F-1 1 h00745fv1.htm XINHUA FINANCE MEDIA LIMITED XINHUA FINANCE MEDIA LIMITED
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As filed with the Securities and Exchange Commission on February 21, 2007
Registration No. 333-         
 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form F-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
Xinhua Finance Media Limited
(Exact name of registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
         
Cayman Islands
  4899   Not Applicable
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
Rooms 3905-3909,
Tower 1, Grand Gateway
1 Hongqiao Lu, Shanghai 200030
People’s Republic of China
(86 21) 6113-5900
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Law Debenture Corporate Services Inc.
400 Madison Avenue, 4th Floor
New York, New York 10017
(212) 750-6474
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Copies to:
     
David T. Zhang
John A. Otoshi
Latham & Watkins LLP
41st Floor, One Exchange Square
8 Connaught Place, Central
Hong Kong
(852) 2522-7886
  William F. Barron
Davis Polk & Wardwell
18th Floor, The Hong Kong Club Building
3A Chater Road, Central
Hong Kong
(852) 2533-3300
 
       Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement
       If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
       If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o        
       If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o        
       If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering. o        
 
CALCULATION OF REGISTRATION FEE
             
       
       
Title of each class of     Proposed maximum aggregate     Amount of
securities to be registered(2)(3)     offering price(1)     registration fee
       
Common shares, par value $0.001 per common share
    $371,538,462     $11,407
             
             
(1)  Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(o) under the Securities Act of 1933.
 
(2)  Includes (i) common shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public and (ii) common shares that may be purchased by the underwriters pursuant to an over-allotment option. These common shares are not being registered for the purposes of sales outside of the United States.
 
(3)  American depositary shares issuable upon deposit of the common shares registered hereby have been registered under a separate registration statement on Form F-6 (Registration No. 333-               ). Each American depositary share represents two common shares.
 
       The Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.
 
 


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The information in this prospectus is not complete and may be changed. Neither we nor the selling shareholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to completion, dated February 21, 2007
Prospectus
23,076,923 American Depositary Shares
Representing 46,153,846 Common Shares
Xinhua Finance Media Limited Logo
Xinhua Finance Media Limited
This is an initial public offering of American depositary shares, or ADSs, by Xinhua Finance Media Limited, or Xinhua Finance Media. Xinhua Finance Media is offering 17,307,923 ADSs, and the selling shareholders identified in this prospectus are offering an additional 5,769,000 ADSs. Each ADS represents two common shares. The estimated initial public offering price is between $12.00 and $14.00 per ADS.
Prior to this offering, there has been no public market for the ADSs. Our common shares have not been listed on any exchange. We have applied to have the ADSs listed on the Nasdaq Global Market under the symbol “XFML”.
                 
 
    Per ADS   Total
 
Initial public offering price
  $       $    
Underwriting discounts and commissions
  $       $    
Proceeds to Xinhua Finance Media, before expenses
  $       $    
Proceeds to the selling shareholders, before expenses
  $       $    
 
The underwriters have an option for a period of 30 days from the date of this prospectus to purchase up to an additional 3,230,538 ADSs from Xinhua Finance Media and up to an additional 231,000 ADSs from a selling shareholder at the initial public price less the underwriting discounts and commissions. We will not receive any proceeds from the sale of ADSs by the selling shareholders.
Investing in our ADSs and common shares involves a high degree of risk. See “Risk factors” beginning on page 15.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
JPMorgan UBS Investment Bank
CIBC World Markets WR Hambrecht + Co ABN AMRO Rothschild
                      , 2007


