB96.3 million to our shareholders and we paid cash of RMB15.0 million to satisfy our payment obligation for a 30% equity interest in Universal we acquired from a related party in 2008.

Capital Resources and Capital Expenditures

Historically we have financed our operations primarily through cash flows from operations and have not relied on any other sources to finance our operations. After our successful initial public offering in August 2008, we intend to continue to explore ways to finance our operations in the future, including short-term or long-term credit facilities and offerings of debt or equity securities.

Our capital expenditures, consisting of purchase of property and equipment, were RMB1.3 million, RMB6.5 million and RMB2.9 million (US$0.5 million) for the years ended December 31, 2009, 2010 and 2011, respectively. We expect to incur capital expenditures of up to RMB1.0 million in 2012, which will be used primarily for purchase of fixed assets..

We believe that our current cash and cash equivalents and anticipated cash flow from operations in the near future will be sufficient to meet our expected cash requirements, including for working capital and capital expenditure purposes, for at least the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In addition, we have become a public company and will incur a significantly higher level of legal, accounting and other expenses than we did as a private company and we may need to obtain additional capital resources to cover these costs. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending institutions. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

C. Research and Development

Not applicable.

D. Trend Information

Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the periods from January 1, 2008 to December 31, 2010 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions. For a discussion of any trends, uncertainties or events for the first quarter ended March 31, 2011, see “Item 8. Financial Information — B. Significant Changes.”

E. Off-Balance Sheet Arrangements

As of December 31, 2011, we did not have any off-balance sheet commitments or arrangements. We do not anticipate entering into any such commitments or arrangements in the foreseeable future.

F. Tabular Disclosure of Contractual Obligations

Operating lease commitments

We entered into certain leasing arrangements relating to the lease of our office premises. Rental expense under operating leases for the years ended December 31, 2009, 2010 and 2011 were RMB0.1 million, RMB0.2 million and RMB0.1 million, respectively.

As at December 31, 2011, we had commitments under non-cancellable operating leases to make minimum payments as follows:

Within 1 year		RMB173,426
After 1 year but within 3 years		RMB94,772
Total		RMB268,198

Operating fixed or guaranteed payment contracts

We expect to continue to enter into contracts in the future for advertising time slots for programs on CCTV-4, for which CCTV typically requires the payment of a fixed amount of media fees. For 2012, we have obtained the advertising time slots for the Periodic China News Package on CCTV-4 and All Day Classic Package on CCTV-8. Under the new contract, we are required to pay CCTV approximately RMB81.3 million in 12 equal monthly installments beginning from January 2012 for CCTV-4 time slots and have prepaid RMB60.5 million for CCTV-8 time slots

Capital and other commitments

In March 2012, we used the proceeds from matured short-term investments to pay off the remaining amount of US$26.1 million for the special dividend declared in 2011. We did not have any other significant capital and other commitments as of December 31, 2011.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A. Directors and Senior Management

Directors and Executive Officers

The following table sets forth information regarding our directors and executive officers as of April 27, 2012.

Name	Age	Position / Title
Shengcheng Wang	58	Chairman and Chief Executive Officer
Julie Zhili Sun	44	Director and Chief Financial Officer
Haiyan Xing	40	Director and Executive General Manager
Liping He	53	Independent Director
Jianmin Qu	64	Independent Director
Xingzhao Liu	49	Independent Director
Yong Chen	55	Independent Director
Zhenheng Huo	48	Vice President
Shuo Cheng	34	Vice President
Xingyu Zhang	44	Vice President
Weitao Xu	37	Vice President
Guanning Liang	32	Financial Controller

Directors

Mr. Shengcheng Wangis the chairman of our board of directors and our chief executive officer. Before establishing Mass Media in 2003, Mr. Wang worked as a senior manager at a number of advertising companies from 1996 to 2002, and during such period, also acted as a chief producer in charge of the production of “Guang Er Gao Zhi,” a daily public service announcement program on CCTV. From 1981 to 1996, Mr. Wang worked as a senior reporter, television program director and producer at CCTV. From 1979 to 1981, Mr. Wang was a reporter and television program director at Xuzhou Television Station in Jiangsu Province.

Ms. Julie Zhili Sunjoined our company in March 2008. Ms. Sun was appointed to our board of directors on April 9, 2008 and became our chief financial officer on December 31, 2010. Ms. Sun was a director of investment banking at Polaris Securities (Hong Kong) Limited between 2005 and 2008, and an associate director of corporate finance at HSBC in 2004. Between 1997 and 2004, she was a senior associate at BNP Paribas Asia Limited. Ms. Sun received her master’s degree from the University of Houston and bachelor’s degree from Nanjing Normal University.

Ms. Haiyan Xingis our director and executive general manager and joined our company in 2003. Ms. Xing is responsible for managing the overall business operations at our company. Prior to 2003, she was employed at a television network and a number of advertising companies and accumulated extensive experience in office administration and human resources management. Ms. Xing received her bachelor’s degree in Chinese Literature from Capital Normal University in China.

Dr. Liping He is an independent director of our company and was elected as an independent director on November 20, 2010. Dr. He is currently a professor of Department of Finance at the School of Economics and Public Administration, Beijing Normal University, where he has been a professor since 2001. His study specializes in the reform of China’s financial system, macroeconomics and international finance. Dr. He has been a member of the China Economy 50 Persons Forum since 1998. He has been frequently involved with research and policy consulting work for various government departments and international financial institutions in China, including the People’s Bank of China, the PRC Ministry of Finance, and the Asian Development Bank, among others. Dr. He received a master’s degree in World Economics from the Chinese Academy of Social Sciences in 1987, and a Ph.D in Economics from the School of Oriental and African Studies at the University of London in 1996. He was a visiting scholar at Cambridge University in England from 1989 to 1990. Prior to joining Beijing Normal University, Dr. He worked at the China Institute of Finance and Banking, and from 2002 to 2003, he was a Fulbright Visiting Scholar to the Graduate School of Business at Columbia University in New York.

Mr. Jianmin Quis an independent director of our company. Mr. Qu is currently a vice chairman of China Association of National Advertisers. Mr. Qu was the director of the Advertising Division of China’s State Administration for Industry and Commerce from 1998 to 2006. Mr. Qu holds a master’s degree in Economic Law from Beijing University.

Dr. Xingzhao Liuis an independent director of our company. Dr. Liu is currently a professor of the Shanghai Jiaotong University School of Electronic Information and Electrical Engineering. Dr. Liu received his doctorate degree in System Engineering from the University of Tokushima and his master and bachelor degrees in Electrical Engineering from Harbin Institute of Technology.

Mr. Yong Chen is the editor-in-chief of Modern Advertising magazine. He is also the secretary general of the Interactive Internet Advertising Committee of China Advertising Association and a member of the International Advertising Association and the Academic Committee of China Advertising Association. Mr. Chen has more than ten years of experience in the media industry in China. Mr. Chen studied at Beijing Economic Management College and the postgraduate program of liberal arts management at Beijing University.

Executive Officers

Mr. ZhenhengHuois the general manager of Beijing Film Production and is in charge of television program planning, production and promotion. Prior to joining our company in 2011, Mr. Huo was deputy director of CCTV-1 responsible for planning, producing and reviewing a number of popular television programs, including “First Cartoon Park”, “Wonderful Moment”, “Man and Nature”, “Animal World”, “World Art”, and “Collection of Today’s Stories”. Mr. Huo was also responsible for identifying, purchasing and broadcasting a number of programs on CCTV-1. Mr. Huo has over 23 years of experience in the television industry. Mr. Huo received his bachelor’s degree in Radio and Television Administration from Beijing Radio College (now known as China Media University) in 1987.

Mr. Shuo Chengis our vice president in charge of sales and marketing. Mr. Cheng joined us in 2003 as a media resource manager. Between 2002 to 2003, Mr. Cheng worked as a media resource manager at Mass Communications International Advertising Co., Ltd. He was a sales representative at DHL Sinotrans International Air Courier Ltd. from 2000 to 2001. Mr. Cheng received his bachelor’s degree in Economics from Renmin University in China.

Mr. Xinyu Zhangis our vice president in charge of accounting, treasury management and budgetary control. Mr. Zhang joined our company in 2003 and has worked as an accountant or accounting manager at a number of advertising or media companies since 1997. Mr. Zhang received his bachelor’s degree in Accounting from Capital Economic and Trade University in China.

Mr. Weitao Xuis our vice president in charge of the media relationship. Mr. Xu joined us in 2003 and worked as a manager and subsequently a director for the media relationship. Prior to joining us, Mr. Xu worked at a number of other advertising companies. Mr. Xu received his bachelor’s degree in Graphic Design from China Central Academy of Fine Art.

Mr. Guanning Liang is our financial controller. Prior to joining our company in January 2011, Mr. Liang was the finance manager of GCL-Poly, a company listed on the Stock Exchange of Hong Kong, and senior finance manager of its subsidiary GCL Solar from 2008 to 2010. Mr. Liang has over six years of experience in KPMG as audit manager. Mr. Liang received a bachelor’s degree in Business Administration from Sun Yat-Sen University in 2002. Mr. Liang is a member of the Association of Chartered Certified Accountants, or ACCA.

B. Compensation of Directors and Executive Officers

Compensation of Directors and Executive Officers

In the year ended December 31, 2011, we paid aggregate cash compensation of RMB12.8 million (US$2.0 million) to our directors and executive officers, respectively. For options granted to our officers and directors, see “—2008 Equity Incentive Plan.”

2008 Equity Incentive Plan

We adopted an equity incentive plan in July 2008. Our 2008 equity incentive plan provided for the grant of options, share appreciation rights, restricted shares, restricted share units, and other share-based awards. The maximum aggregate number of our ordinary shares that may be issued under the 2008 equity incentive plan is 50,000,000, plus an annual increase in the number of ordinary shares available for issuance equal to 2% of the outstanding ordinary shares on the first day of our fiscal year or such lesser amount as may be determined by our board of directors. The purposes of the plan are to attract and retain the best available personnel for positions of substantial responsibility, provide additional incentive to employees, directors and consultants and promote the success of our business. Our board of directors believes that our company’s long-term success is dependent upon our ability to attract and retain superior individuals who, by virtue of their ability, experience and qualifications, make important contributions to our business.

Options.The exercise price of incentive stock options must be at least equal to the fair market value of our ordinary shares on the date of grant. However, the exercise price of all other options may be as determined by the administrator. The term of an incentive stock option may not exceed ten years, except that with respect to any participant who owns 10% of the voting power of all classes of our outstanding shares as of the grant date, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator determines the term of all other options. After termination of employment or services of an employee, director or consultant, he or she may exercise his or her options for the period of time stated in the option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for six months. In all other cases, the option will generally remain exercisable for thirty days. However, an option generally may not be exercised later than the expiration of its term.

Restricted Stock.Restricted stock awards are ordinary shares that vest in accordance with terms and conditions established by the administrator and set forth in an award agreement. The administrator determines the number of shares of restricted stock granted to any employee and may impose whatever conditions to vesting it determines to be appropriate.

Stock Appreciation Rights.Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our ordinary stock between the date of grant and the exercise date. The exercise price of stock appreciation rights granted under our plan may be as determined by the administrator. Stock appreciation rights expire under the same rules that apply to options on the date as determined by the administrator.

Performance Units and Performance Shares.Performance units and performance shares are awards that will result in a payment to a participant generally if performance goals established by the administrator are achieved. The administrator establishes organizational or individual performance goals in its discretion, which, depending on the extent to which they are met, will determine the number and the value of performance units and performance shares to be paid out to participants.

Restricted Stock Units.Restricted stock units are similar to awards of restricted stock and represent the right to receive ordinary shares or the cash equivalent thereof upon settlement, which typically occurs when the award vests or at some later date if the date of settlement is deferred. Restricted stock units may consist of performance share or performance unit awards, and the administrator may set forth restrictions based on the achievement of specific performance goals.

Amendment and Termination. Our 2008 equity incentive plan is scheduled to automatically terminate in 2018. Our board of directors, however, has the authority to amend, alter, suspend or terminate the plan at any time, provided such action does not impair the rights of any participant with respect to any outstanding awards.

The share options granted under the 2008 equity incentive plan vest over four years and have a term of ten years. Some of the share options are subject to certain performance conditions. The grant date of performance-based share options is determined to be the date when performance targets are set because a mutual understanding of the key terms and conditions have not been reached until then.

The options granted to each of our sales personnel are divided into category A and category B. Fifty percent of the category A options will vest over a four-year period, with one-fourth of the options vesting at each anniversary of the vesting commencement date. The remaining 50% of the category A options will vest over a four-year period based on the employee’s performance, with one-fourth of the options allocated to each year. This portion of the category A options only vests in proportion to such employee’s actual annual sales performance as a percentage of his or her annual sales target, but only if such percentage equals or exceeds 70%. If such employee’s sales performance is lower than 70% of his or her annual sales target, his or her performance-based options in category A for that year will automatically expire. The category B options will also vest over a four-year period in proportion to an employee’s sales performance as a percentage of his or her annual sales target, but only to the extent that such percentage exceeds 100%. The category B options that remain unvested each year will automatically expire.

For those awards with performance conditions, an evaluation is made each quarter as to the likelihood of performance criteria being met. Compensation expenses are then adjusted to reflect the number of shares expected to vest to date.

Of all the options granted to each person other than our sales personnel, 70% will vest over a four-year period, with one-fourth of the options vesting at each anniversary of the vesting commencement date. The remaining 30% of the options will vest over a four-year period subject to our company’s performance, with one-fourth of the options allocated to each year. This portion of the options will vest in proportion to our company’s actual revenues as a percentage of our company’s annual target, but only if such percentage equals or exceeds 70%. If our revenues are lower than 70% of our annual target, the performance-based options for that year will automatically expire.

On February 21, 2009, our board of directors resolved to offer to the holders of our stock options the opportunity to modify the terms of their existing options through (i) resetting the exercise price of each option to US$0.0726 per ordinary share, which equals approximately one-thirtieth (owing to the 30 to 1 ordinary share to ADS ratio) of the average closing trading price per ADS of our company as reported on NYSE Arca in the last 60 trading days immediately prior to February 13, 2009; and (ii) reducing the number of each award of options by 50%. No other changes were made to the terms and conditions of the stock options. All holders of our stock options accepted the offer by February 27, 2009. As a result of this modification a total of RMB1.8 million (US$0.3 million) additional share-based compensation expense will be amortized over the remaining vesting period of 3 years and 4 months since March 1, 2009.

On April 1, 2011, the board of directors resolved to award share options under this plan to certain executive officers and directors to purchase 15,478,625 ordinary shares of our company at an exercise price of US$0.078 per share. The share options granted vest over 4 years.

In October 2011, we declared to distribute a special cash dividend of US$0.07667 per ordinary share. Pursuant to the plan, we adjusted the exercise price of the outstanding options to US$0.001 to prevent dilution of benefits intended to be made under the plan in the event of dividend distribution. The option held by each participant was modified as of December 30, 2011. No other change were made to the terms and conditions of the options granted.

The annual increase in the number of ordinary shares available for issuance was 15,766,647 shares in 2011 and 15,033,958 shares in 2012. As of the date of this annual report, an aggregate of 79,821,884 shares are available for future issuance under our 2008 equity incentive plan.

The following table sets forth information on stock options that have been granted and are outstanding as of the date of this annual report, taking into account the modification described in the preceding paragraph, under the 2008 equity incentive plan:

Name	Ordinary Shares Underlying Outstanding Options	Ordinary Shares Exercisable*	Exercise Price (US$/Share)	Grant Date	Expiration Date
Shengcheng Wang	7,966,084	5,903,584	0.001	July 1, 2008	July 1, 2018
	6,710,663	2,156,375	0.001	April 1,2011	July 1,2018
Julie Zhili Sun	3,983,042	2,951,792	0.001	July 1, 2008	July 1, 2018
	3,356,730	1,082,812	0.001	April 1,2011	July 1,2018
Haiyan Xing	663,841	491,966	0.001	July 1, 2008	July 1, 2018
	559,459	180,468	0.001	April 1,2011	July 1,2018
Shuo Cheng	531,072	393,572	0.001	July 1, 2008	July 1, 2018
Xinyu Zhang	663,841	491,966	0.001	July 1, 2008	July 1, 2018
Weitao Xu	127,457	94,457	0.001	July 1, 2008	July 1, 2018
Guanning Liang	1,395,000	450,000	0.001	April 1,2011	July 1, 2018
Other employees and consultant as a group	676,261	226,379	0.001	July 1, 2008	July 1, 2018
Total	26,633,450	14,423,371	0.001	July 1, 2008	July 1, 2018

A portion of the options granted under our 2008 equity incentive plan only vests subject to our company’s performance. Therefore, the number of share options exercisable by each listed person in the above table is based on our current estimate of the company’s performance for the one-year vesting period ending July 1, 2012. The actual number of share options that can be vested on July 1, 2012 may be different from our estimate.

Share Issuance to the Management Team

On November 23, 2011, our shareholders approved the share issuance to the management team of our company on or prior to December 31, 2012 under the condition that the maximum number of ordinary shares to be issued must not exceed 20% of our total outstanding ordinary shares as of the date of passing of the resolution and the price per ordinary share must not be more than 20% below the per ordinary share equivalent of the average closing price of our ADSs over the 30 trading-day period immediately prior to the date of each share issuance. Other terms and condition of the share issuance will be determined by our board of directors.

Share Repurchase Program

On September 30, 2010, we announced that the board of directors had approved a share repurchase program, under which we may repurchase up to US$6.0 million worth of our issued and outstanding ADSs by and before November 1, 2011. Any repurchase will be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to a 10b5-1 plan or otherwise in compliance with applicable laws. The timing and extent of any repurchases are dependent upon market conditions, the trading price of ADSs and other factors, and are subject to the restrictions relating to volume, price and timing under applicable laws, including Rule 10b-18 under the United States Securities Exchange Act of 1934, as amended. As of April 27, 2012, we had repurchased and cancelled 136,520 ADSs (representing 40,956,000 ordinary shares).

C. Board Practices

Duties of Directors

Under Cayman Islands law, our directors have a duty of loyalty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and restated from time to time. A shareholder has the right to seek damages if a duty owed by our directors is breached.