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    F-1  
 EX-3.1 AMENDED AND RESTATED MEMORANDUM & ARTICLES OF ASSOCIATION
 EX-3.2 AMENDED AND RESTATED MEMORANDUM & ARTICLES OF ASSOCIATION
 EX-4.2 SPECIMEN SHARE CERTIFICATE
 EX-4.3 FORM OF DEPOSIT AGREEMENT
 EX-4.4 IRREVOCABLE PROXY
 EX-4.5 SHARE PURCHASE AGREEMENT
 EX-4.6 INVESTOR RIGHTS AGREEMENT
 EX-5.1 OPINION OF CONYERS, DILL & PEARMAN
 EX-8.1 OPINION OF CONYERS, DILL & PEARMAN
 EX-8.2 FORM OF OPINION OF LATHAM & WATKINS LLP
 EX-10.1 SHARE OPTION PLAN
 EX-10.2 INDEMNIFICATION AGREEMENT
 EX-10.3 EXECUTIVE SERVICE AGREEMENT
 EX-10.4 TRADEMARK LICENSE AGREEMENT
 EX-10.5 BUSINESS COOPERATION AGREEMENT
 EX-10.6 STOCK OPTION AGREEMENT
 EX-10.7 GROUP SERVICES AGREEMENT
 EX-10.8 AMENDED AND RESTATED CREDIT AGREEMENT
 EX-10.9 PLEDGE AGREEMENT AND IRREVOCABLE PROXY
 EX-10.10 SECURITY AGREEMENT
 EX-10.11 ADVISORY AGREEMENT
 EX-10.12 CONSULTING AGREEMENT
 EX-10.13 STRATEGIC PARTNERSHIP AGREEMENT
 EX-10.14 CALL OPTION AGREEMENT
 EX-10.15 ADVERTISING SERVICES AGREEMENT
 EX-10.16 COOPERATION AGREEMENT
 EX-10.17 COOPERATION AGREEMENT
 EX-10.18 COOPERATION AGREEMENT
 EX-10.19 CALL OPTION AGREEMENT
 EX-10.20 ADVERTISING AGREEMENT
 EX-10.21 MONEY JOURNAL COOPERATION AGREEMENT
 EX-10.22 COOPERATION AGREEMENT
 EX-10.23 INFORMATION CONSULTING COMMITTEE ORGANIZATION AGREEMENT
 EX-10.24 BUSINESS COOPERATION AGREEMENT
 EX-10.25 COOPERATION AGREEMENT
 EX-10.26 EQUITY PLEDGE AGREEMENT
 EX-10.27 EQUITY PURCHASE OPTION AGREEMENT
 EX-10.28 SUBROGATION AGREEMENT
 EX-10.29 SERVICE AGREEMENT
 EX-10.30 EQUITY TRANSFER AGREEMENT
 EX-10.31 DEED OF NON-COMPETITION UNDERTAKING AND RELEASE
 EX-10.32 SHARE SUBSCRIPTION AGREEMENT
 EX-10.33 EQUITY TRANSFER AND CAPITAL INCREASE AGREEMENT
 EX-10.34 SALE AND PURCHASE OF EQUITY INTEREST
 EX-10.35 EQUITY TRANSFER AGREEMENT
 EX-10.36 LOAN AND SHARE PURCHASE AGREEEMENT
 EX-10.37 SUBSCRIPTION AGREEMENT
 EX-10.38 SHARE PURCHASE AGREEMENT
 EX-10.39 SHARE PURCHASE AGREEMENT
 EX-10.40 AGREEMENT FOR THE SALE AND PURCHASE OF EQUITY INTEREST
 EX-10.41 SHARE SUBSCRIPTION AGREEMENT
 EX-10.42 AGREEMENT FOR SALE AND PURCHASE OF SHARES
 EX-10.43 SHARE PURCHASE AND SALE AGREEMENT
 EX-10.44 SHARE TRANSFER AGREEMENT
 EX-10.45 AGREEMENT FOR SALE AND PURCHASE OF SHARES
 EX-10.46 PROMISSORY NOTE (SINO INVESTMENT HOLDINGS LTD)
 EX-10.47 SHARE PURCHASE AGREEMENT
 EX-10.48 FORM OF EMPLOYMENT AGREEMENT
 EX-21.1 SUBSIDIARIES OF THE REGISTRANT
 EX-23.1 CONSENTS OF DELOITTE TOUCHE TOHMATSU
 EX-23.3 CONSENT OF LATHAM & WATKINS LLP
 EX-23.5 FORM OF CONSENT OF AMERICAN APPRAISAL CHINA LTD.
 EX-99.1 CODE OF BUSINESS CONDUCT AND ETHICS
 EX-99.2 STRATEGIC COOPERATION AGREEMENT
 EX-99.3 COOPERATION AGREEMENT
 EX-99.4 CONTENT LICENSE AGREEMENT
 EX-99.5 OPINION OF COMMERCE & FINANCE LAW OFFICES
 