The functions and powers of our board of directors include, among others:

convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings;

declaring dividends and distributions;

appointing officers and determining the term of office of officers;

exercising the borrowing powers of our company and mortgaging the property of our company; and

approving the transfer of shares of our company, including the registering of such shares in our share register.

Terms of Directors and Executive Officers

Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution or the unanimous written resolution of all shareholders. A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors, or dies or is found by our company to be or to have become of unsound mind. Our officers are appointed by and serve at the discretion of our board of directors.

Committees of the Board of Directors

We have established an audit committee, a compensation committee and a corporate governance and nominating committee prior to the completion of our initial public offering.

Audit Committee

Our audit committee consists of Messrs. Liping He, Yong Chen, Xingzhao Liu and Jianmin Qu. Mr. Liping He has the accounting and financial management expertise required under the NYSE Listed Company Manual. All of our audit committee members satisfy the “independence” requirements of the NYSE Listed Company Manual. Our audit committee consists solely of independent directors. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

selecting our independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by our independent auditors;

reviewing with our independent auditors any audit problems or difficulties and management’s response;

reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act;

discussing the annual audited financial statements with management and our independent auditors;

reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies;

annually reviewing and reassessing the adequacy of our audit committee charter;

such other matters that are specifically delegated to our audit committee by our board of directors from time to time;

meeting separately and periodically with management and our internal and independent auditors; and

reporting regularly to our board of directors.

Compensation Committee

Our compensation committee consists of Messrs. Xingzhao Liu, Yong Chen, Liping He and Jianmin Qu, all of whom satisfy the “independence” requirements of the NYSE Listed Company Manual. Our compensation committee assists our board of directors in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

approving and overseeing the compensation package for our executive officers;

reviewing and making recommendations to our board of directors with respect to the compensation of our directors;

reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer, evaluating the performance of our chief executive officer in light of those goals and objectives, and setting the compensation level of our chief executive officer based on this evaluation; and

reviewing periodically and making recommendations to our board of directors regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Corporate Governance and Nominating Committee

Our corporate governance and nominating committee consists of Messrs. Jianmin Qu, Chen Yong, Liping He and Xingzhao Liu and the committee assists our board of directors in identifying individuals qualified to become our directors and in determining the composition of our board of directors and its committees. The corporate governance and nominating committee is responsible for, among other things:

identifying and recommending nominees for election or re-election to our board of directors, or for appointment to fill any vacancy;

reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us;

identifying and recommending to our board the directors to serve as members of committees;

advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and

monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Terms of Directors and Executive Officers

Employment Agreements

We have entered into employment agreements with all of our executive officers. Under these employment agreements, each of our executive officers is employed for a specified time period, subject to automatic extension unless either we or the executive officer gives a three-month prior notice of non-renewal. We may terminate the employment of an executive officer for cause, at any time, without notice or remuneration, for certain acts, including but not limited to, his or her conviction of crimes, his or her breach of material corporate policy and his or her failure to perform his or her duties to our detriment. An executive officer may terminate his or her employment at any time without penalty if there is a material reduction in his or her authority, responsibilities or position or if we fail to pay material compensation due to him or her after a reasonable opportunity to cure. Furthermore, either we or an executive officer may terminate his or her employment at any time without cause upon advance written notice to the other party. If we terminate an executive officer’s employment without cause, we will pay the executive officer severance pay in accordance with applicable law. We do not have other arrangements with any executive officers for special termination benefits.

Each executive officer has agreed to hold, both during the employment term and after employment terminates, in confidence and not to use, except in pursuance of his or her duties in connection with his or her employment, any of our trade secrets, know-how or financial, trading or other confidential information. In addition, each executive officer has agreed to be bound by non-competition restrictions set forth in his or her employment agreement and is prohibited from providing services to our competitors or operating businesses that compete against us for a period of two years following termination or expiration of his or her employment agreement.

D. Employees

As of December 31, 2009, 2010 and 2011, we had 143, 126 and151full-time employees, respectively. The following table sets forth the number of our staff by area of business as of December 31, 2011:

	Number of employees		Percentage
Sales, marketing and customer services		56		37.1	%
Production		44		29.1	%
Strategy, media relationship and market research		19		12.6	%
Management and administration		32		21.2	%
Total number of employees		151		100.0	%

We offer our employees competitive compensation packages and various training programs, which are intended to attract and retain qualified personnel. As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and provincial governments, including housing, pension, medical and unemployment benefit plans. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Members of the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. The total amount of contributions we made to employee benefit plans for the years ended December 31, 2009, 2010 and 2011 were RMB2.0 million, RMB2.3 million and RMB2.2 million (US$0.4 million), respectively.

We believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes or any difficulty in recruiting staff for our operations. Our employees are not represented by any collective bargaining agreements or labor unions.

E. Share Ownership

Under U.S. securities laws, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be the beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days.

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13(d)(3) of the Exchange Act, of our ordinary shares, as of April 27, 2012, by:

each of our directors and executive officers; and

each person known to us to own beneficially more than 5% of our ordinary shares.

	Shares Beneficially Owned⁽¹⁾
	Number		%
Directors and Executive Officers:
Shengcheng Wang⁽²⁾		564,676,747		73.5
Julie Zhili Sun		*		*
Haiyan Xing		*		*
Liping He		—		—
Jianmin Qu		—		—
Xingzhao Liu		—		—
Yong Chen		—		—
Shuo Cheng		*		*
Weitao Xu		*		*
Xinyu Zhang		*		*
Zhenheng Huo		—		—
Guanning Liang		*		*
All Directors and Executive Officers as a group		575,397,729		74.1
Principal Shareholders:
Shengcheng Wang⁽²⁾		564,676,747		73.5

*	Upon exercise of all share options exercisable within 60 days of April 27, 2012, would beneficially own less than 1% of our ordinary shares.

(1)	Percentage of beneficial ownership of each listed person is based on 751,697920 ordinary shares outstanding as of April 27, 2012 as well as the estimated number of ordinary shares underlying share options exercisable by such person within 60 days of April 27, 2012. A portion of the options granted under our 2008 equity incentive plan only vests subject to our company’s performance. Therefore, the number of share options exercisable by each listed person in the above table is based on our current estimate of the company’s performance for the one-year vesting period ending July 1, 2012. The actual number of share options that can be vested on July 1, 2012 may be different from our estimate. See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—2008 Equity Incentive Plan.”

(2)	Consists of (a) 14,676,747 ordinary shares that are issuable upon the exercise of options by Mr. Shengcheng Wang within 60 days of April 27, 2012; (b) 440,000,000 ordinary shares owned by Happy Indian Ocean Limited and (c) 110,000,000 ordinary shares owned by Arctic Spring Limited. Happy Indian Ocean Limited is the record holder of 440,000,000 ordinary shares. Arctic Spring Limited is the record holder of 110,000,000 ordinary shares. Mr. Shengcheng Wang has the right to vote in respect of the 440,000,000 ordinary shares owned by Happy Indian Ocean Limited by virtue of a voting trust agreement among Mr. Shengcheng Wang, Happy Indian Ocean Limited and China Mass Media Corp. Mr. Shengcheng Wang also has the right to vote in respect of the 110,000,000 ordinary shares owned by Arctic Spring Limited by virtue of a voting trust agreement among Mr. Shengcheng Wang, Arctic Spring Limited and China Mass Media Corp. Mr. Shengcheng Wang has no direct or indirect equity interests in either Happy Indian Ocean Limited or Arctic Spring Limited. Both Happy Indian Ocean Limited and Arctic Spring Limited are part of an estate and asset preservation structure that was established for the ultimate benefit, and to advance the interests, of Mr. Wang and his family. Mr. Shengcheng Wang may be deemed to be the beneficial owner of the ordinary shares owned by Happy Indian Ocean Limited and Arctic Spring Limited under the U.S. securities law.

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.Major Shareholders

Please refer to “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”

None of our major shareholders has voting rights different from those of our other shareholders. To the best of our knowledge, we are not directly or indirectly controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly not disclosed in this annual report. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

B.Related Party Transactions

Transactions with FTP

FTP is an advertising agency 50% owned by CCTV and 50% beneficially owned by the immediate family members of our chairman and chief executive officer, Mr. Shengcheng Wang. FTP is not controlled by our company, Mr. Shengcheng Wang or his immediate family members.

In December 2007, we entered into a framework agreement with FTP under which we obtained a right of first refusal with respect to any advertising time slots that FTP has obtained, or will obtain, from CCTV or any local television networks for a term of four years. Once FTP notifies us that it has obtained the advertising right to a specific television program, we are required to inform FTP within seven days of our receipt of such notice whether we choose to exercise our right of first refusal. If we decide to exercise our right of first refusal for specific programs, we and FTP will enter into a separate agency contract in connection with such programs.

Under this framework agreement, in each of 2008 and 2009, we entered into agency contracts with FTP to obtain the exclusive advertising rights to the First News program on CCTV Channel 2 and a number of programs on CCTV Channel 4. For the Channel 2 program, we were required to meet the minimum sales target set by CCTV and pay a fee to FTP equal to a certain percentage of the premium we charge to advertising clients over the agreed price with CCTV. For the Channel 4 programs, we were required to pay the fixed amount of advertising revenues agreed with CCTV plus a fee to FTP, and we retained any remaining amount generated from our sales as our commissions. The payments were made at the end of each quarter of the year or at a time designated by FTP. The advertising revenues and fees we paid to FTP under these two contracts amounted to RMB211.5 million in 2008 and RMB296.6 million in 2009. In 2010, we entered into a supplemental contract with FTP, pursuant to which we paid RMB300,000 to FTP as agency fees.

In January 2008, we entered into a lease agreement with FTP for part of its office space at a rent of approximately RMB1.9 million per year, for a term of ten years. In December 2008, we purchased all such office space from FTP at its fair market value as determined by an independent real estate valuation company in the amount of RMB52.6 million. In January 2009, we entered into a lease agreement with a term of one year with FTP pursuant to which FTP leased from us part of our office space at a rent of 0.5 million (US$79,442). In January 2010, the lease agreement is automatically renewed for an indefinite term unless and until terminated by either party to the lease agreement.

We also entered into an asset leasing agreement with FTP relating to the lease by FTP to us of certain fixed assets of FTP. The lease was for a period from December 1, 2007 to December 31, 2010, The net book value of the subject assets was RMB0.4 million (US$63,554) as of December 31, 2010. The aggregate rent was RMB103,000 (US$16,365) for the three years ended December 31, 2010. The agreement was terminated in 2011.

Non-Competition Agreement between Mr. Shengcheng Wang and His Family Members and Universal

Mr. Shengcheng Wang, his spouse and his parents entered into a non-competition agreement with Universal in January 2008. Under such agreement, none of Mr. Shengcheng Wang, his spouse or his parents may (i) directly or indirectly engage or invest in any business that directly or indirectly competes with Universal, (ii) directly or indirectly solicit, or assist in soliciting, Universal’s clients or potential clients other than on behalf of Universal or (iii) directly or indirectly solicit, or assist in soliciting, or cause any of Universal’s employees to terminate their employment with Universal, until the earliest of such time as Mr. Shengcheng Wang no longer holds at least 20% of our outstanding shares or such time as securities representing our share capital are no longer publicly listed on a stock exchange. In addition, Mr. Shengcheng Wang and his spouse and parents are required to refer to Universal any new business opportunities relating to advertising of which they become aware, and Universal has a right of first refusal relating to such business opportunities.

C. Interests of Experts and Counsel

Not applicable.

ITEM 8. FINANCIAL INFORMATION

A. Consolidated Statements and Other Financial Information

We have included the consolidated financial statements filed as part of this annual report. See “Item 18. Financial Statements.”

Legal and Administrative Proceedings

We may from time to time be subject to various legal or administrative proceedings arising in the ordinary course of our business. Currently, no legal proceedings, regulatory inquiries or investigations are pending against us that, in our opinion, could be expected to have a material adverse effect on our business, financial condition or results of operations.

Dividend Policy

We declared cash dividends of approximately RMB125.53 million in 2008 and did not declare any dividend in 2009.

In May 2010, our board of directors declared a special stock dividend of 71,637,500 additional ordinary shares of our company for the financial year ended December 31, 2009. The special dividend was approved by an ordinary resolution of the shareholders of the company at an extraordinary general meeting on July 19, 2010. Each holder of our ordinary shares as of June 16, 2010, or the share record date, was entitled to receive one additional ordinary share for every ten ordinary shares held as of the share record date. Each holder of our ADSs as of the ADS record date was entitled to receive one ADS for every ten ADSs held as of the ADS record date and we distributed this special stock dividend in January 2011.

In October 2011, our board of directors declared a special cash dividend of US$0.07667 per ordinary share, or US$23.00 per ADS, to all of our shareholders and ADS holders as of December 9, 2011. By the end of 2011, we had paid dividends of US$31.4 million in cash to those investors. We paid off the remaining committed cash dividend of US$26.1 million in March 2012.

Our board of directors has complete discretion regarding whether to pay dividends, subject to the approval of our shareholders. If we pay any dividends, we will pay our ADS holders to the same extent as we pay holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable under that agreement, and any withholding taxes. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

B. Significant Changes

We currently expect to generate total net revenues of between RMB32 million to RMB37 million for the first quarter of 2012. The expected range of net revenues represents a potential decrease of 27.3% to 37.1% compared with the first quarter 2011 due to fewer media resources secured by us and the continued pricing competition. This forecast reflects the our company’s current and preliminary estimate, which is subject to change.

ITEM 9. THE OFFER AND LISTING

A. Offering and Listing Details.

Our ADSs, each representing 300 of our ordinary shares were listed on NYSE Arca on August 4, 2008 under the symbol “CMM.” On August 25, 2009, we transferred the listing of our ADSs from NYSE Arca to NYSE. The trading of our ADSs on the NYSE was suspended on March 19, 2012.

The following table provides the high and low trading prices for our ADSs on NYSE Arca or NYSE, as the case may be, until March 12, 2012, and on the over-the-counter market since March 19, 2012 for (1) each year of 2008 (from August 4, 2008), 2009, 2010 and 2011, (2) each quarter in 2010, 2011 and 2012 and (3) each of the past six months.

	Share Price
	High		Low
Annually
2008 (From August 4, 2008)		6.85		1.40
2009		3.55		1.13
2010		3.71		1.64
2011		6.00		0.81
Quarterly
First Quarter 2010		3.80		2.63
Second Quarter 2010		3.08		1.13
Third Quarter 2010		3.02		1.64
Fourth Quarter 2010		3.55		2.30
First Quarter 2011		3.28		2.24
Second Quarter 2011		2.34		1.26
Third Quarter 2011		1.76		0.81
Fourth Quarter 2011		6.00		0.85
First Quarter 2012		5.85		3.41
Monthly
October 2011		2.44		0.85
November 2011(1)		2.47		2.11
December 2011		6.00		2.17
January 2012		5.85		3.41
February 2012		4.44		3.00
March 2012		4.66		1.00
April 2012 (through April 27, 2012)		2.80		1.65

(1) We changed the ratio of our ordinary shares to ADSs from 30:1 to 300:1, effective on November 28, 2011.

B. Plan of Distribution

Not applicable.

C. Markets

Our ADSs, each representing 300 of our ordinary shares, were listed on NYSE Arca from August 4, 2008 through August 24, 2009 under the symbol “CMM.” On August 25, 2009, we transferred the listing of our ADSs from NYSE Arca to NYSE.

In March 2012, NYSE Regulation determined to commence proceedings to delist our ADSs from the NYSE on the grounds that we had fallen below the NYSE’s continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual, which requires us to maintain an average global market capitalization of not less than $15 million over a consecutive 30-trading day period. On March 19, 2012, NYSE suspended the trading of our ADSs. Our ADSs are currently quoted on the over-the-counter market.

D. Selling Shareholders

Not applicable.

E. Dilution

Not applicable.

F. Expenses of the Issue

Not applicable.

ITEM 10. ADDITIONAL INFORMATION

A. Share Capital

Not applicable.

B. Memorandum and Articles of Association

We incorporate by reference into this annual report the description of our third amended and restated memorandum and articles of association contained in our F-1 registration statement (File No. 333-152305), as amended. Our shareholders adopted our third amended and restated memorandum and articles of association by special resolutions passed on July 18, 2008. The third amended and restated memorandum and articles of association became effective on August 4, 2008. On December 10, 2009, our third amended and restated memorandum and articles of association was amended to increase our authorized share capital from US$1,000,000 divided into 1,000,000,000 ordinary shares of a par value of US$0.001 each to US$3,000,000 divided into 3,000,000,000 ordinary shares of a par value of US$0.001 each. The third amended and restated memorandum and articles of association, as so amended, became our fourth amended and restated memorandum and articles of association, which is currently effective. Other than the above, there is no other difference between our fourth and third amended and restated memorandum and articles of association.

C. Material Contracts

We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report on Form 20-F.

D. Exchange Controls

The Cayman Islands currently have no exchange control restrictions. Also see “Item 4. Information on the Company—B. Business Overview—Regulation—Regulation on Foreign Currency Exchange” for information regarding foreign exchange controls in the PRC.

E. Taxation for Our ADS Holders

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within, the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

PRC Taxation

Foreign ADS holders may be subject to a 10% withholding tax upon dividends payable by us and gains on the sale and other disposition of our ADSs or ordinary shares, if such income is sourced from within the PRC. Under the new EIT law, which became effective on January 1, 2008, an enterprise established outside the PRC with its “de facto management body” within the PRC is considered a resident enterprise. The “de facto management body” of an enterprise is defined as the organizational body that effectively exercises overall management and control over production and business operations, personnel, finance and accounting, and properties of the enterprise. It remains unclear how the PRC tax authorities will interpret such a broad definition. Although we are incorporated in the Cayman Islands and the immediate holding company of our PRC subsidiary is incorporated in the British Virgin Islands, substantially all of our management members are based in the PRC. It remains unclear how the PRC tax authorities will interpret the PRC tax resident treatment of an offshore company, like us, having indirect ownership interests in PRC enterprises through intermediary holding vehicles. Moreover, even if we are classified as a PRC resident enterprise, it remains unclear whether the dividends payable by us, a Cayman Islands company, and gains on the sale and other disposition of our ADSs or ordinary shares will be regarded as income from sources within the PRC.

U.S. Federal Income Taxation

The following discussion describes the material U.S. federal income tax consequences to U.S. Holders (defined below) under present law of an investment in the ADSs or ordinary shares. This discussion applies only to investors that hold the ADSs or ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This discussion is based on the tax laws of the United States as in effect on the date of this annual report and on U.S. Treasury regulations in effect as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

The following discussion does not deal with the tax consequences to any particular investor or to persons in special tax situations such as:

banks;

certain financial institutions;

insurance companies;

regulated investment companies;

real estate investment trusts;

broker dealers;

U.S. expatriates;

traders that elect to mark-to-market;

tax-exempt entities;

persons liable for alternative minimum tax;

persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or integrated transaction;

persons who acquired ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise as compensation;

persons that actually or constructively own 10% or more of our voting stock; or

persons holding ADSs or ordinary shares through partnerships or other pass-through entities.

The discussion below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of ADSs or ordinary shares and you are, for U.S. federal income tax purposes,

an individual who is a citizen or resident of the United States for U.S. federal income tax purposes;

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any State thereof or the District of Columbia;

an estate whose income is subject to U.S. federal income taxation regardless of its source; or

a trust that (1) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (2) was in existence on August 20, 1996, was treated as a U.S. person under the U.S. Internal Revenue Code of 1986, as amended, on the previous day and has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.

If you are a partner in a partnership or other entity taxable as a partnership for U.S. federal income tax purposes that holds ADSs or ordinary shares, your tax treatment will depend on your status and the activities of the partnership or other entity. If you are such a partner, partnership, or other entity taxable as a partnership for U.S. federal income tax purposes, you should consult your tax advisors.

The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with their terms. If you hold ADSs, you should be treated as the holder of the underlying ordinary shares represented by those ADSs for U.S. federal income tax purposes. Exchanges of ordinary shares for ADSs and ADSs for ordinary shares generally will not be subject to U.S. federal income tax.

Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares

Subject to the PFIC company rules discussed below, the gross amount of all our distributions to you with respect to the ADSs or ordinary shares will be included in your gross income as dividend income on the date of actual or constructive receipt by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.

With respect to non-corporate U.S. Holders including individual U.S. Holders, for taxable years beginning before January 1, 2013, dividends may be taxed at the lower applicable capital gains rate, and thus may constitute “qualified dividend income,” provided that (1) either (a) the ADSs or ordinary shares are readily tradable on an established securities market in the United States, or (b) we are eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program (2) we are not PFIC (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Under IRS authority, ordinary shares, or ADSs representing such shares, are considered for the purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on NYSE. As of March 19, 2012, our ADSs are no longer traded on the NYSE. In addition, as discussed below under “PFIC” we believe that we were a PFIC for the taxable year ended December 31, 2011. If we are treated as a “resident enterprise” for PRC tax purposes, you may be eligible for the benefits of the income tax treaty between the United States and the PRC. You should consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or ordinary shares.

Dividends will constitute foreign source income for U.S. foreign tax credit limitation purposes. If the dividends are qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the U.S. foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. Dividends distributed by us with respect to ADSs or ordinary shares will generally constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”

If PRC withholding taxes apply to dividends paid to you with respect to the ADSs or ordinary shares, such withholding taxes may be treated as foreign taxes eligible for credit against your U.S. federal income tax liability. U.S. Holders should consult their own tax advisors regarding the creditability of any PRC tax.

To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, you should expect that any distribution we make will be treated as a dividend.

Taxation of Disposition of ADSs or Ordinary Shares

Subject to the PFIC rules discussed below, you will recognize capital gain or loss on any sale, exchange or other taxable disposition of an ADS or ordinary share equal to the difference between the amount realized (in U.S. dollars) for the ADS or ordinary share and your tax basis (in U.S. dollars) in the ADS or ordinary share. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ADS or ordinary share for more than one year, you will be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as U.S. source income or loss for foreign tax credit limitation purposes. If, as a result of the new EIT law, PRC tax were to be imposed on any gain from the disposition of the ADSs or ordinary share, a U.S. Holder that is eligible for the benefit of the income tax treaty between the United States and the PRC might be able to elect to treat such gains as PRC source income. U.S. Holders should consult their own tax advisors regarding the creditability of any PRC tax.

PFIC

We believe that we were a PFIC for the taxable year ended December 31, 2011 and it is possible that we may be a PFIC for the current taxable year. Our status for the current taxable year will be based in part on the average value of our assets as determined based on the price of the ADSs and our ordinary shares. Our actual PFIC status for the current taxable year ending December 31, 2012 will not be determinable until the close of the current taxable year ending December 31, 2012. A non-U.S. corporation is considered to be a PFIC for any taxable year if either:

at least 75% of its gross income is passive income, or

at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

For the purposes of our PFIC determination, we will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.

We must make a separate determination each year as to whether we are a PFIC. As a result, our PFIC status may change. If we are a PFIC for any year during which you hold ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which you hold ADSs or ordinary shares. However, if we cease to be a PFIC, your may avoid some of the adverse effects of the PFIC regime by making a “deemed sale” election with respect to the ADSs or ordinary shares, as applicable.

If we are a PFIC for any taxable year during which you hold ADSs or ordinary shares, dividends paid by us to you that year and the following year will not be eligible for the reduced rate of taxation applicable to non-corporate U.S. Holders, including individuals. See “—Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares.” Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for U.S. federal income tax purposes) in your gross income, and it will be subject to tax at rates applicable to ordinary income. Additionally, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ADSs or ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these special tax rules:

the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares,

the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we became a PFIC, will be treated as ordinary income, and

the amount allocated to each other year will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or ordinary shares cannot be treated as capital gains, even if you hold the ADSs or ordinary shares as capital assets.

If we are a PFIC, to the extent any of our subsidiaries are also PFICs, you may be deemed to own shares in such lower-tier PFICs that are directly or indirectly owned by us in that proportion which the value of the ADSs or ordinary shares you own so bears to the value of all of our ADSs and ordinary shares, and may be subject to the adverse tax consequences described above with respect to the shares of such lower-tier PFICs that you would be deemed to own. You should consult your tax advisors regarding the application of the PFIC rules to any of our subsidiaries.

A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a timely mark-to-market election for such stock of a PFIC to elect out of the tax treatment discussed above. If you make a mark-to-market election for the ADSs or ordinary shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares as of the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs or ordinary shares, as well as to any loss realized on the actual sale or disposition of the ADSs or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts.

The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange, including NYSE, or other market, as defined in applicable U.S. Treasury regulations. As of December 31, 2011, our ADSs were traded on the NYSE which should be a qualified exchange for purposes of the applicable U.S. Treasury regulations. Accordingly, the option to make a mark-to-market election may be available to you for the year ended December 31, 2011. However, as described under the section “Introduction”, trading in our ADSs on the NYSE was suspended on March 19, 2012. Our ADSs are currently traded on “pink sheets” . It is unlikely, however, that the pink sheets is a qualified exchange within the meaning of the applicable U.S. Treasury regulations. In addition, it is unclear whether there would be sufficient trading on these markets for our ADSs to qualify as regularly traded within the meaning of the applicable U.S. Treasury regulations. Accordingly, it is unlikely that a U.S. Holder of ADSs would be able to rely on trading on this market to make a mark-to-market election for periods after March 19, 2012. We expect that the ADSs will be listed and regularly traded on NYSE and, consequently, if you are a holder of ADSs the mark-to-market election would be available to you were we to be or become a PFIC. Because a mark-to-market election cannot be made for equity interests in lower-tier PFICs that we own, a U.S. Holder may continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as equity interest in a PFIC for U.S. federal income tax purposes. You may make a timely mark-to-market election with respect to our ADSs by filing IRS Form 8621 with your original or amended U.S. federal income tax return for the first taxable year in which we are a PFIC and you hold ADSs by the due date of the return (including extensions). U.S. Holders of ADSs or ordinary shares should consult their tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.

Alternatively, a U.S. Holder of stock in a PFIC generally may make a “qualified electing fund” election with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. However, the qualified electing fund election is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election.

If you hold ADSs or ordinary shares in any year in which we are a PFIC, you generally will be required to file IRS Form 8621 (or any other form specified by the U.S. Department of the Treasury) with your U.S. federal income tax return for the appropriate tax year.

You are urged to consult your tax advisor regarding the application of the PFIC rules to your investment in ADSs or ordinary shares and the elections discussed above.

Information Reporting and Backup Withholding

Dividend payments with respect to ADSs or ordinary shares and proceeds from the sale, exchange or redemption of ADSs or ordinary shares may be subject to information reporting to the IRS and possible U.S. backup withholding. Backup withholding will not apply, however, if you are a corporation or a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification or if you are otherwise exempt from backup withholding. If you are a U.S. Holder who is required to establish exempt status, you generally must provide such certification on IRS Form W-9. U.S. Holders should consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.

Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information in a timely manner.

In addition, certain U.S. Holders who are individuals that hold certain foreign financial assets (which may include ADSs or ordinary shares) may be required to report information relating to such assets, subject to certain exceptions. You should consult your tax advisor regarding the effect, if any, of this reporting requirement on your ownership and disposition of ADSs or ordinary shares.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display

You may read and copy documents referred to in this annual report on Form 20-F that have been filed with the U.S. Securities and Exchange Commission at the Commission’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Please call the Commission at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.

The Commission allows us to “incorporate by reference” the information we file with the Commission. This means that we can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is considered to be part of this annual report on Form 20-F.

I. Subsidiary Information

For a list of our significant subsidiaries, see “Item 4. Information on the Company—A. History and Development of the Company.”

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our exposure to interest rate risk primarily relates to our interest income generated by excess cash, which is mostly held in interest-bearing bank deposits or investment products provided by domestic banks. We have not used derivative financial instruments in our investment portfolio. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed nor do we anticipate being exposed to material risks due to changes in market interest rates. However, our future interest income may fall short of expectations due to changes in market interest rates.

Foreign Exchange Risk

The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, the Renminbi has no longer been pegged to the U.S. dollar and its value has appreciated significantly against the U.S. dollar. Although currently the Renminbi exchange rate versus the U.S. dollar is restricted to a rise or fall within a narrow band per day and the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the Renminbi 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 Renminbi exchange rate and lessen intervention in the foreign exchange market.

Because substantially all of our earnings and cash assets are denominated in Renminbi and the net proceeds from our initial public offering were denominated in U.S. dollars, fluctuations in the exchange rate between the U.S. dollar and the Renminbi affect the relative purchasing power of these proceeds and our balance sheet and earnings per share in U.S. dollars. In addition, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business or results of operations. Fluctuations in the exchange rate will also affect the relative value of any dividend we issue after our initial public offering that will be exchanged into U.S. dollars and earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.

We do not believe that we currently have any significant foreign currency exchange risk and we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk.

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees paid by our ADS holders

Citibank, N.A., the depositary of our ADS program, collects its fees for delivery and surrender of ADSs directly from investors depositing shares or surrendering ADSs for the purpose of withdrawal or from intermediaries acting for them. The depositary collects fees for making distributions to investors by deducting those fees from the amounts distributed or by selling a portion of distributable property to pay the fees. The depositary may collect its annual fee for depositary services by deducting from cash distributions or by directly billing investors or by charging the book-entry system accounts of participants acting for them. The depositary may generally refuse to provide fee-attracting services until its fees for those services are paid. Set forth below is a summary of fees holders of our ADSs may be required to pay for various services the depositary may provide:

Services		Rate
· Issuance of ADSs upon deposit of our ordinary shares (excluding issuances as a result of distributions described in paragraph (4) below)		Up to U.S. $5.00 per 100 ADSs (or fraction thereof) issued
· Delivery of deposited securities against surrender of ADSs		Up to U.S. $5.00 per 100 ADSs (or fraction thereof) surrendered
· Distribution of cash dividends or other cash distributions (i.e., sale of rights and other entitlements)		Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held
· Distribution of ADSs pursuant to (i) stock dividends or other free stock distributions, or (ii) exercise of rights to purchase additional ADSs		Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held
· Distribution of securities other than ADSs or rights to purchase additional ADSs (i.e., spin-off shares)		Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held
· Depositary services		Up to U.S. $5.00 per 100 ADSs (or fraction thereof) held on the applicable record date(s) established by the depositary

Our ADS holders, persons depositing our ordinary shares and persons surrendering ADSs for cancellation and for the purpose of withdrawing deposited securities shall be responsible for the following charges:

taxes (including applicable interest and penalties) and other governmental charges;

such registration fees as may from time to time be in effect for the registration of our ordinary shares or other deposited securities on the share register and applicable to transfers of our ordinary shares or other deposited securities to or from the name of the custodian, the depositary or any nominees upon the making of deposits and withdrawals, respectively;

such cable, telex and facsimile transmission and delivery expenses as are expressly provided in the deposit agreement to be at the expense of the person depositing or withdrawing our ordinary shares or the holders of our ADSs;

the expenses and charges incurred by the depositary in the conversion of foreign currency;

such fees and expenses as are incurred by the depositary in connection with compliance with exchange control regulations and other regulatory requirements applicable to our ordinary shares, the deposited securities, ADSs and ADRs; and

the fees and expenses incurred by the depositary, the custodian, or any nominee in connection with the servicing or delivery of deposited securities.

Fees and Payments from the Depositary to Us

From January 1, 2011 to December 31, 2011, the depositary reminbursed us US$11,130.65 for our expenses incurred in connection with the maintenance of the ADS program. However, such reimbursement were not actually paid to us because it was deducted from accrued fees previously owed to the depositary .. In addition, the depositary has agreed to reimburse us annually for our expenses incurred in connection with the maintenance of the ADSs program in the future. The amount of such reimbursements is subject to certain limits.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

There have been no material modifications to the rights of holders of our registered securities.

We completed our initial public offering of 216,375,000 ordinary shares, represented by 7,212,500 ADSs, at US$6.80 per ADS on August 7, 2008, after our ordinary shares and ADSs were registered under the Securities Act and all of the registered securities were sold. The aggregate price of the offering amount registered and sold was US$49.0 million, of which we received net proceeds of US$42.0 million. The effective date of our registration statement on Form F-1 (File number: 333-152305) was August 4, 2008. The offering consisted of a U.S. offering and an international offering. Merrill Lynch, Pierce, Fenner & Smith Incorporated was the representative of the U.S. underwriters and Merrill Lynch Far East Limited was the representative of the international underwriters.

Total expenses incurred for our account in connection with our initial public offering were approximately US$7.0 million, including approximately US$3.4 million for underwriting discounts and commissions and approximately US$3.6 million for other expenses. None of the above expenses included direct or indirect payments to directors or officers of our company or their associates, persons owning 10% or more of our equity securities or our affiliates.

As of April 27, 2012, an aggregate of US$0.9 million of the net proceeds were spent to expand our advertising production capability and US$2.2 million on working capital and other general corporate purposes. An aggregate of US$ 37.6 million of the net proceeds were paid to our shareholders as special dividends, of which US$27.6 million were paid directly or indirectly to directors or officers of our company or their associates, persons owning 10% or more of our equity securities or our affiliates.

ITEM 15. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined under Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance with respect to the preparation and presentation of consolidated financial statement and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our company’s management, including our chief executive officer and our chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2011 using criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our company’s management, including our chief executive officer and our chief financial officer, concluded that our internal control over financial reporting was effective as of December 31, 2011.

Changes in Internal Controls

There were no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Dr. Liping He, who is one of our independent directors under the applicable rules of the Securities and Exchange Commission, is an audit committee financial expert within the meaning of the rules of the Securities and Exchange Commission. See “Item 6. Directors, Senior Management and Employees.”

ITEM 16B. CODE OF ETHICS

Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, We have filed our code of business conduct and ethics as an exhibit to this annual report on Form 20-F, and posted the code on our website www.chinammia.com. We hereby undertake to provide to any person without charge, a copy of our code of business conduct and ethics within ten working days after we receive such person’s written request.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, our principal external auditors, for the periods indicated. We did not pay any tax related or other fees to our auditors during the periods indicated below.

Year Ended December 31,

2010

2011

(RMB)

(US$)

Audit fees⁽¹⁾

7,500,000

4,500,000

715,978

Audit-related fees⁽²⁾

3,600,000

–

Tax fees⁽³⁾

–

All other fees⁽⁴⁾

–

(1)

“Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements that are normally provided in connection with statutory and regulatory filings or engagements for those fiscal years.

(2)

“Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our independent registered public accounting firm that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.” Services comprising the fees disclosed under category of “Audit-related fees” involve principally the services relating to the company’s proposed listing on the SEHK for the year ended December 31, 2010.

(3)

“Tax fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax planning.

(4)

“All other fees” means the aggregate fees billed in each of the fiscal years listed for products and services provided by our independent registered public accounting firm, other than the services reported in the other categories.

The audit committee of our board of directors is directly responsible for the appointment, retention, evaluation, compensation, oversight and termination of the work of the independent auditors employed by our company. Pursuant to the audit committee charter adopted by the board of directors on July 18, 2008, the committee has the authority and responsibility to appoint, retain and terminate our independent auditors and has the sole authority to pre-approve any audit and non-audit services, including tax services, to be provided by our independent auditors. In addition, the audit committee has the power to pre-approve the hiring of any employee or former employee of the independent auditors who was a member of our company’s audit team during the preceding two fiscal years, or the hiring of any employee or former employee of the independent auditors (within the preceding two fiscal years) for a senior position within our company, regardless of whether that person was a member of our company’s audit team.