You should rely only on the information contained in this prospectus. Neither we nor the underwriters have authorized anyone, including the selling shareholders, to provide you with information that is different from that contained in this prospectus. This prospectus may only be used where it is legal to offer and sell these securities. The information in this prospectus is only accurate as of the date of this prospectus.


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Prospectus summary
You should read the following summary together with the entire prospectus, including the more detailed information regarding us, the ADSs being sold in this offering, and our financial statements and related notes appearing elsewhere in this prospectus.
Overview
We are a leading diversified media company in China. We have assembled and built a group of media assets and strategic partnerships that we believe will enable us to achieve best in class media and advertising services across various sectors of the media business in China.
We have developed a unique, integrated platform that includes the creation and production of high-quality content that is distributed across nationwide television and print media outlets and radio in Beijing and Shanghai, and where advertising sales are supported by our own advertising agency. These outlets reach an estimated 210 million potential television viewers, a potential listening audience of 33 million people, and the readers of leading magazines and newspapers. In addition, our market research business enables our advertisers to analyze, understand and better reach their targeted consumers.
Our content currently focuses on business and financial news as well as wealth management and affluent lifestyle programming. We focus on this programming because we believe it attracts the highest income audience in China. This audience is highly sought after by our target advertisers.
Our business operates across five groups:
•   Media production, which refers to our in-house production studios that create and produce a diverse array of high-quality programs, including business, entertainment, educational and animation shows;
 
•   Broadcasting, which refers to the distribution of our programming through Inner Mongolia Satellite Television; our production and syndication of the Fortune China series of financial programs, including Fortune Morning 7 a.m., a popular financial news programs in China; and our production and distribution of bilingual content for China Radio International’s EasyFM stations in Beijing and Shanghai;
 
•   Print, which refers to our exclusive rights to sell advertising for and provide management and information consulting services to, Money Journal magazine and the Economic Observer newspaper;
 
•   Advertising, which refers to our advertising agency that creates and places advertising for television, print media and campus billboards; and
 
•   Research, which refers to our market research group that provides research services on products, advertisements and markets.
We generate revenue principally by selling advertising on broadcast and print distribution platforms; selling advertising space on newspaper and magazine pages; selling produced television programs; providing advertisement production services; and providing research services.

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Our strengths
We believe we have the following competitive strengths:
•   We produce high-quality content using a commercial, ratings-driven approach, targeted at the affluent segment of the Chinese population.
 
•   Our distribution channels are based on agreements with distributors, most of which are long-term in nature and give us the exclusive rights to sell advertising. Through this, we provide advertisers with an integrated platform to reach their target audience.
 
•   We believe our services allow advertisers to more cost-effectively reach desirable consumers across multiple media platforms.
 
•   We gain competitive advantage from sharing content among our subsidiaries, including affiliated entities, and with our parent company.
 
•   Our management team has a mix of Chinese cultural experience and international media operational skills, and brings international standards to our content offerings.
 
•   Our management has significant experience in identifying, executing and integrating acquisitions in China.
Our strategies
We intend to become the leading diversified media company targeting the rapidly growing affluent segment of the Chinese population. We intend to achieve this objective by implementing the following:
•   We plan to expand our distribution assets and strategic partnerships in both traditional and new media.
 
•   We are committed to producing high-quality programming based on our commercial, ratings-driven approach, targeting the affluent segment of the Chinese population.
 
•   We plan to leverage our integrated platform to increase operational and cross-selling synergies.
 
•   We plan to build our brands for both consumers and advertisers.
 