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Period	Total Number of ADSs Purchased⁽¹⁾	Average Price Paid Per ADS	ADSs Purchase as Part of Publicly Announced Plans or Programs⁽¹⁾	Approximate Dollar Value of ADSs that May Yet Be Purchased Under the Programs
November1 through November 30, 2010	10,670	24.92	265,910	5,734,090
December 1 through December 31, 2010	35,530	33.01	1,172,948	4,561,142
January 1 through January 31, 2011	11,510	30.34	349,187	4,211,955
February 1 through February 28, 2011	12,250	25.51	312,473	3,899,482
March 1 through March 31, 2011	9,900	25.47	252,157	3,647,325
April 1 through April 30, 2011	7,440	21.30	158,453	3,488,872
May 1 through May 31, 2011	7,020	17.68	124,094	3,364,778
June 1 through June 30, 2011	7,890	13.93	109,931	3,254,847
July 1 through July 31, 2011	15,910	15.99	254,445	3,000,402
August 1 through August 31, 2011	7,860	13.60	106,923	2,893,479
September 1 through September 30, 2011	4,420	11.22	49,601	2,843,878
October 1 through October 31, 2011	2,850	10.40	29,647	2,814,231
November 1 through November 30, 2011	3,270	23.43	76,611	2,737,620
Total	136,520	23.90	3,262,380	2,737,620

______________________

(1)

On September 30, 2010, we announced that our board of directors had approved a share repurchase program, under which we may repurchase up to US$6.0 million worth of our issued and outstanding ADSs by and before November 1, 2011.

(2)

Our ADS to ordinary share ratio was one ADS for 30 ordinary share prior to November 28, 2011. Our ADS to ordinary share ratio changed to one ADS for 300 ordinary share, effective on November 28, 2011.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

We have followed the applicable corporate governance standards under the NYSE Corporate Governance Rules. We are not aware of any significant differences between our corporate governance practices and those followed by domestic companies under NYSE listing standards.

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have elected to provide financial statements pursuant to Item 18.

ITEM 18. FINANCIAL STATEMENTS

See “Index to Consolidated Financial Statements” on page F-1 for a list of all financial statements filed as part of this annual report.

ITEM 19. EXHIBITS

The following exhibits are furnished along with annual report or are incorporated by reference as indicated.

Number	Description of Document
1.1*	Third Amended and Restated Memorandum and Articles of Association of China Mass Media Corp.

1.2**	Fifth Amended and Restated Memorandum and Articles of Association of China Mass Media Corp.

1.3***	Fourth Amended and Restated Memorandum and Articles of Association of China Mass Media Corp.

2.1*	Specimen Certificate for Ordinary Shares

2.2*	Form of Deposit Agreement, including form of American Depositary Receipts

2.3*	Investor Rights Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited, Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, True Wise Investments Limited and Ever Kingdom Limited

4.1*	Form of 2008 Share Incentive Plan

4.2*	Termination Agreement dated July 23, 2008, among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited, Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, True Wise Investments Limited and Ever Kingdom Limited

4.3*	English Translation of Non-Competition Agreement dated January 31, 2008, among Mr. Shengcheng Wang, Ms. Kun Zhang, Mr. Zhiyi Wang, Ms. Wenkai Zhang and Mass Media & Universal International Advertising Co., Ltd.

4.4*	Form of Employment Agreement

4.5*	English Translation of Equity Transfer Agreement between Universal International Advertising Limited and Shenzhen Guang Er Gao Zhi Co., Ltd.

4.6*	English Translation of Framework Agreement dated December 20, 2007 between Mass Media & Universal International Advertising Co., Ltd. and Beijing Guang Er Gao Zhi Film and Television Production Company Ltd.

4.7*	English Translation of Advertising Agency Agreement dated January 22, 2008 between Mass Media & Universal International Advertising Co., Ltd. and Beijing Guang Er Gao Zhi Film and Television Production Company Ltd.

4.8*	English Translation of Advertising Agency Agreement on 2008 Chinese New Year Gala Program dated December 6, 2007 between Mass Media & Universal International Advertising Co., Ltd. and CCTV

4.9*	English Translation of Advertising Agency Agreement on Special Events dated December 12, 2007 between Mass Media & Universal International Advertising Co., Ltd. and CCTV

4.10*	English Translation of Form of Media Resource Purchase Agreement between Mass Media & Universal International Advertising Co., Ltd. and CCTV

4.11*	English Translation of Form of Advertising Agency Agreement between Mass Media & Universal International Advertising Co., Ltd. and advertising clients

4.12*	English Translation of Lease Agreement dated December 30, 2007 between Mass Media & Universal International Advertising Co., Ltd. and Beijing Guang Er Gao Zhi Film and Television Production Company Ltd.

4.13*	English Translation of Lease Agreement dated December 30, 2007 between Mass Media & Universal International Advertising Co., Ltd. and Zhiyi Wang

4.14*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Winner Wide Limited

4.15*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and CTF Capital Ltd.

4.16*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Goldcorn Development Limited

4.17*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Jumbo Right Holdings Limited

4.18*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and True Wise Investments Limited

4.19*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Ever Kingdom Limited

4.20*	Share Purchase Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited, Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, China Mass Media International Advertising Corp. and Shengcheng Wang

4.21*	Share Purchase Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited, True Wise Investments Limited, China Mass Media International Advertising Corp. and Shengcheng Wang

4.22*	Share Purchase Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited, Ever Kingdom Limited, China Mass Media International Advertising Corp. and Shengcheng Wang

4.23*	Preferred Share Conversion Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited and China Mass Media International Advertising Corp.

4.24**	Form of 2010 Share Option Scheme

8.1	List of Subsidiaries of China Mass Media Corp.

11.1*	Code of Business Conduct and Ethics of China Mass Media Corp.

12.1	CEO Certification pursuant to Rule 13a-14(a)

12.2	CFO Certification pursuant to Rule 13a-14(a)

13.1	CEO Certification pursuant to Rule 13a-14(b)

13.2	CFO Certification pursuant to Rule 13a-14(b)

15.1	Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Incorporated by reference to our registration statement on Form F-1 (File No. 333-152305) filed with the Securities and Exchange Commission, as declared effective on August 4, 2008.

Incorporated by reference to our annual report on Form 20-F (File No. 001-34132) filed with the Securities and Exchange Commission on August 31, 2010, as amended.

***

Incorporated by reference to our annual report on Form 20-F (File No. 001-34132) filed with the Securities and Exchange Commission on June 29, 2011

SIGNATURE

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

China Mass Media Corp.

/s/ Shengcheng Wang

Name: Shengcheng Wang

Title: Chairman and Chief Executive Officer

Date: April 30, 2012

CHINA MASS MEDIA CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page

Report of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets		F-3
Consolidated Statements of Operations		F-4
Consolidated Statements of Shareholders’ Equity		F-5
Consolidated Statements of Cash Flows		F-6
Notes to Consolidated Financial Statements		F-7

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of China Mass Media Corp.:

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, shareholders’ equity and cash flows present fairly, in all material respects, the financial position of China Mass Media Corp. (the “Company”) and its subsidiaries at December 31, 2011, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements 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. An audit 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Beijing, the People’s Republic of China

April 30, 2012

F-2

CONSOLIDATED BALANCE SHEETS

China Mass Media Corp.

		December 31,
	Notes	2009		2010			2011		2011
		RMB		RMB			RMB		US$
									See Note 3(x)
Assets
Current assets:
Cash and cash equivalents	3(c), 15		508,778,014		544,427,828			111,712,682		17,749,358
Restricted cash	3(d)		—		10,000,000			—		—
Short-term investments	3(e), 5, 15		80,000,000		150,000,000			193,705,911		30,776,770
Notes receivable			1,937,450		5,892,690			600,000		95,330
Accounts receivable, net	3(f), 6,		375,568		991,024			7,362,830		1,169,836
Prepaid expenses and other current assets	3(g), 7		66,560,752		41,794,343			93,655,505		14,880,361

Total current assets			657,651,784		753,105,885			407,036,928		64,671,655

Property and equipment, net	3(h), 8		55,464,401		58,602,500			57,215,642		9,090,650

Total assets			713,116,185		811,708,385			464,252,570		73,762,305

Liabilities and shareholder’s equity
Current liabilities:
Accounts payable			50,446,460		156,494,604			70,419,236		11,188,490
Customer advances	3(l)		20,657,147		39,311,493			28,066,802		4,459,366
Dividend payable	12		—		—			164,589,438		26,150,628
Accrued expenses and other current liabilities	9		17,776,049		24,804,884			24,343,641		3,867,815
Taxes payable	10(a)		20,519,899		29,238,039			15,874,490		2,522,202
Amount due to related parties	18		127,068,624		53,237,048			10,883,700		1,729,246

Total current liabilities			236,468,179		303,086,068			314,177,307		49,917,747

Total liabilities			236,468,179		303,086,068			314,177,307		49,917,747

Commitments and contingencies	17		—		—			—		—
Shareholder’s equity:
Ordinary shares (US$0.001 par value; 3,000,000,000 shares authorized as of December 31, 2009, 2010 and 2011; 716,375,000 issued and outstanding as of December 31, 2009; 788,332,360 issued and outstanding as of December 31, 2010, 751,697,920 issued and outstanding as of December 31, 2011	12		4,893,500		5,381,321			5,132,534		815,478
Additional paid-in capital			332,354,066		361,736,018			104,896,262		16,666,338
Accumulated other comprehensive income			—		—			13,900		2,208
Repurchased Shares to be cancelled, at cost (nil as of December 31, 2009 and 2011; 13,860,000 shares as of December 31, 2010)	12		—		(9,529,124	)		—		—
Statutory reserves	13(b)		25,000,000		25,000,000			25,000,000		3,972,100
Retained earnings			114,400,440		126,034,102			15,032,567		2,388,434

Total shareholder’s equity			476,648,006		508,622,317			150,075,263		23,844,558

Total liabilities and shareholder’s equity			713,116,185		811,708,385			464,252,570		73,762,305

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

F-3

CONSOLIDATED STATEMENTS OF OPERATIONS

China Mass Media Corp.

		Year ended December 31,
	Notes	2009			2010			2011			2011
		RMB			RMB			RMB			US$
											See Note 3(x)
Revenues:	3(j)
Advertising agency services			397,279,413			222,298,472			185,319,862			29,444,361
Special event services			—			—			14,659,600			2,329,176
Advertisement production and sponsorship services			30,304,634			34,151,752			25,474,606			4,047,507

Total revenues			427,584,047			256,450,224			225,454,068			35,821,044
Less: business tax			(16,021,579	)		(13,046,869	)		(13,136,872	)		(2,087,239	)

Total net revenues			411,562,468			243,403,355			212,317,196			33,733,805

Operating costs and expenses:
Cost of revenues	3(k)		(40,239,024	)		(127,654,373	)		(116,883,445	)		(18,570,909	)
Cost of revenues — media fees to a related party	18(b)		(230,000,000	)		—			—			—
Sales and marketing expenses			(17,362,444	)		(16,993,454	)		(20,138,837	)		(3,199,739	)
General and administrative expenses			(33,193,760	)		(35,832,156	)		(29,033,088	)		(4,612,893	)

Total operating costs and expenses			(320,795,228	)		(180,479,983	)		(166,055,370	)		(26,383,541	)

Operating income			90,767,240			62,923,372			46,261,826			7,350,264
Interest and investment income	16		9,494,036			5,257,307			13,747,380			2,184,239
Other (expense) / income, net			532,325			(6,765,851	)		(4,686,542	)		(744,617	)

Income before tax			100,793,601			61,414,828			55,322,664			8,789,886
Income tax expense	10(b)		(14,327,931	)		(21,522,126	)		(40,290,097	)		(6,401,452	)

Net income			86,465,670			39,892,702			15,032,567			2,388,434

Earnings per ordinary share, basic and diluted	11		0.11			0.05			0.02			0.0031

Earnings per ADS, basic	11		32.9			15.2			5.94			0.9444

Earnings per ADS, diluted	11		32.8			15.2			5.94			0.9434

Shares used in calculating earnings per ordinary share, basic	11		788,012,500			787,181,901			758,715,460			758,715,460

Shares used in calculating earnings per ordinary share, diluted	11		789,860,806			788,662,085			759,516,363			759,516,363

Shares used in calculating earnings per ADS, basic	11		2,626,708			2,623,940			2,529,052			2,529,052

Shares used in calculating earnings per ADS, diluted	11		2,632,869			2,628,874			2,531,721			2,531,721

Note: Effective on November 28, 2011, the Company changed the ratio of its ordinary shares to American Depositary Shares (ADSs) from 30:1 to 300:1. The basic and diluted earnings per ADS for all periods presented above have been retrospectively adjusted to reflect the new ADS ratio. There is no change to China Mass Media’s underlying ordinary shares.

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

F-4

3. CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

China Mass Media Corp.

	Share Capital						Additional Paid-in			Repurchased Shares to be Cancelled, at Cost						Statutory		Accumulated Other Comprehensive		Retained			Total Shareholder’s			Total Comprehensive
	Shares			Amount			Capital			Shares			Amount			Reserve		Income		Earnings			Equity			Income
				RMB			RMB						RMB			RMB		RMB		RMB			RMB			RMB
Balance at January 1, 2009		716,375,000			4,893,500			330,214,330			—			—			25,000,000		—		27,934,770			388,042,600
Share-based compensation (Note 14)		—			—			2,139,736			—			—			—		—		—			2,139,736
Net income		—			—			—			—			—			—		—		86,465,670			86,465,670			86,465,670
Total comprehensive income																											86,465,670

Balance at December 31, 2009		716,375,000			4,893,500			332,354,066			—			—			25,000,000		—		114,400,440			476,648,006
Stock dividends (Note 12)		71,637,500			485,702			27,773,338			—			—			—		—		(28,259,040	)		—
Share-based compensation (Note 14)		—			—			1,478,226			—			—			—		—		—			1,478,226
Ordinary shares issued upon exercise of employee stock options (Note 14)		319,860			2,119			130,388			—			—			—		—		—			132,507
Repurchase of ordinary shares to be cancelled (Note 12)		—			—			—			(13,860,000	)		(9,529,124	)		—		—		—			(9,529,124	)
Net income		—			—			—			—			—			—		—		39,892,702			39,892,702			39,892,702
Total comprehensive income																											39,892,702

Balance at December 31, 2010		788,332,360			5,381,321			361,736,018			(13,860,000	)		(9,529,124	)		25,000,000		—		126,034,102			508,622,317
Share-based compensation (Note 14)		—			—			1,691,285			—			—			—		—		—			1,691,285
Ordinary shares issued upon exercise of employee stock options (Note 14)		2,366,160			15,239			911,635			—			—			—		—		—			926,874
New additional repurchased ordinary shares (Note 12)		—			—			—			(27,096,000	)		(12,477,441	)		—		—		—			(12,477,441	)
Cancellation of repurchased ordinary shares(Note 12)		(40,956,000	)		(264,026	)		(21,742,539	)		40,956,000			22,006,565			—		—		—			—
Unrealized holding gains on available-for-sale securities		—			—			—			—			—			—		13,900		—			13,900			13,900
Dividend distribution (Note 12)		—			—			(237,700,137	)		—			—			—		—		(126,034,102	)		(363,734,239	)
Net income		—			—			—			—			—			—		—		15,032,567			15,032,567			15,032,567
Total comprehensive income																											15,046,467

Balance at December 31, 2011		749,742,520			5,132,534			104,896,262			—			—			25,000,000		13,900		15,032,567			150,075,263

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

F-5

4. CONSOLIDATED STATEMENTS OF CASH FLOWS

China Mass Media Corp.

		Year ended December 31,
	Notes	2009			2010			2011			2011
		RMB			RMB			RMB			US$
											See Note 3 (x)
Cash flows from operating activities:
Net income			86,465,670			39,892,702			15,032,567			2,388,434
Adjustments to reconcile net income to net cash provided by / (used in) operating activities:
Depreciation expense			3,074,157			3,324,151			4,209,314			668,793
Interest income			(5,994,921	)		(3,819,737	)		(10,038,680	)		(1,594,986	)
Exchange loss			363,439			7,628,472			4,801,428			762,870
Share-based compensation			2,139,736			1,478,226			1,691,285			268,718
Gain on disposals of property and equipment			—			(281,912	)		(39,622	)		(6,295	)
Changes in assets and liabilities:
Notes receivable			(1,937,450	)		(3,955,240	)		5,292,690			840,924
Accounts receivable			13,991,625			(615,456	)		(6,371,806	)		(1,012,378	)
Prepaid expense and other current assets			(29,448,793	)		30,701,202			(62,168,524	)		(9,877,584	)
Amount due from a related party			1,000,000			—			—			—
Accounts payable			(279,638,966	)		106,048,144			(86,075,368	)		(13,675,999	)
Customer advances			(54,765,336	)		18,654,346			(11,244,691	)		(1,786,601	)
Accrued expenses and other current liabilities			4,010,959			7,028,835			491,127			78,032
Taxes payable			(857,216	)		3,279,672			(4,155,327	)		(660,215	)
Amount due to related parties			(87,952,669	)		(47,500,000	)		(42,353,348	)		(6,729,269	)

Net cash provided by / (used in) operating activities			(349,549,765	)		161,863,405			(190,928,955	)		(30,335,556	)

Cash flows from investing activities:
Purchase of one-year time deposit			—			—			(163,687,500	)		(26,007,325	)
Net proceeds from (purchase of) / redemption short-term investments with terms of three months or less			420,000,000			(70,000,000	)		119,108,006			18,924,356
Purchase of property and equipment			(23,451,242	)		(32,807,388	)		(2,930,414	)		(465,596	)
Proceed from disposal of property and equipment			—			301,300			147,579			23,448
Change in restricted cash			—			(10,000,000	)		10,000,000			1,588,840
Gain on sale of investment			6,602,921			3,450,093			10,418,408			1,655,318

Net cash (used in) / provided by investing activities			403,151,679			(109,055,995	)		(26,943,921	)		(4,280,959	)

Cash flows from financing activities:
Net proceeds from issuance of ordinary shares			—			—			687,751			109,273
Cash distributed in connection with the Reorganization	1(b)		(15,000,000	)		—			—			—
Dividends distributed	12		(96,335,115	)		—			(198,414,044	)		(31,524,817	)
Repurchase of ordinary shares to be cancelled			—			(9,529,124	)		(12,476,159	)		(1,982,262	)

Net cash used in financing activities			(111,335,115	)		(9,529,124	)		(210,202,452	)		(33,397,806	)

Effect of exchange rate changes on cash and cash equivalents			(378,046	)		(7,628,472	)		(4,639,818	)		(737,191	)

Net increase / (decrease) in cash and cash equivalents			(58,111,247	)		35,649,814			(432,715,146	)		(68,751,512	)
Cash and cash equivalents at beginning of the year			566,889,261			508,778,014			544,427,828			86,500,870

Cash and cash equivalents at end of the year			508,778,014			544,427,828			111,712,682			17,749,358

Supplemental disclosures of cash flow and non-cash information:
Cash paid for income taxes			16,201,167			14,272,177			40,539,480			6,441,011
Dividend declared but not paid	12		—			—			164,589,438			26,150,628
Stock dividend distribution			—			28,259,040			—			—

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

F-6

II.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

Organization, principle activities and reorganization

(a)

Organization and principle activities

The Company, formerly known as China Mass Media International Advertising Corp., was incorporated under the Companies Law (2010 Revision) of the Cayman Islands on November 13, 2007 as a company with limited liability. The address of its registered office is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Company is an investment holding company and currently conducts its business through Universal International Advertising Co., Ltd. (“Universal”), an operating subsidiary in the People’s Republic of China (the “PRC” or “China”) established in August 2006. The Company, its subsidiaries and variable interest entity (See Note 2) are collectively referred as the “Group” hereafter.