•   We plan to pursue strategic acquisitions and relationships that fit with our current core competencies and brands.
Our challenges
Our ability to realize our business objectives and execute our strategies is subject to risks and uncertainties, such as the following:
•   We rely on key contracts and business relationships, and if our business partners or contracting counterparties fail to perform or terminate their contractual arrangements with us or cease operations, it will have an adverse effect on our business.
 
•   We are not a party to some of the key contracts on which we rely. Instead, we have contracts with companies, which in turn have these key contracts with third parties. If the

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third parties fail to perform or terminate these contracts or cease operations, we will not be able to enforce our rights in court.
 
•   We may not be able to achieve the benefits we expect from recent and future acquisitions, and recent and future acquisitions may have an adverse effect on our ability to manage our business.
Please see “Risk factors” and other information included in this prospectus for a discussion of these and other risks.
Corporate structure
We were incorporated on November 7, 2005 in the Cayman Islands. We acquired several companies from our parent, Xinhua Finance Limited, and continue to make acquisitions. To date, we have acquired eight businesses that form our five operating groups. For a detailed description of our acquisitions, see “Management’s discussion and analysis of financial condition and results of operations— Acquisitions”.
Upon completion of this offering, we will be 36.7% owned by our parent, Xinhua Finance Limited, 8.0% owned by Patriarch Partners Media Holdings, LLC, and 5.8% owned by Fredy Bush, our Chief Executive Officer and the Chairman of our Board. We have several other significant shareholders, as described in “Principal and selling shareholders”. PRC laws and regulations currently impose different levels of restrictions or prohibitions on investment of private capital, including foreign capital, in the media industry, including television, radio, newspaper, magazine, advertising and media content production, and the market research industry. Our subsidiaries in China are limited in their abilities to engage in operations in the media, advertising and market research industries. Accordingly, we operate our businesses in China primarily through contractual arrangements with our affiliated entities and the contractual arrangements we and our affiliated entities have with third parties.
We have entered into contractual arrangements with these affiliated entities and their shareholders, all PRC citizens, which enable us to:
•   exercise effective control over these affiliated entities and their respective subsidiaries;
 
•   in the case of Beijing Century Advertising Co., Ltd., to receive a substantial portion of the economic benefits from the affiliated entity and its subsidiaries in consideration for the services provided by our subsidiary, New China Media (Shanghai) Co., Ltd.; and
 
•   have an exclusive option to purchase all or part of the equity interests in the various affiliated entities and certain of their subsidiaries in each case when and to the extent permitted by PRC law.
Corporate information
Our principal executive offices are located at Rooms 3905-3909, Tower 1, Grand Gateway, 1 Hongqiao Lu, Shanghai 200030, People’s Republic of China. Our telephone number at this address is (86-21) 6113-5900 and our fax number is (86-21) 6448-4955. Our registered office in the Cayman Islands is at Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman KYI-1111, Cayman Islands.

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You should direct all inquiries to us at the address and telephone number of our principal executive offices set forth above. We and our strategic partners maintain various websites such as www.mjc.com.cn, www.econ-world.com, www.money-journal.com, www.eobserver.net, www.eobserver.com.cn, www.jingjiguanchabao.com and www.eeo.com.cn. Our corporate website is www.xinhuafinancemedia.com.
The information contained on our or our strategic partners’ websites does not form part of this prospectus. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.
Conventions that apply to this prospectus
Unless the context otherwise requires, in this prospectus, “we”, “us”, “our company”, “our”, “XFM” and “Xinhua Finance Media” refer to Xinhua Finance Media Limited and its subsidiaries, including direct subsidiaries and affiliated entities, except where the context requires otherwise, such as in “Regulation”, where these terms refer to Xinhua Finance Media Limited and its direct subsidiaries, but not its affiliated entities; “production of” or “to produce” drama series refer to “co-production with third parties who hold drama series production licenses” or “to cooperate with third parties who hold drama series production license to produce”; “shares” or “common shares” refers to our common shares; “ADSs” refers to our American depositary shares, each of which represents two common shares; “China” or “PRC” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau; “RMB” or “Renminbi” refers to the legal currency of China, and “$”, “US$” or “U.S. dollars,” refers to the legal currency of the United States. Unless otherwise noted, all translations from Renminbi amounts into U.S. dollars were made at the noon buying rate in New York, New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate, as of December 29, 2006, which was RMB 7.8041 to $1.00. We make no representation that the Renminbi amounts in this prospectus could have been or could be converted into U.S. dollars at any particular rate or at all. On February 20, 2007, the noon buying rate was RMB 7.7466 to $1.00. “Subsidiaries” may refer to both our direct subsidiaries and our affiliated entities, or may refer only to direct subsidiaries, as the context requires. Some names of companies given in this prospectus are translated or transliterated from Chinese if the original legal name is only in Chinese. The circulation data for Money Journal are compiled by BPA Worldwide while the circulation data for Beijing Review and the Economic Observer are derived from the internal records of each.