The Company’s predecessor was Mass Media International Advertising Co., Ltd. (“Mass Media”), a PRC company established in October 2003. Both Universal and Mass Media are ultimately controlled by Mr. Shengcheng Wang and his immediate family members. Since the establishment of Universal, the business of Mass Media was gradually assumed by Universal (Please see details of the Reorganization set out in Note 1(b) below).

The Group is principally engaged in advertising agency services, in which the Group purchases and sells advertising time slots on leading national television channels, including up to 5 channels of China Central Television (“CCTV”), to its customers to allow them to reach a large audience across China and provides advertisement production and public service announcement sponsorship services to its customers (the “Listing Business”).

On August 7, 2008, the Company completed its initial public offering (“US IPO”) on the New York Stock Exchange ARCA (“NYSE Arca”) where 7,212,500 American Depositary Bank Shares (“ADSs”), representing 216,375,000 ordinary shares, were sold at a price US$6.80 per ADS (or US$0.23 per ordinary share). The net proceeds from the US IPO after deducting commissions and US IPO costs were approximately RMB 287.7 million.

In January 2009, Universal International Advertising Limited (“UIAL”), a subsidiary of the Company, established a subsidiary, namely Mass Universal Film Production (Hong Kong) Limited, formerly known as Greatwall Film Production (Hong Kong) Limited, in Hong Kong for the purpose of securing potential television program production related business opportunities outside PRC.

In August 2009, the Company’s ADSs listing venue was transferred from NYSE Arca to NYSE.

In July 2011, Universal, the Company’s PRC subsidiary, entered into a series of contractual arrangements with Beijing Mass Universal Film Production Company Limited (“Beijing Film Production”), a film and TV drama series production company established by the Company in May 2011, to govern the relationships with the consolidated entities. These contractual arrangements allow the Company to effectively control the Beijing Film Production and to derive substantially all of the economic benefits from it.

On November 28, 2011, the Company changed the ratio of its ordinary shares to ADSs from 30:1 to 300:1. There is no change to the underlying ordinary shares. All earnings per ADS for prior periods have been retrospectively adjusted to reflect the new ADS ratio.

(b)

Reorganization

Prior to the consummation of the Reorganization, Universal was 70% owned by UIAL, a British Virgin Islands (“BVI”) company established by Mr. Shengcheng Wang’s father, and 30% owned by Shenzhen Guang Er Gao Zhi Co., Ltd. (“Shenzhen Guang Er Gao Zhi”), a PRC domestic holding company owned by Mr. Shengcheng Wang’s immediate family members. In connection with the US IPO of the Company on NYSE Arca, the Group reorganized its corporate and shareholding structure (the “Reorganization”). In November 2007, the Company was established by Mr. Shengcheng Wang in the Cayman Islands in anticipation of a listing on New York Stock Exchange. Thereafter, Mr. Shengcheng Wang’s father transferred all of the outstanding shares of UIAL to the Company, and UIAL became a wholly owned subsidiary of the Company. In June 2008, UIAL agreed to complete the purchase of the remaining 30% equity interests of Universal held by Shenzhen Guang Er Gao Zhi for RMB15,000,000, which represents the initial cost of investment made and capital contributed by Shenzhen Guang Er Gao Zhi. This payment was recorded as a distribution to shareholder in 2008 and made in 2009.

F-7

In addition, as part of the Reorganization, Universal entered into a series of agreements with Mass Media and its employees to ensure all the key business elements of Mass Media were assumed by Universal by December 30, 2007, including the transfer of substantially all equipment and copyrights for public service announcements of Mass Media in exchange for cash consideration of RMB21,562,056. Since Mass Media and Universal are commonly controlled by Mr. Shengcheng Wang and his immediate family members, the transaction has been accounted for as a transaction between commonly controlled entities. Historical assets and liabilities and results of operations of Mass Media have been included in the historical financial information of the Group for all the periods presented up to December 30, 2007. The consideration paid over carrying value of the transferred assets was RMB19,107,567, and is part of the total cash consideration of RMB21,562,056 that is included in the RMB41,485,618 distribution to shareholders.

As a result of the aforementioned arrangement, effective from December 30, 2007, Mass Media was not part of the Group or involved in the business operations of the Group. The advertising agency businesses were assumed by Universal and Mass Media was excluded from the Group. Certain assets and liabilities remained in Mass Media as these assets and liabilities were not assumed by Universal. The exclusion of such assets and liabilities from the Group was accounted for as a distribution to shareholders. The fair values of these assets and liabilities that remained with Mass Media approximated their carrying values at December 30, 2007. Mass Media did not have any contingent liabilities and there was no contingent liability arising from the exclusion of Mass Media.

Variable Interest Entity

To comply with PRC laws and regulations, the Company established Beijing Mass Universal Film Production Co. ("Beijing Film Production" or “VIE”) to conduct film and TV production business in China. The equity interests of the VIE are legally held by an employee of the Company (“Nominee Shareholder”). The effective control of the VIE is held by Universal through a series of contractual arrangements (the "Contractual Agreements"). As a result of the Contractual Agreements, the Company maintains the ability to control the VIE, is entitled to substantially all of the economic benefits from the VIE and is obligated to absorb all of the VIEs’ expected losses.

The following is a summary of the Contractual Agreements:

Power of attorney

Pursuant to the power of attorney, the Nominee Shareholder irrevocably granted Universal’s designated person as the attorney-in-fact to exercise all the shareholder rights under PRC law and the relevant articles of association, including but not limited to, voting on Nominee Shareholder’s behalf on all matters requiring shareholder approval, transferring or disposing part or all the shares of VIE, and electing, appointing or removing the directors and the senior executives of VIE. The Nominee Shareholder has waived all the rights which have been authorized to Universal’s designated person under the power of attorney.

Loan Agreement

Universal entered into loan agreement with the Nominee Shareholder, who will use the interest-free loan RMB 3 million proceed to set up the VIE. Without the prior consent of Universal, VIE cannot enter into any transaction including merger, acquisition and new investments. Repayment of the loan will be decided by Universal in the below two method: 1) payable by transferring all equity interest in the VIE, as held by the nominee shareholder, to
Universal or an individual designated by the Universal; 2) payable by the proceeds received, if any, from the sale of all equity interest in the VIE. The loan for capital injection is eliminated with the capital of VIE in consolidation.

Exclusive Purchase Option Agreement

The Nominee Shareholder of VIE irrevocably granted Universal an exclusive purchase option to request the Shareholder of VIE to transfer any part or all part of the equity interest to Universal or its designee(s) at the cash price paid by the Nominee Shareholder or the lowest price permitted under PRC statue. Universal may exercise such option at any time. In addition, the Shareholder of VIE commits that they will not, unless with written consent from Universal, transfer all or part of their respective equity interest to any third party.

F-8

Equity Pledge Agreement

The Nominee shareholder of VIE pledged the equity interest to Universal as collateral for the fulfillment of VIE responsibilities under the Loan Agreement, Exclusive Purchase Option Agreement, Exclusive Consulting and Managing Services Agreement and Exclusive Service Agreement of Technical development, technical support and technical services. The Nominee Shareholder shall not mortgage, transfer or dispose any of the equity interest without prior written consent of Universal. In the event of default, Universal as the pledge, will be entitled to request immediate repayment of the loan or to dispose of the pledged equity interest through transfer or assignment. The agreement is terminated only when all obligations under the aforementioned agreements have been fulfilled.

Exclusive Service Agreement for Technical Consulting, Training and Support Services

Universal will provide film production related technical consulting, training and support services on an exclusive basis to VIE. VIE should not accept services mentioned above provided by any third party without prior written consent of Universal. The VIE is obligated to pay Universal a certain percentage of its revenue as consideration of technical service. Unless Universal cancels this agreement or in break of the PRC Law or becomes bankruptcy, the VIE shall not terminate the agreement.

Exclusive Management Services Agreement

Universal provides VIE with management services, which include general administrations, sales and marketing services on an exclusive basis. The VIE is obligated to pay Universal a certain percentage of its revenue as consideration of the management service. Unless Universal cancels this agreement or in break of the PRC Law or becomes bankruptcy, the VIE shall not terminate the agreement.

In accordance with the VIE agreements, Universal has the power to direct activities of the VIE, and can have assets transferred out of the VIE. Therefore, Universal considers that there is no asset in the consolidated VIE that can be used only to settle obligations of the consolidated VIE except for registered capital of the VIE amounting to RMB 3 Million as of December 31, 2011. As the consolidated VIE is incorporated as limited liability companies under the PRC Group Law, the creditors do not have recourse to the general credit of Universal for all the liabilities of the consolidated VIE. As of December 31, 2011, the total equity of the consolidated VIE was RMB 3 Million.

Currently there is no contractual arrangement that could require Universal or the Company to provide additional financial support to the VIE. As the Company is conducting certain businesses in the PRC through the VIE, the Company may provide additional financial support on a discretionary basis in the future, which could expose the Group to a loss.

There is no VIE where the Company or its subsidiaries have a variable interest but is not the primary beneficiary.

The Company is a Cayman Islands company and, as such, it is classified as a foreign enterprise under Chinese laws, and the Company's wholly-owned PRC subsidiary, Universal, is a foreign-invested enterprise. Various regulations in China currently restrict or prevent foreign-invested entities from holding certain licenses required to operate film and TV drama business in China. In light of these restrictions, the Company relies on the VIE to hold and maintain the licenses necessary to operate the film and TV drama business in China. The Company through its wholly-owned PRC subsidiaries entered into a series of contractual arrangements with its VIE and the equity owner to provide the Company with effective control over the VIE.

There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations, including those that govern the VIE contractual arrangements. In the opinion of the Company’s management, it is currently unclear what impact the PRC government actions would have on the Group and on its ability to consolidate the financial results of the VIE in the Group’s consolidated financial statements, if the PRC government authorities were to find the Group’s legal structure and the contractual arrangements with its VIE to be in violation of PRC laws and regulations. The relevant regulatory authorities would have broad discretion in dealing with such violation, including levying fines, confiscating income, revoking business or operating licenses, requiring the Company to restructure the relevant ownership structure or operations, and requiring the Company to discontinue all or any portion of Universal. Any of these actions could cause significant disruption to the Company’s film and TV drama business operations and may materially and adversely affect the Company's business, financial condition and results of operations.

F-9

If the imposition of any of these government actions causes the Company no longer able to conclude that Beijing Film Production is VIE of the Company, of which the Company is the primary beneficiary, the Group would no longer be able to consolidate the financial results of the VIE in the Group’s consolidated financial statements. In the opinion of management, the likelihood for the Company to lose such ability is remote based on current facts and circumstances. The Company's film and TV drama business operations depend on VIE to honor their contractual agreements with the Company. Almost all of these agreements are governed by PRC law and disputes arising out of these agreements are expected to be decided by arbitration in China. The management believes that each of the contractual agreements constitutes valid and legally binding obligations of each party to such contractual agreements under PRC Laws. However, the interpretation and implementation of the laws and regulations in the PRC and their application to an effect on the legality, binding effect and enforceability of contracts are subject to the discretion of competent PRC authorities, and therefore there is no assurance that relevant PRC authorities will take the same position as the Company herein in respect of the legality, binding effect and enforceability of each of the contractual agreements. Meanwhile, since the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit legal protections available to the Company to enforce the contractual arrangements should the VIE or its shareholder fail to perform their obligation under those arrangements.

The key financial information of the VIE is as follows:

	December 31, 2011
	RMB

Total assets		13,829,406
Total liabilities		18,058,166

	Year ended December 31, 2011
	RMB

Net loss		7,228,761

	Year ended December 31, 2011
	RMB

Net cash used in operating activities		(6,176,731	)
Net cash used in investing activities		(10,000,000	)
Net cash provided by financing activities		20,000,000
Net increase in cash and cash equivalents		3,823,269

Summary of Significant Accounting Policies

(a)

Basis of preparation and consolidation

The significant accounting policies applied in the preparation of the financial information are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

The consolidated financial information of the Group has been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and includes the financial information of the Company, its subsidiaries and its VIE for which the Company is the ultimate primary beneficiary.

F-10

The consolidated financial information has been prepared to reflect the Reorganization of a business under common control, in which certain companies comprising the Group are ultimately controlled by the Mr. Shengcheng Wang and his immediate family members. Accordingly, the Reorganization has been accounted for as a reorganization of business under common control in a manner similar to a pooling of interests.

The consolidated statements of operations, consolidated statements of cash flows and consolidated statements of shareholders’ equity of the Group for the Relevant Periods include the financial information of the companies comprising the Group as a result of the Reorganization as if the current group structure had been in existence throughout the Relevant Periods or since their respective dates of incorporation. The financial information of Mass Media was also included in the financial information of the Group up to December 30, 2007 as it formed an integral part of the Listing Business and it was under common control of Shengcheng Wang and his immediate family members.

Subsidiary companies are those entities in which the Company, directly or indirectly, controls more than one half of the voting power or has the power to govern the financial and operating policies, to appoint or remove the majority of the members of the board of directors, or to cast majority of votes at the meeting of directors.

A variable interest entity is an entity in which the Company, or its subsidiary, through contractual arrangements, bears the risks of, and enjoys the rewards normally associated with, ownership of the entity, and therefore the Company or its subsidiaries is the primary beneficiary of the entity.

All significant inter-company transactions and balances have been eliminated upon consolidation.

(b)

Use of estimates

The preparation of the consolidated financial information in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of the assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenue and expenses during the reported periods. Actual results could differ from these estimates. Significant accounting estimates reflected in the Group’s consolidated financial information mainly include the estimation of amounts to be recognized as revenues, allowances for doubtful accounts, economic useful lives of property and equipment, loss contingencies and tax provision.

(c)

Cash and cash equivalents

Cash and cash equivalents represent cash on hand, demand deposits and time deposits with fixed rate of interest with a term of three months or less at banks.

(d)

Restricted cash

Cash that is restricted as to withdrawal for use or pledged as security is disclosed separately on the face of the balance sheet, and is not included in the total cash and cash equivalents in the consolidated statements of cash flows. Restricted cash of RMB10,000,000 as of December 31, 2010 represents a deposit made for incorporating a subsidiary of Universal. As required by relevant government authorities, to incorporate a company in China, capital amount for incorporating the company needs to be deposited and kept in a specified bank account. Upon receiving the approval or denial from the relevant government authorities, the restriction on the bank deposit will be released. The restriction was released when the application for incorporating a subsidiary was subsequently rejected.

(e)

Short-term investments

Short-term investments include investment funds with no fixed term or with terms less than one year. The investment funds are classified as available-for-sale investments and they are reported at fair value with unrealized gains (losses), if any, recorded as accumulated other comprehensive income in shareholder’s equity. Realized gains or losses are charged to the consolidated statements of operations during the period in which the gain or loss is realized. The Group recognized gains of RMB5,994,921, RMB3,819,737 and RMB10,038,680 from the available-for-sale investments for the years ended December 31, 2009, 2010 and 2011, respectively. There was no material unrealized gain (loss) at the end of each reporting period presented as these investments’ contract terms were less than one year and most of them matured prior to the year end. In addition, short-term investments also comprise of the time deposits placed with banks with original maturities longer than three months and less than or equal to one year.

The Group considers available evidence, including the duration and extent to which declines in fair value of the available-for-sale investments compared to cost, in determining whether an unrealized loss is “other-than-temporary”. If theGroup determines adeclinein fair valueis other-than-temporary, the cost basis ofthe individual security is written down to fair value as a new cost basis and the amount of the write-downisaccounted for as a realized loss. The new cost basis will not be changed for subsequent recoveries in fair value. For each period presented, the Company did not record any charges to write down investments.

F-11

(f)

Allowances for doubtful accounts

The Group provides specific provisions for bad debts when facts and circumstances indicate that the receivable is unlikely to be collected. If the financial condition of the Group’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

(g)

Prepaid expenses

Prepaid expenses mainly represent the deposits and prepaid media costs made to CCTV for program bidding and to purchase the advertisement time slots in advance.

(h)

Property and equipment, net

Property and equipment are stated at cost less accumulated depreciation and impairment, if any. Depreciation is calculated on a straight-line basis over the following estimated useful lives:

Computers and electronic equipment	3 years
Office equipment	5 years
Office furniture	5 years
Vehicles	5 years
Office property	37.5 –38.5 years

Repairs and maintenance costs are expensed as incurred. The gain or loss on disposal of property and equipment, if any, is the difference between the net sales proceeds and the carrying amount of the disposed assets, and is recognized in the consolidated statements of operations upon disposal.

(i)

Impairment of long-lived assets

Long-lived assets are reviewed for impairment whenever events or changes in the circumstances indicate that the carrying value of an asset may not be recoverable. The Group assesses the recoverability of the long-lived assets by comparing the carrying amount to the estimated future undiscounted cash flows associated with the related assets. The Group recognizes impairment of long-lived assets in the event that the book value of such assets exceeds the estimated future discounted cash flows attributable to such assets. No impairment of long-lived assets was recognized for any of the periods presented.