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The offering
American depositary shares offered:
By Xinhua Finance Media 17,307,923 ADSs
 
By the selling shareholders 5,769,000 ADSs
 
The ADSs Each ADS represents two common shares, par value $0.001 per share. The ADSs are evidenced by American depositary receipts issued by the depositary.
 
Reserved ADSs At our request, the underwriters have reserved for sale, at the initial public offering price, up to an aggregate of 1,153,846 ADSs to certain directors, officers, employees and associates of our company through a directed share program. These reserved ADSs account for an aggregate of approximately 5% of the ADSs offered in the offering.
 
ADSs outstanding immediately after the offering 23,076,923 ADSs
 
Common shares outstanding immediately after the offering 136,648,481 common shares
 
Use of proceeds We intend to use the net proceeds from this offering as follows:
 
• approximately $50 million to repay certain outstanding indebtedness to our parent and Xinhua Financial Network Limited. The indebtedness is due on demand and the interest rates are not specified. The indebtedness was to pay for the costs related to our acquisitions from our parent of equity interests our parent had held before March 31, 2006 in Xinhua Finance Advertising Limited, and the contractual control our parent had held before March 31, 2006 in Beijing Century Media Culture Co., Ltd., as well as the advances from our parent and Xinhua Financial Network enabling us to acquire 19.0% equity interests in Upper Step Holdings Limited and Accord Group Investments Limited;
 
• an undetermined amount for strategic acquisitions of complementary businesses. At this time we have not entered into advanced discussions or negotiations regarding potential acquisitions except for the acquisition of the remaining equity of Beijing Perspective; and
 
• the balance to fund working capital and for other general corporate purposes.

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The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering differently than as described in this prospectus.
 
We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.
 
Depositary The Bank of New York
 
Risk factors See “Risk factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs.
 
Proposed Nasdaq Global Market
symbol
XFML
The number of ADSs and common shares outstanding immediately after this offering excludes 10,698,141 class A common shares reserved for future issuance under our individual option agreements entered into in 2006 and 1,029,461 class A common shares for further share grants or individual option agreements and includes the conversion of 15,585,254 convertible preferred shares into 16,134,320 class A common shares and the conversion of the convertible loan with Patriarch Partners into an estimated 3,832,543 class A common shares. There are also class A common shares available for future issuance under our 2007 share option plan. Unless otherwise indicated, all information in this prospectus:
•   assumes the issuance and sale by the company and sale by the selling shareholders of an aggregate of 23,076,923 ADSs in this offering at an initial public offering price of $13.00 per ADS, the midpoint of the estimated range of the initial public offering price; and
 
•   assumes no exercise by the underwriters of their option to purchase up to 3,461,538 ADSs in this offering to cover over-allotments.