(j)

Revenue recognition

Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured. In accordance with the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 605-25, “Revenue Recognition: Multiple-Element Arrangements”, revenue arrangements involving multiple deliverables are broken down into single element arrangements based on their relative fair value determined based on the Vendor Specific Objective Evidence, Third Party Evidence or Best Estimate of Selling Price for revenue recognition purposes, when possible. When there is no objective and reliable evidence of the fair value of the undelivered items, the Group recognizes revenue of the elements delivered as a single unit of accounting.

The Group has adopted the net presentation for business tax (“BT”) and related surcharges pursuant to ASC 605-45, “Revenue Recognition: Principal Agent Considerations”, i.e., BT and related surcharges are excluded from the net revenues. BT and related surcharges are approximately 8% (increased to 8.5% starting from December 1, 2010) of the net amount between gross revenue received/receivable from the advertisers less media fee paid/payable to the media vendor.

Revenues presented in the consolidated statements of operations include revenues from advertising agency services, special event services and advertisement and production and sponsorship services.

Advertising agency services

The Group earns advertising agency services fee income from arranging broadcast of customers’ advertisements during its selected media suppliers’ programs. The revenues from advertising agency services are recognized net of agency rebates, ratably over the period in which the agency services are performed.

F-12

The Group contracts separately with its customers and the media suppliers and is responsible for the payments to the media suppliers and collections from the customers. In compliance with ASC 605-45, “Revenue Recognition: Principal Agent Considerations”, the Group assesses whether the Group or the media supplier is the primary obligor in these service contracts. The Group evaluates the terms of its customer agreements and gives appropriate consideration to other key indicators, such as inventory risk, latitude in establishing price, variability of its earnings, ability to change the programs media supplier provides, discretion in supplier selection and credit risk to the vendor.

The Group has arranged its customers’ advertisements on the regular daily programs advertising time slots on CCTV-1 and CCTV-2 and annual Chinese New Year Gala program (CCTV ceased to grant the Group the advertising right to the 2010 Chinese New Year Gala program). The Group generally is not obligated to pay the media fees until it has sold the time slots to its customers. In these cases, the Group records the net amounts of gross billings to customers less media fees as revenues on the date of broadcast in accordance with the guidance in ASC 605-45 because the Group believes that the media supplier, not the Group, is the primary obligor and undertakes the majority of the risks and rewards in these arrangements.

In order to obtain exclusive access to the CCTV-4 news related programs advertising time slots, starting from 2008, the Group purchases those CCTV-4 advertising time slots for a fixed media cost and attempts to sell the time slots to its customers. The Group believes it undertakes the majority of the risks and rewards in these arrangements. Therefore, revenues are recognized at gross billings to customers in accordance with the guidance from ASC 605-45 on the date of broadcast of their advertisements. The CCTV-4 revenues recognized at gross billing were approximately RMB164.3 million, RMB112.3 million and RMB87.3 million for the years ended December 31, 2009, 2010 and 2011 respectively.

Special event services

On an ad hoc basis, the Group provides sales and marketing support services for special events to CCTV under general framework agreements. The fees for such services are determined on a case-by-case basis by CCTV based on its evaluation of the Group’s performance. The Group generally receives a certain percentage of the total advertising revenues that CCTV earned from the special events; however, the Group does not receive the underlying information with which to estimate the compensation amount. As such, the Group recognizes revenue from such services when the Group receives statements from CCTV and when the settlement of the services fees is reasonably assured. Revenues from special event services recognized in 2011was the service fee paid by CCTV for the Company’s services in advertising and promotional activities for the 2008 Beijing Olympic Games. There are no costs incurred for such services during the years ended December 31, 2009, 2010 and 2011.

Advertisement production and sponsorship services

Revenues from production services are recognized in the period in which the advertisement is delivered to clients, provided that no additional performance obligations remain. Revenues from sponsorship services primarily include production and broadcast of public service announcements with sponsors’ brand names, as well as the announcements supplied by clients, in the public service announcements time slots that are allocated to the Group. The revenues from sponsorship for public service announcements are recognized ratably over the period in which the public service announcements are broadcast when all other revenue recognition criteria have been met.

Film and TV drama

Revenues from the licensing TV drama series are recognized when the TV drama series are available for broadcasting by the licensee and when all the revenue recognition criteria are met.

In 2011, the Group began to conduct production of episodic TV drama series and other related businesses. There was no revenue recognized from such business as of December 31, 2011.

(k)

Cost of revenues

Advertising agency services

For the CCTV-4 news related programs advertising time slots, cost of purchasing these time lots from the media supplier is recorded to cost of revenues over the period the time slots are broadcasted on a straight line basis. For the other advertising agency services, the revenues are recognized on a net basis and associated media fees are excluded from the cost of revenues.

F-13

Advertisement production and sponsorship services

Cost of revenues related to the advertisement production and sponsorship services primarily includes production costs, production overhead and development costs. Costs of productions are subject to regular recoverability assessments which compare the estimated fair values with the unamortized costs. The amount by which the unamortized costs productions exceed their estimated fair values will be written off. No production costs were written off for the years ended December 31, 2009, 2010 and 2011.

The production costs are capitalized and then expensed upon the recognition of revenues from the corresponding contracts.

Film and TV drama

Film and TV drama costs include production costs, production overhead and development costs and are stated at the cost less accumulated amortization. In accordance with ASC 926-20-25, the capitalized costs for each episode shall not exceed an amount equal to the amount of revenue contracted for that episode. Accordingly the costs associated with the production of episodic TV drama series in 2011 are expensed as incurred as the Group did not sign any revenue contract in 2011.

(l)

Customer advances

From time to time, the Group receives advances from customers for the advertising agency service fees, advertisement production and sponsorship service fees and media fees to be paid to the media suppliers. These advances are usually refundable to the customers if the media suppliers are unable to deliver the broadcast services.

(m)

Operating leases

Leases where substantially all the risks and rewards of ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases net of any incentives received from the lessor are charged to the consolidated statements of operations on a straight-line basis over the terms of the underlying lease.

(n)

Loss contingencies

The Group evaluates advertising time slot purchase commitments, including commitments made under guaranteed minimum or fixed price contracts, for future losses and will accrue for any losses during the period in which such losses are anticipated.

(o)

Foreign Currency Translation

The Group’s functional and reporting currency is the Renminbi (“RMB”). Transactions denominated in currencies other than RMB are translated into RMB at the exchange rate quoted by the People’s Bank of China (“PBOC”) prevailing at the dates of the transactions. Gains and losses resulting from foreign currency transactions are included in the consolidated statements of operations. Monetary assets and liabilities denominated in foreign currencies are translated into RMB using the applicable exchange rates quoted by the PBOC at the balance sheet dates. All such exchange gains and losses are included in the consolidated statements of operations.

(p)

Income taxes

Income taxes are accounted for using the asset and liability approach. Under this approach, income tax expense is recognized for the amount of taxes payable or refundable for the current year. In addition, deferred tax assets and liabilities are recognized for expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carry forwards. The Company records a valuation allowance to reduce deferred tax assets to an amount for which realization is more likely than not.

The Group adopted ASC 740-10, “Income Taxes”. ASC 740-10 clarified the accounting for uncertainty in an enterprise’s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740-10 requires management to evaluate its open tax positions that exist on the date of initial adoption in each jurisdiction. The Group does not have any significant uncertain tax positions and there was no effect on its financial condition or results of operations as a result of implementing ASC 740-10.

F-14

PRC Withholding Tax on Dividends

Under the Enterprise Income Tax Law (the “New EIT Law”) adopted by the Chinese National People’s Congress in March 2007, effective from January 1, 2008, dividends from earnings made after January 1, 2008, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise is subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The BVI, where UIAL is incorporated, does not have such tax treaty with the PRC. This 10% withholding tax imposed on the dividend income received from the Group’s PRC subsidiary reduces the Group’s net income in accordance with ASC 740-30, “Income Taxes: Other Considerations or Special Areas”. Before October, 2011, it was the Company’s intention to permanently reinvest part of the earnings made by the Group’s PRC foreign-invested enterprise and the Group accrued 10% withholding tax on 30% of earnings from China operations that the Group had no intention to permanently reinvest. On October 28, 2011, the Group declared a special cash dividend of US$0.07667 per ordinary share and changed the reinvestment plan for the unremitted earnings from 70% to zero. The Group has accrued for the withholding tax for all unremitted earnings according to the new policy.

(q)

Other comprehensive income

The Group has adopted the provision of ASC 220, “Comprehensive Income”. ASC 220 establishes standards for the reporting and display of comprehensive income, its components and accumulated balances. ASC 220 defines comprehensive income (loss) to include all changes in equity, including adjustments to minimum pension liabilities, accumulated foreign currency transaction, and unrealized gains or losses on marketable securities, except those resulting from investments by owners and distributions to owners.

(r)

Fair value of financial instruments

Financial instruments include cash and cash equivalents, notes receivable, accounts receivable, short-term investments, prepaid expenses, accounts payable, accrued expenses and other current liabilities. As of December 31, 2009, 2010 and 2011, the carrying values of cash and cash equivalents, notes receivable, accounts receivable, short-term investments, accounts payable, accrued expenses and other current liabilities approximate their fair values.

(s)

Earnings per share

In accordance with ASC 260, “Earnings per Share”, the Group presents basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares. Ordinary share equivalents are excluded from the computation in loss periods as their effects would be anti-dilutive.

(t)

Segment reporting

Based on the criteria established by ASC 280 "Segment Reporting", the Group's chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Group. The Group has internal reporting of cost and expenses that does not distinguish between segments, and reports costs and expenses by nature as a whole. The Group does not distinguish between markets or segments for the purpose of internal reporting. Hence, the Group operates and manages its business as a single segment. As the Group primarily generates its revenues from customers in the PRC, no geographical segments are presented.

(u)

Share-based compensation

The Group has accounted for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation” for share-based payment transactions with employees. For service-based share options awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. For performance-based share options awards, share-based compensation cost is measured at the date that the performance goals and vesting schedule of these awards are determined by the board of directors. Share-based compensation costs are then recorded on a graded-vesting basis, net of estimated forfeitures, over the requisite service period, which is generally the vesting period; an evaluation is made each quarter as to the likelihood of the performance criteria being met.

A change in any of the terms or conditions of stock options shall be accounted for as a modification of the plan. Therefore, the Group calculates incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value of the original option immediately before its terms are modified, measured based on the share price and other pertinent factors at the modification date. For vested share options, the Group would recognize incremental compensation cost in the period the modification occurs and for unvested share options, the Group would recognize, over the remaining requisite service period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.

F-15

The Group has accounted for share-based compensation in accordance with ASC 505-50, “Equity: Equity-Based Payments to Non-Employees” for share-based payment transactions with consultants. These awards are measured at the grant date fair value of the award and recognized immediately at grant date as these awards are fully vested and the counter party’s performance is completed at grant date.

The Black-Scholes option pricing model is used to determine the fair value of share options. The determination of the fair values of share-based compensation awards on the date of grant using the Black-Scholes option pricing model is affected by the share price as well as assumptions regarding a number of complex and subjective variables, including the expected term of the awards, the expected share price volatility over the expected term of the awards, actual and projected employee share option exercise behavior, risk-free interest rates and expected dividends.

(v)

Fair value measurements

The Group adopted ASC 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurement. The carrying amounts of the Group’s cash and cash equivalents, restricted cash and short-term investments approximate their fair value due to the short maturity of those instruments. The carrying value of receivables and payables approximates their market value based on their short-term maturities.

(w)

Recently issued accounting standards

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This standard clarifies guidance on how to measure fair value and is largely consistent with existing fair value measurement principles. The ASU also expands existing disclosure requirements for fair value measurements and makes other amendments. The amendments in this Update are to be applied prospectively. For public entities, the amendments are effective during interim and annual periods beginning after December 15, 2011. For nonpublic entities, the amendments are effective for annual periods beginning after December 15, 2011. Early application by public entities is not permitted. Nonpublic entities may apply the amendments in this Update early, but no earlier than for interim periods beginning after December 15, 2011. For the Group, this ASU is effective prospectively beginning January 1, 2012. The adoption of this standard is not expected to have a material impact on the Group’s consolidated results of operations or financial condition.

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income, and in December 2011 issued ASU No. 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. These standards require entities to present items of net income and other comprehensive income either in a single continuous statement, or in separate, but consecutive, statements of net income and other comprehensive income. The new requirements do not change which components of comprehensive income are recognized in net income or other comprehensive income, or when an item of other comprehensive income must be reclassified to net income. Also, the earnings-per share computation does not change. However, the current option under existing standards to report other comprehensive income and its components in the statement of changes in equity is eliminated. The amendments in ASU No. 2011-12 are effective at the same time as the amendments in ASU No. 2011-05 so that entities will not be required to comply with the presentation requirements in ASU No. 2011-05 that ASU No. 2011-12 is deferring. The amendments in ASU No. 2011-12 are effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2011. For nonpublic entities, the amendments are effective for fiscal years ending after December 15, 2012, and interim and annual periods thereafter. Since these standards impact presentation and disclosure requirements only, their adoption is not expected to have a material impact on the Group’s consolidated results of operations or financial condition.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities. The guidance specifies that an entity should disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. The revised guidance affects all entities that have financial instruments and derivative instruments. The revised guidance is effective for interim or annual periods beginning after December 15, 2011. The Group is currently evaluating the impact on the consolidated financial statements of adopting this guidance.

F-16

(x)

Convenience translation

Translations of amounts in the consolidated balance sheets and consolidated statements of operations and of cash flows as of and for the year ended December 31, 2011, from RMB into United States dollars (“US$”) are solely for the convenience of the reader and were calculated at the rate of USD1.00 = RMB6.2939, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York, on December 31, 2011. No representation is made that the RMB amount could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2011, or at any other rate.

Concentration and Risks

(a)

Ultimate media supplier

The Group’s business substantially depends on CCTV. The Group relies on its access to advertising time slots on CCTV, to broadcast the customers’ advertisements. Any unfavorable change of CCTV’s advertising model, any change that adversely affect CCTV’s marketing option or limitation on the Group’s access to desired television time slots could harm the effectiveness and attractiveness of the Group’s advertising services.

Recent actions by CCTV or the Chinese government have had and will continue to have a negative impact on our financial condition and results of operations. Since 2009, CCTV has begun to sell more of its advertising time slots by itself or through auctions under a new initiative. As a result, the advertising rights for the Daytime Advertising Package for 2012 were offered by CCTV for bidding and the Group did not secure the winning bid. CCTV also cancelled the Television Guides program at the end of 2011. For the years ended December 31, 2009 and 2010 and 2011, revenues generated from these two programs amounted to RMB158.8 million, RMB109.0 million and RMB91.5 million, respectively, representing 37.1%, 42.5% and 40.6% of our revenues in those periods, respectively. Due to the program changes by CCTV, our contract with CCTV in respect of the Guang Er Gao Zhi program was not renewed after its expiry on June 30, 2011. For each of the years ended December 31, 2009, 2010 and 2011, revenues from our advertising production and sponsorship service in relation to the Guang Er Gao Zhi program amounted to RMB8.5million, RMB12.2 million and RMB9.1 million, respectively, representing 2.0%, 4.8% and 4.0% of our total revenues in those periods, respectively. In addition, a new regulation not allowing advertisement during TV episode became effective on January 1, 2012, which will change the advertising model in the local market with unfavorable impact to the Group’s results of operations. Notwithstanding, based on the business plan in place by the Group, management has concluded that the Group’s current liquidity will be sufficient for the foreseeable future.

(b)

Major customers

No customer represents more than 10% of the Group’s consolidated revenues for any of the periods presented.

(c)

Credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Group adopts a conservative approach in cash flow management with an objective to maintain sufficient cash flow to cover its total expenses and not to engage in any highly leveraged or speculative derivative products. In the event that there is idle cash, the Group will invest in short term products offered with listed PRC financial institutions to earn better interest income than placing into saving accounts and the Board considers that the credit risk in respect of those short terms investment are very low.

The Group primarily collects revenues for advertising services up front and has not experienced significant losses from uncollectible accounts. The Group will continue to evaluate its collection experience and will provide for an allowance for doubtful accounts as appropriate.

(d)

Foreign currency risk

A majority of the Group’s sales and expenses transactions and a significant portion of the Group’s assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

F-17

Short-term Investments

	December 31,
	2009		2010		��	2011
	RMB		RMB			RMB
Short-term investments:
Investment funds — unlisted/time deposit		80,000,000		150,000,000			193,705,911

The fair value of above short-term investments approximately equal to their carrying value and the unrealized gains and losses were immaterial as of December 31, 2009, 2010 and 2011.

At December 31, 2011, the Group has invested RMB 193,705,911 (December 31, 2010, RMB 150,000,000; December 31, 2009, RMB80,000,000) into certain investment funds issued by Industrial and Commercial Bank of China and time deposit in China Merchants Bank. These investment funds invest in highly rated government bonds, bank notes, financial bonds and inter-bank short-term financial instruments and mature within three months. The Group’s investment in the time deposits has maturity term longer than three months and less than or equal to one year.

F-18

Accounts Receivable, Net

	December 31,
	2009			2010			2011
	RMB			RMB			RMB
Accounts receivable, gross		6,883,206			1,405,104			7,776,910
Allowance for doubtful accounts		(6,507,638	)		(414,080	)		(414,080	)
Accounts receivable, net		375,568			991,024			7,362,830

The movement of the allowance for doubtful accounts receivable for the years ended December 31, 2009, 2010 and 2011 are as below:

	Year ended December 31,
	2009			2010			2011
	RMB			RMB			RMB
Beginning of the period		(4,319,808	)		(6,507,638	)		(414,080	)
Additions		(4,035,920	)		—			—
Recoveries		1,848,090			2,493,558			—
Write-offs		—			3,600,000			—
End of the period		(6,507,638	)		(414,080	)		(414,080	)

Prepaid Expenses and Other Current Assets

	December 31,
	2009		2010		2011
	RMB		RMB		RMB
Bidding and agency deposits to CCTV		37,064,000		10,543,000		12,143,000
Deferred business tax and related surcharges		10,733,566		16,166,210		5,985,635
Prepayment for advertising time slots		8,623,096		4,604,154		64,369,000
Capitalized project cost		2,701,267		4,202,896		7,027,884
Interests receivable		751,617		1,004,055		2,266,582
Advances to staff		3,760,306		65,600		6,600
Prepayment for share repurchase (Note 12)		—		3,716,276		1,515,792
Others		2,926,900		1,492,152		341,012
Total		66,560,752		41,794,343		93,655,505

Prepayment of RMB 60.5 million for CCTV-8 advertising time slots in 2012 was included in the balance of prepayment of advertising time slots at December 31, 2011, of which RMB 49.5 million is not refundable, which is recognized as expenses on a straight-line basis during the respective contract period in 2012.

Property and Equipment, Net

	December 31,
	2009			2010			2011
	RMB			RMB			RMB
Computers and electronic equipment		1,175,560			1,590,637			2,276,341
Office equipment		778,459			795,240			1,102,460
Office furniture		306,230			304,945			304,887
Vehicles		4,714,560			10,238,139			11,583,120
Office property		52,610,000			52,610,000			52,610,000
Total		59,584,809			65,538,961			67,876,808
Less: accumulated depreciation		(4,120,408	)		(6,936,461	)		(10,661,166	)
Net book value		55,464,401			58,602,500			57,215,642

The depreciation expenses for property and equipment were RMB3,074,157, RMB3,324,151 and RMB4,214,374 for the years ended December 31, 2009, 2010 and 2011, respectively.

F-19

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

	December 31,
	2009		2010		2011
	RMB		RMB		RMB
Deposits from customers		4,821,658		6,806,392		4,961,820
Accrued professional fees		5,214,163		4,250,666		2,215,123
Accrued production fees		1,845,577		805,000		2,224,000
Deferred withholding income tax liabilities		2,955,794		6,623,152		8,389,101
Accrued payroll		1,954,314		5,126,314		4,950,759
Others		984,543		1,193,360		1,602,838
Total		17,776,049		24,804,884		24,343,641

Taxation

(a)

Taxes payable

	December 31,
	2009		2010		2011
	RMB		RMB		RMB
Income tax payable		6,609,723		10,192,314		8,181,483
Business tax and related surcharges payable		13,568,058		18,720,924		7,230,278
Other taxes payable		342,118		324,801		462,729
Total		20,519,899		29,238,039		15,874,490

(b)

Income tax

The Company was incorporated in the Cayman Islands and only has operations in the PRC.

Components of income before income taxes are as follows:

	Year ended December 31,
	2009			2010			2011
	RMB			RMB			RMB
Income before taxes		100,793,601			61,414,828			55,322,664
Loss from non PRC operation		12,888,391			21,077,531			17,013,750
Income from the PRC operation		113,681,992			82,492,359			72,336,414
Income tax expenses applicable to the PRC operation		14,327,931			21,522,126			40,290,097
Effective tax rate for PRC operations		12.6	%		26.1	%		55.7	%

Cayman Islands and BVI

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands tax will be imposed.

The subsidiary in British Virgin Islands under the International Business Companies Act of the British Virgin Islands is exempted from payment of British Virgin Islands income tax.

China

On January 1, 2008, the New EIT Law, which unifies the statutory income tax rate of enterprises in China to 25%, became effective. In accordance with the New EIT Law, there was a transition period for enterprises, which received preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transit to the new tax rate within five years after the effective date of the New EIT Law. During the transition period, the preferential tax rates for operations within Shenzhen Special Economic Zone (“SZSEZ”) are 18%, 20%, 22%, 24% and 25% for the years ended December 31, 2008, 2009 and 2010 and years ending December 31, 2011 and 2012, respectively. In addition, the tax holiday grandfathering provision allowed enterprises to continue to enjoy their unexpired tax holiday under the previous income tax laws and rules. Universal continued to enjoy a 50% tax reduction from the preferential tax rate for the years ended December 31, 2008 and 2009. From 2010 to 2012, Universal’s tax rate transits from the preferential rates to the new uniform tax rate of 25%. Accordingly, the tax rates for Universal’s operations within SZSEZ were 10%, 22% and 24% for the years ended December 31, 2009, 2010 and 2011, respectively. The tax rates for Universal’s operations outside of SZSEZ were 12.5% for the years ended December 31, 2009 and 25% for the year ended December 31, 2010 and 2011.

F-20

As described in Note 3(p), under the New EIT Law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise is subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. On February 22, 2008, the Ministry of Finance and State Tax Bureau jointly issued a circular which stated that for foreign invested enterprises, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors. Accordingly, the Group accrued 10% withholding tax, amounted to RMB5,398,047, RMB 2,274,872 and RMB 1,885,677 respectively, on net income attributable to UIAL, the foreign investor of Universal, which arose in 2008, 2009 and 2010 that was not indefinitely reinvested. Unrecognized deferred withholding tax liability related to undistributed earnings considered to be indefinitely reinvested was RMB3,491,264, RMB 9,116,114 and RMB 13,516,028 as of December 31, 2008, 2009 and 2010 respectively. No withholding taxes were accrued for the profits accumulated up to December 31, 2007. On October 28, 2011, the Company declared a special cash dividend of US$0.07667 per ordinary share. Due to this special cash dividend distribution, the reinvestment plan for the unremitted earnings was changed from 70% to zero and the Company recognized a withholding tax of RMB19.1 million in the fourth quarter of 2011. The effective tax rate in 2011 was 55.7%. This increased effective tax rate was also primarily attributable to the withholding tax expense RMB19.1 million recorded in the fourth quarter of 2011.

Reconciliation of the difference between statutory tax rate and the effective tax rate for the PRC operation for the periods presented:

	Year ended December 31,
	2009			2010			2011
Statutory income tax rate		25.0	%		25.0	%		25.0	%
Effect of tax holiday		-12.5	%		—			—
Effect of preferential tax rate for operations in SZSEZ		-1.3	%		-1.5	%		-0.5	%
Change of valuation allowance		—			—			2.5	%
Effect of withholding income tax in relation to net income attributable to foreign investor of the PRC operation		2.0	%		2.3	%		28.5	%
Difference between enacted tax rate and current tax rate		-0.8	%		0.1	%		—
Permanent book-tax differences		0.2	%		0.2	%		0.2	%

Effective tax rate		12.6	%		26.1	%		55.7	%

As of December 31, 2011, the Group recognized RMB1.8 million of deferred tax assets relating to the net loss incurred in Beijing Film Production for which full valuation allowance has been provided as it is more likely than not that it will not be realized.

The aggregate amount and per share effect of the benefit of the tax holiday are as follows:

	Year ended December 31,
	2009		2010		2011
	RMB		RMB		RMB

The aggregate dollar effect		14,210,249		—		—
Per share effect, basic and diluted		0.02		—		—

Hong Kong

No provision has been made for Hong Kong profits tax as the Group did not earn any taxable income subject to Hong Kong profits tax for the periods presented.

(c)

Business tax (“BT”) and related surcharges

The Group is subject to BT and related surcharges levied on advertising services in China, which are approximately 8% (increased to 8.5% starting from December 1, 2010) of certain net or value added advertising revenues. Deferred business tax and related surcharges assets are recognized when the tax invoice has not been received from the media suppliers for the media fees accrued. Upon receipt of the tax invoice from the media suppliers, the deferred business tax and related surcharges assets are offset against the business tax and related surcharges payable.

F-21

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share as retroactively adjusted for all periods presented for the 1 for 10 stock dividends declared by the Board on May 22, 2010 (Note 12) and the ratio change of its ordinary shares to ADSs from 30:1 to 300:1 with effective on November 28, 2011:

	Year ended December 31,
	2009		2010		2011
	RMB		RMB		RMB

Numerator:
Net income		86,465,670		39,892,702		15,032,567

Net income available to ordinary shareholders		86,465,670		39,892,702		15,032,567

Numerator for computing earnings per ordinary share, basic and diluted		86,465,670		39,892,702		15,032,567

Denominator:
Weighted average shares outstanding used in computing basic earnings per ordinary share		788,012,500		787,181,901		758,715,460
Effect of dilutive share options for ordinary shares		1,848,306		1,480,184		800,903
Weighted average shares used in computing diluted earnings per ordinary share		789,860,806		788,662,085		759,516,363
Weighted average shares used in computing basic earnings per ADS		2,626,708		2,623,940		2,529,052
Effect of dilutive share options for ADS		6,161		4,934		2,669
Weighted average shares used in computing diluted earnings per ADS		2,632,869		2,628,874		2,531,721
Earnings per ordinary share, basic and diluted		0.11		0.05		0.02
Earnings per ADS, basic		32.9		15.2		5.9
Earnings per ADS, diluted		32.8		15.2		5.9

For the years ended December 31, 2009, 2010 and 2011, options to purchase ordinary shares that were anti-dilutive and excluded from the calculation of diluted net income per share were Nil.

Shareholders’ equity

Ordinary Shares

The Company was authorized to issue 900,000,000 ordinary shares and 100,000,000 preferred shares, at par value of US$0.001 per share upon inception. On November 13, 2007 the Group issued 1,000 ordinary shares to Mr. Shengcheng Wang, for cash consideration of US$0.001 (adjusted for the effect of the share split on July 18, 2008).

On March 6, 2008, the Company issued 99,000 ordinary shares for cash consideration of US$99 (adjusted for the effect of the share split on July 18, 2008) to companies controlled by Mr. Shengcheng Wang, the Company’s chairman and chief executive officer. Such issuance was accounted for in a manner similar to a share split.

On June 16, 2008, the Company issued 412,300,000 ordinary shares for cash consideration of US$412 (adjusted for the effect of the share split on July 18, 2008). After the issuance, the issued and outstanding ordinary shares of the Company have been increased to 412,400,000 (adjusted for the effect of the share split on July 18, 2008). At the same time, the Company issued 87,600,000 preferred shares (adjusted for the effect of the share split on July 18, 2008) to the existing shareholders controlled by Mr. Shengcheng Wang for cash consideration of US$88. Both issuances were treated as stock splits.

Subsequent to the issuance of the shares, on June 24, 2008, the existing shareholders controlled by Mr. Shengcheng Wang entered into investment agreements with a group of third parties and sold the preferred shares at US$ 60 million.

When the existing shareholders sold the preferred shares, they granted additional rights to the group of third parties with no recourse back to the Company. None of the proceeds from the sale proceeds were received by the Company.

The preferred shares have been treated as a stock split because the purpose of the preferred shares issuance was to obtain wider distribution and to improve marketability of the Company’s equity, and that the issuance did not grant the existing shareholders controlled by Mr. Shengcheng Wang any additional ownership rights to the residual net assets of the Company they did not have previously.

F-22

On July 18, 2008, the Company issued 999 additional shares for every outstanding ordinary and Preferred Share. The share issuances were accounted for as a 1,000-for-one share split.

Accordingly, all shares and per share amounts in the accompanying consolidated financial information have been revised on a retroactive basis to reflect the effect of the issuances on November 13, 2007, March 6, 2008 and June 16, 2008.

On July 23, 2008, the existing shareholders controlled by Mr. Shengcheng Wang entered into an agreement to repurchase all the preferred shares for US$60 million plus one month of interest at an annual rate of 8.0%. None of the repurchase cost was borne by the Company. The existing shareholders controlled by Mr. Shengcheng Wang agreed to convert all the existing preferred shares into ordinary shares upon completion of the Company’s US IPO.

On August 7, 2008, the Company completed its US IPO where 7,212,500 ADS, representing 216,375,000 ordinary shares, were sold at a price of US$6.80 per ADS (or US$0.23 per ordinary share). Upon completion of US IPO, all outstanding preferred shares were automatically converted into 87,600,000 ordinary shares.

On December 10, 2009, at the Company’s annual general meeting of shareholders, shareholders approved the increase of the Company’s authorized share capital divided into 3,000,000,000 shares of a par value of US$0.001 each.

As of December 31, 2011, the Company has set aside 1,955,400 ordinary shares as treasury stocks for employees’ future exercise of vested options.

Dividends

On May 22, 2010, the Board declared the distribution of a dividend in form of issuing new fully paid ordinary shares (“New Shares”) at the rate of one New Share for every 10 existing issued ordinary shares held by any shareholder whose name appears on the register of members of the Company at the close of business on June 16, 2010. The issuance of no more than 71,637,500 ordinary shares, par value US$0.001 per share, of the Company as a stock dividend was approved at its extraordinary general meeting of shareholders held on July 19, 2010.

The dividend was paid in the form of additional ordinary shares on December 31, 2010. The number of options and exercise price of all options issued and outstanding has been adjusted to prevent dilution caused by this stock dividend to holders of stock options as approved by the Board of Directors (Note 14). The Group has retroactively adjusted basic and diluted earnings per share for all periods presented to reflect this stock dividend.

On October 28, 2011, the Board declared a special cash dividend of US$0.07667 per ordinary share, representing a total of US$57.5million. As of December 31, 2011, dividend payable of US$26,121,576 was outstanding.

No cash dividend was declared in 2009 and 2010. No stock dividend declared in 2009 and 2011.

	Year ended December 31,
	2011
	RMB
Cash dividend declared and paid		198,414,044
Cash dividend declared but unpaid at December 31, 2011		164,589,438
Subtotal		363,003,482
Effect of exchange rate changes on dividend payable		730,757
Total cash dividend declared during the year		363,734,239
Dividends declared per ordinary share	US$	0.07667

Stock Repurchase to be cancelled

On September 27, 2010, the Board approved a share repurchase program. Under the terms of this program, the Company may repurchase and cancel up to US$6.0 million worth of its issued and outstanding ADSs by and before November 1, 2011. Any repurchase will be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades. The timing and extent of any repurchases will depend upon market conditions, the trading price of ADSs and other factors, and be subject to the restrictions relating to volume, price and timing under applicable laws. Up to December 31, 2011, the Company has repurchased 136,520 ADSs (40,956,000 ordinary shares) with the amount of US$3.5 million, including 46,200 ADSs (13,860,000 ordinary shares) with an amount of US$1.5 million repurchased for the year ended December 31, 2010. All shares repurchased have been cancelled as of December 31, 2011.

F-23

The Company accounts for shares repurchased but pending for cancellation under the cost method and includes such treasury stock as a component of the common shareholders’ equity.

Mainland China Contribution Plan and Profit Appropriation

(a)

China contribution plan

Full-time employees of the Group are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government mandated multi-employer defined contribution plan. The Group is required to make contributions to the Chinese government based on certain percentages of the employees’ salaries. The Chinese government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group’s obligations are limited to the amounts contributed. The total contribution for such employee benefits were not material for the periods presented.

(b)

Statutory reserves

Universal is required to make appropriations to reserves, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net income determined in accordance with the legal requirements in the PRC until the reserve is equal to 50% of the entities’ registered capital. Appropriation to the discretionary surplus reserve is made at the discretion of the Board of Directors. Statutory surplus reserve and discretionary surplus reserve are established for the purpose of offsetting accumulated losses, enlarging productions or increasing share capital. The Group had appropriated RMB6,549,763, nil, and nil to the statutory surplus reserve for the years ended December 31, 2009, 2010 and 2011 for Universal in accordance with the PRC GAAP.

Share-based Compensation

On July 1, 2008, the Company adopted an equity incentive plan (the “2008 Equity Incentive Plan”). The 2008 Equity Incentive Plan provided for the grant of options, share appreciation rights, restricted shares, restricted share units, and other share-based awards. The maximum aggregate number of ordinary shares that may be issued under the plan is 50,000,000, plus an annual increase in the number of ordinary shares available for issuance equal to 2% of the outstanding ordinary shares on the first day of a fiscal year or such lesser amount as determined by the board of directors. The share options granted vest over 4 years and have a contractual term of 10 years. Some of the share options are subject to certain performance conditions. The grant date of performance based share options is determined to be the date when performance targets are set because a mutual understanding of the key terms and conditions have not been reached until then.

The options granted to each of the sales personnel are divided into category A and category B. 50% of the category A options will vest over a four-year period, with one-fourth of the options vesting at each anniversary of the vesting commencement date. The remaining 50% of the category A options will vest over a four-year period based on the employee’s performance, with one-fourth of the options allocated to each year. This portion of the category A options only vests in proportion to such employee’s actual annual sales performance as a percentage of his or her annual sales target, but only if such percentage equals or exceeds 70%. If such employee’s sales performance is lower than 70% of his or her annual sales target, his or her performance-based options in category A for that year will automatically expire. The category B options will also vest over a four-year period in proportion to an employee’s sales performance as a percentage of his or her annual sales target, but only to the extent that such percentage exceeds 100%. The category B options that remain unvested each year will automatically expire.

Of all the options granted to each person other than the sales personnel, 70% will vest over a four-year period, with one-fourth of the options vesting at each anniversary of the vesting commencement date. The remaining 30% of the options will vest over a four-year period subject to the company’s performance, with one-fourth of the options allocated to each year. This portion of the options will vest in proportion to the Group’s actual revenues as a percentage of the Group’s annual target, but only if such percentage equals or exceeds 70%. If the Group’s revenues are lower than 70% of the annual target, the performance-based options for that year will automatically expire.

F-24

On February 21, 2009, the Company’s board of directors resolved to offer to the holders of stock options the opportunity to modify the terms of their existing options through (i) resetting the exercise price of each option to US$0.0726 per ordinary share, which equals approximately one-thirtieth (owing to the 30 to 1 ordinary share to ADS ratio) of the average closing trading price per ADS of the Company reported on NYSE Arca in the last 60 trading days immediately prior to February 13, 2009; and (ii) reducing the number of each award of options by 50%. No other changes were made to the terms and conditions of the stock options. All holders of stock options accepted the offer by February 27, 2009. As a result of this modification, a total of RMB 1.8 million additional share-based compensation expense will be amortized over the remaining vesting period of 3 years and 4 months since March 1, 2009.

On April 1, 2011, the Company’s board of directors approved to award share options under the 2008 Equity Incentive Plan to certain executive officers and directors to purchase 15,478,625 ordinary shares of the Company, including 10,860,960 service-based stock options and 4,617,665 performance-based stock options which will not be considered granted until the sales performance targets are set for accounting purpose, with an exercise price of US$0.078 per share. The share options granted vest over 4 years and have a contractual term of 10 years.

As the Company declared to distribute a special cash dividend of US$0.07667 per ordinary share, the Company made equitable adjustment to the exercise price of the outstanding options to US$0.001 in accordance to the anti-dilution provision under the 2008 Equity Incentive Plan in the event of dividend distribution. The Company accounted for the equitable adjustment to the exercise price as a modification and there was no incremental fair value resulted from such modification as it was based on the existing anti-dilution provision.

The option activities for the years ended December 31, 2009, 2010 and 2011 are as follows:

	Number of options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
Balance at January 1, 2009		40,637,000		US$	0.685
Modification		(25,813,625	)		—
Granted on December 31, 2009		1,516,750		US$	0.0726
Forfeited		(912,916	)	US$	0.0726

Balance at December 31, 2009		15,427,209		US$	0.0726			RMB	1,580,100

Granted on June 30, 2010		45,000		US$	0.0726

Increase due to declaration of stock dividend (Note 12)		1,486,071		US$	0.066
Granted on December 31, 2010		1,437,425		US$	0.066
Exercised		(319,860	)	US$	0.066
Forfeited		(1,574,025	)	US$	0.066

Balance at December 31, 2010		16,501,820		US$	0.066			RMB	4,553,610

Granted on April 1, 2011		10,860,960		US$	0.078
Exercised		(2,366,160	)	US$	0.066
Forfeited		(455,318	)	US$	0.066
Granted on December 31, 2011		2,509,630		US$	0.001
Balance at December 31, 2011		27,050,932		US$	0.001		6.5 years	RMB	3,234,861

Vested and expected to vest at December 31, 2011		27,050,932		US$	0.001		6.5 years	RMB	3,234,861
Exercisable at December 31, 2011		10,809,992		US$	0.001		6.5 years	RMB	1,292,703

Valuation of Stock Options

The fair value of options granted under the 2008 Equity Incentive Plan is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Year ended December 31,
	2009			2010			2011
Expected term (in years)	4.75			4			3.375 - 4.875
Expected volatility		60	%		60	%		60	%
Risk-free interest rate		2.53	%		1.52	%		0.5% - 2.16	%
Expected dividend yield		6.73	%		6.73	%		0% - 4.81	%

F-25

Due to insufficient historical information and the significant change caused by the delisting notice from NYSE, giving consideration to the contractual terms of the share-based awards, the Company adopted the simplified method for estimating the expected term to represent the period that the Company’s share-based awards are expected to be outstanding.

The expected volatility of 60% in 2009, 2010 and 2011 was estimated based on average volatility of several U.S. listed comparable companies in the advertising industry.

Risk-free interest rate is based on US Treasury zero-coupon issues with maturity terms similar to the expected term on the share-based awards.Before October 2011, the Company planned to distribute 20-30% of its annual earnings as cash dividends. After the special cash dividends declared in October 2011, no dividend is expected to be paid in the foreseeable future.

Compensation Costs

For the years ended December 31, 2009, 2010 and 2011, the Company recognized share-based compensation expenses in the Company’s consolidated statements of operations for the share options granted to directors and employees in accordance with ASC 718 and for the share options granted to consultants in accordance with ASC 505-50. The total compensation costs have been recognized on a straight line basis over the requisite service period for each separately vesting portion of the award.

	Year ended December 31,
	2009		2010		2011
	RMB		RMB		RMB
Cost of revenues		432,876		318,912		448,452
Sales and marketing		516,512		317,734		338,917
General and administrative		1,190,348		841,580		903,916
Total		2,139,736		1,478,226		1,691,285

As of December 31, 2011, there was RMB1.3 million (December 31, 2010: RMB0.7 million; December 31, 2009: RMB2.3 million) of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based awards granted to the Company’s employees which will be recognized over a weighted-average period of 0.5 years (December 31, 2010: 1.5 years; December 31, 2009 2.5 years). When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual option forfeitures. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.

Fair Value Measurements

ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 — Inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs are defined as unobservable inputs for the asset or liability.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In accordance with ASC 820, the Group measures its cash equivalents, restricted cash and investment funds at fair value. The Group’s cash equivalents, restricted cash and investment funds are classified within Level 2. This is because its cash equivalents, restricted cash and investment funds are valued using the estimated value of cash equivalents, restricted cash and investment funds when realized provided by the banks, discounted using estimated risk-free interest rate.

F-26

Assets measured at fair value on a recurring basis are summarized below:

	Fair value measurement at reporting date using
	December 31, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents:
Time deposits		7,000,000		—		7,000,000		—
Short term investments:
Time deposits		163,687,500		—		163,687,500		—
Investment funds		30,018,411		—		30,018,411		—
Total Assets		200,705,911		—		200,705,911		—

	Fair value measurement at reporting date using
	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents:
Time deposits		20,000,000		—		20,000,000		—
Restricted cash
Restricted deposit		10,000,000		—		10,000,000		—
Short term investments:
Investment funds		150,000,000		—		150,000,000		—
Total Assets		180,000,000		—		180,000,000		—

	Fair value measurement at reporting date using
	December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents:
Time deposits		40,000,000		—		40,000,000		—
Short term investments:
Investment funds		80,000,000		—		80,000,000		—
Total Assets		120,000,000		—		120,000,000		—

Interest and investment income

	December 31,
	2009		2010		2011
	RMB		RMB		RMB
Interest income		3,499,115		1,437,570		3,708,700
Investment income		5,994,921		3,819,737		10,038,680
Total		9,494,036		5,257,307		13,747,380

F-27

Commitments and Contingencies

(a)

Operating lease commitments

The Group has entered into certain leasing arrangements relating to the lease of the Group’s office premises. Rental expenses under operating leases for the years ended December 31, 2009, 2010 and 2011 were RMB 104,004, RMB 189,504 and RMB 76,651, respectively.

As at December 31, 2011, the Group has commitments under non-cancellable operating leases to make minimum payments as follows:

	December 31, 2011
	RMB
Year 2012		173,426
Year 2013		94,772
Year 2014 and thereafter		—
Total		268,198

(b)

Other fixed or guaranteed payment contract

As of December 31, 2011, the Group had agreed to pay RMB 81.3 million to purchase the related advertising time slots of the CCTV-4 News at Periodic China News package in 2012.

Related Party Transactions

(a)

The table below sets forth the major related parties and their relationships with the Group:

Related party’s name		Relationship with the Group

Mr. Zhiyi Wang		Father of Mr. Shengcheng Wang, controlling shareholder of the Group before the reorganization

Shenzhen Guang Er Gao Zhi Co., Ltd. (“Shenzhen Guang Er Gao Zhi”)		Shareholder of Mass Media (51%), under the control of Mr. Shengcheng Wang’s parents

Beijing Guang Er Gao Zhi Media Advertising Co., Ltd. (“Beijing Guang Er Gao Zhi”)		Under the control of Mr. Shengcheng Wang’s parents

Guang Er Gao Zhi Film and Television Production Co., Ltd. (“FTP”)		50% controlled by Beijing Guang Er Gao Zhi

Beijing Mass Media Web Media Co., Ltd. (“Beijing Mass Media Web Media”)		Under the control of Mr. Shengcheng Wang’s parents

Mass Media International Advertising Co., Ltd. (Mass Media)		Predecessor of Universal, which was excluded from the Group, effective from December 30, 2007

(b)

Details of significant related party transactions are as follows during the periods presented:

	Year ended December 31, 2011
	2009		2010		2011
	RMB		RMB		RMB
Purchase of advertising time slots from FTP		296,559,920		—		—
Lease office premise to FTP		493,440		493,440		—
Purchase advertising agency service from FTP		—		300,000		—
Sale of used vehicle to Beijing Mass Media Web Media		—		300,000		—
Lease office furniture and equipment from FTP		—		103,000		—

F-28

Purchase of advertising time slots from FTP

In December 2007, the Group entered into a framework agreement with FTP, an advertising agency that has secured advertising rights relating to a number of television programs on CCTV. FTP is 50%-owned by CCTV and 50%-owned by Beijing Guang Er Gao Zhi. Beijing Guang Er Gao Zhi is controlled by the parents of Mr. Shengcheng Wang. Under the framework agreement, the Group has obtained the exclusive right from FTP to procure advertisers for the advertising time slots FTP has secured from CCTV, effective from January 1, 2008.

On January 22, 2008, Universal entered into an exclusive advertising service agency contract with FTP to secure exclusive access to some advertising time slots that FTP obtained from CCTV Channel 2 and Channel 4 and paid a guarantee deposit of RMB1,000,000 to FTP. For the year ended December 31, 2009, the purchase of advertising time slots on CCTV Channel 2 and Channel 4 from FTP was RMB66,559,920 and RMB230,000,000, respectively.

(c)

Details of amount due from/to related parties were as follows:

	December 31,
	2009		2010		2011
	RMB		RMB		RMB
Due to Mass Media (Note 1(b))		18,878,848		18,878,848		10,883,700
Accounts payable to FTP		108,189,776		34,358,200		—

The balances due from/to related parties are unsecured, non-interest bearing and have no fixed terms of payment.

Restricted Net Assets

Relevant PRC laws and regulations permit payments of dividends by the Company’s PRC subsidiaries only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. In addition, the PRC subsidiaries are required to annually appropriate 10% of net after-tax income to the general reserve fund or statutory surplus fund (see Note 13 (b)) prior to payment of any dividends, unless such reserve funds have reached 50% of its respective registered capital. As a result of these and other restrictions under PRC laws and regulations, the PRC subsidiaries are restricted in their ability, which restricted portion amounted to approximately RMB75,109,995 million and RMB78,109,995million as of December 31, 2010 and 2011, respectively. Even though the Company currently does not require any such dividends, loans or advances from the PRC subsidiaries for working capital and other funding purposes, the Company may in the future require additional cash resources from the PRC subsidiaries due to changes in business conditions, to fund future acquisitions and development, or merely to declare and pay dividends to make distributions to shareholders.

The Company performed a test on the restricted net assets of consolidated subsidiary and VIE in accordance with Securities and Exchange Commission Regulation S-X Rule 4-08 (e) (3), “General Notes to Financial Statements” and concluded the restricted net assets exceed 25% of the consolidated net assets of the Company as of December 31, 2011. Therefore the separate condensed financial statements of the Company should be presented with the Company’s investments in its subsidiary under the equity method of accounting (Please see Note 21 for details).

Subsequent Events

(a) Delisting Notice from NYSE

In March 2012, the Company received a notice from the staff of NYSE Regulation, Inc. (“NYSE Regulation”) confirming that NYSE Regulation has determined to commence proceedings to delist the Company’s ADSs from the NYSE on the grounds that the Company has fallen below the NYSE’s continued listing standard set forth in Section 802.01B of the NYSE Listed Company Manual, which requires the Company to maintain an average global market capitalization of not less than $15 million over a consecutive 30-trading day period.

The NYSE made public announcement of this decision on March 12, 2012. Trading in the Company’s ADSs on the NYSE was suspended on March 19, 2012. The Company intends to facilitate the quotation of its ADSs on the over-the-counter bulletin board (“OTCBB”) market.

F-29

(b) Significant cash outflow due to dividend payment

In March 2012, the Company paid the remaining dividend payable of RMB164.6 million to shareholders using the proceeds from the maturities of short-term investments

The Group prepaid RMB 60.5 million for 2012 advertising time slots on CCTV-8 in November 2011, of which RMB 49.5 million is not refundable. Effective as of January 1, 2012, a new regulation disallows advertisement during one particular episodic of TV drama but allows commercials between different episodes. Due to such regulation, the revenues from CCTV-8 time slots are expected to be significantly less than originally expected. The group might potentially incur loss for this non-refundable purchase.

F-30

Additional Information — Condensed Financial Statements of the Company

The condensed financial statements of China Mass Media Corp., the Group’s parent company incorporated in Cayman Islands have been prepared in accordance with SEC Regulation S-X Rule 12-04(a) and 4-08(e)(3).

The condensed financial information of the Company has been prepared using the same accounting policies as set out in the Group’s consolidated financial statements except that the Company used the equity method to account for investments in its subsidiary and VIE.

The footnote disclosures contain supplemental information relating to the operations of the Group and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Group. Certain information and footnote disclosures normally included in financial statements prepared in accordance with US GAAP have been condensed and omitted.

The Company declared cash dividends of RMB 363.7 million in October, 2011. As of December 31, 2011, RMB 31.0 million had been paid by the Company, and RMB 167.4 million had been paid by UIAL, a subsidiary of the Company, on its behalf.

As of December 31, 2009, 2010 and 2011, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those, if any, which have been separately disclosed in the consolidated financial statements.

Financial information of parent company

Condensed Balance Sheets

	December 31,
	2009		2010			2011		2011
	RMB		RMB			RMB		US$
								See Note 3(x)
Assets
Current assets:
Cash and cash equivalents		259,884,878		221,374,253			8,828,514		1,402,710
Short-term investments		—		—			163,687,500		26,007,325
Amount due from subsidiaries and VIE		14,628,087		19,300,602			14,267,020		2,266,800
Prepaid expenses and other current assets		204,316		4,208,486			3,434,650		545,711
Total current assets		274,717,281		244,883,341			190,217,684		30,222,546
Investment in subsidiaries and VIE		203,264,436		263,923,758			124,720,599		19,816,108
Total assets		477,981,717		508,807,099			314,938,283		50,038,654

Liabilities and shareholder’s equity
Current liabilities:
Dividend payable		—		—			164,589,438		26,150,628
Accrued expenses and other current liabilities		1,333,711		184,782			273,582		43,468
Total current liabilities		1,333,711		184,782			164,863,020		26,194,096
Total liabilities		1,333,711		184,782			164,863,020		26,194,096

Shareholder’s equity:
Ordinary shares (US$0.001 par value; 3,000,000,000 shares authorized as of December 31, 2009, 2010 and 2011; 716,375,000 issued and outstanding as of December 31, 2009; 788,332,360 issued and outstanding as of December 31, 2010, 751,697,920 issued and outstanding as of December 31, 2011		4,893,500		5,381,321			5,132,534		815,478
Additional paid-in capital		332,354,066		361,736,018			104,896,262		16,666,338
Accumulated other comprehensive income		—		—			13,900		2,208
Repurchased Shares to be cancelled, at cost (nil as of December 31, 2009 and 2011; 13,860,000 shares as of December 31, 2010)		—		(9,529,124	)		—		—
Statutory reserves		25,000,000		25,000,000			25,000,000		3,972,100
Retained earnings		114,400,440		126,034,102			15,032,567		2,388,434

Total shareholder’s equity		476,648,006		508,622,317			150,075,263		23,844,558

Total liabilities and shareholder’s equity		477,981,717		508,807,099			314,938,283		50,038,654

F-31

Financial information of parent company

Condensed Statements of Comprehensive Income

	2009			2010			2011			2011
	RMB			RMB			RMB			US$
										See Note 3(x)
Operating costs and expenses:
Selling, general and administrative expenses		(13,902,035	)		(13,315,617	)		(14,508,985	)		(2,305,246	)

Total operating costs and expenses		(13,902,035	)		(13,315,617	)		(14,508,985	)		(2,305,246	)

Operating income		(13,902,035	)		(13,315,617	)		(14,508,985	)		(2,305,246	)
Equity in profit of subsidiaries and VIE		98,760,085			60,264,798			31,513,611			5,007,009
Interest and investment income		1,883,301			349,941			2,657,290			422,201
Other expense		(275,681	)		(7,406,420	)		(4,629,349	)		(735,529	)

Net income		86,465,670			39,892,702			15,032,567			2,388,435

Comprehensive income		86,465,670			39,892,702			15,032,567			2,388,435

F-32

Financial information of parent company

Condensed Statements of Cash Flows

		Year ended December 31,
	Notes	2009			2010			2011			2011
		RMB			RMB			RMB			US$
											See Note 3(x)
Cash flows from operating activities:
Net income			86,465,670			39,892,702			15,032,567			2,388,435
Adjustments to reconcile net income to net cash provided by / (used in) operating activities:
Equity in profit of subsidiaries and VIE			(98,760,085	)		(60,264,798	)		(31,513,611	)		(5,007,009	)

Exchange loss			275,681			7,406,420			4,629,349			735,529
Share-based compensation			1,585,199			1,083,703			1,421,957			225,926
Changes in assets and liabilities:
Amount due from subsidiaries and VIE			(32,578,386	)		(4,672,515	)		5,823,276			925,225
Prepaid expense and other current assets			426,037			(3,871,664	)		1,026,774			163,139
Accrued expenses and other current liabilities			727,993			(1,148,929	)		88,800			14,109
Net cash used in operating activities			(41,857,891	)		(21,575,081	)		(3,490,888	)		(554,646	)

Cash flows from investing activities:
Purchase of one-year time deposit			—			—			(163,687,500	)		(26,007,325	)

Net cash used in investing activities			—			—			(163,687,500	)		(26,007,325	)

Cash flows from financing activities:
Net proceeds from issuance of ordinary shares			—			—			687,751			109,273

Dividends distributed			(96,335,115	)		—			(30,969,122	)		(4,920,498	)
Repurchase of ordinary shares to be cancelled			—			(9,529,124	)		(12,476,159	)		(1,982,262	)

Net cash used in financing activities			(96,335,115	)		(9,529,124	)		(42,757,530	)		(6,793,487	)

Effect of exchange rate changes on cash and cash equivalents			(275,681	)		(7,406,420	)		(2,609,821	)		(414,659	)

Net decrease in cash and cash equivalents			(138,468,687	)		(38,510,625	)		(212,545,739	)		(33,770,117	)
Cash and cash equivalents at beginning of the year			398,353,565			259,884,878			221,374,253			35,172,827

Cash and cash equivalents at end of the year			259,884,878			221,374,253			8,828,514			1,402,710

Supplemental disclosures of cash flow and non-cash information:
Dividend declared but not paid	12		—			—			164,589,438			26,150,628
Stock dividend distribution			—			28,259,040			—			—
Dividend from UIAL, which was paid to shareholders directly to settle the dividend payable of the Company			—			—			167,444,922			26,604,319

F-33

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Good

China Mass Media (CMMCY) Inactive 20-F2011 FY Annual report (foreign)

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