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Summary consolidated financial data
The following summary consolidated statement of operations data for EconWorld Media Limited (our predecessor), or EconWorld Media, for the year ended December 31, 2004 and the period ended May 25, 2005, and for our company for the period from May 26, 2005, the date our parent acquired 60% of EconWorld Media, to December 31, 2005 and the year ended December 31, 2006 and the summary consolidated balance sheet data for our company as of December 31, 2006 have been derived from the audited financial statements of EconWorld Media and our company included elsewhere in this prospectus. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s discussion and analysis of financial condition and results of operations”. The summary consolidated statement of operations data for EconWorld Media for the year ended December 31, 2003 have been derived from the unaudited financial statements of EconWorld Media that are not included in this prospectus. Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.
                                           
 
    Period from   Period from    
    Year ended   Year ended   January 1,   May 26,    
    December 31,   December   2005 to May   2005(1) to   Year ended
    2003   31, 2004   25, 2005   December 31,   December 31,
(in thousands, except per share data)   (Predecessor)   (Predecessor)   (Predecessor)   2005   2006
 
Net revenues:
                                       
 
Advertising services
  $ 23     $ 301     $ 53     $ 580     $ 44,862  
 
Content production
                      3,641       6,545  
 
Advertising sales
    157       48       240       387       6,691  
 
Publishing services
    9       52       55       787       868  
                               
Total net revenues
    189       401       348       5,395       58,966  
                               
Cost of revenues:
                                       
 
Advertising services
    56       248       66       154       27,654  
 
Content production
                      651       2,829  
 
Advertising sales
    11       35       42       85       1,912  
 
Publishing services
    51       325       347       534       1,386  
                               
Total cost of revenues
    118       608       455       1,424       33,781  
                               
Operating expenses:
                                       
 
Selling and distribution
    18       418       322       293       5,277  
 
General and administrative(2)
    692       608       456       1,248       12,840  
                               
Total operating expenses
    710       1,026       778       1,541       18,117  
                               
Income (loss) from operations
    (639 )     (1,233 )     (885 )     2,430       7,068  
                               
Other income (expense), net
    26       (10 )     (3 )     (22 )     (898 )
                               
Provision for income taxes (benefit)
    1       5       (4 )     929       1,070  
                               
Minority interest
                      129       1,704  
                               
Equity in loss of an investment
                            52  
Net income (loss)
    (614 )     (1,248 )     (884 )     1,350       3,344  
Deemed dividend on redeemable convertible preferred shares
                            (2,157 )

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    Period from   Period from    
    Year ended   Year ended   January 1,   May 26,    
    December 31,   December   2005 to May   2005(1) to   Year ended
    2003   31, 2004   25, 2005   December 31,   December 31,
(in thousands, except per share data)   (Predecessor)   (Predecessor)   (Predecessor)   2005   2006
 
Dividends declared to redeemable convertible preferred shares
                            (5,335 )
                               
Net income (loss) attributable to holders of common shares
  $ (614 )   $ (1,248 )   $ (884 )   $ 1,350     $ (4,148 )
                               
Net income (loss) per share:
                                       
 
Basic — Class A common share
  $     $     $     $     $ (0.08 )
 
Basic — Class B common share
  $ (8.53 )   $ (13.13 )   $ (7.85 )   $ 0.03     $ (0.08 )
 
Diluted — Class A common share
  $     $     $     $     $ (0.08 )
 
Diluted — Class B common share
  $ (8.53 )   $ (13.13 )   $ (7.85 )   $ 0.03     $ (0.08 )
Shares used in computation:
                                       
 
Basic — Class A common share
                            5,084  
 
Basic — Class B common share
    72       95       113       42,613       44,693  
 
Diluted — Class A common share
                            5,084  
 
Diluted — Class B common share
    72       95       113       42,613       44,693  
Pro forma income per share on an as converted basis(3):
                                       
 
Basic — Class A common share
                          $ 0.076  
 
Basic — Class B common share
                          $ 0.076  
 
Diluted — Class A common share
                          $ 0.073  
 
Diluted — Class B common share
                          $ 0.076  
Shares used in calculating pro forma per share amount on an as converted basis:
                                       
 
Basic — Class A common share
                            21,225,762  
 
Basic — Class B common share
                            44,693,266  
 
Diluted — Class A common share
                            68,469,817  
 
Diluted — Class B common share
                            44,693,266  
 
(1)  Date our parent acquired 60% of EconWorld Media, our predecessor.
 
(2)  Includes share-based compensation expense of $2.4 million for the year ended December 31, 2006.
 
(3)  Pro forma basic and diluted net income per common share is computed by dividing net income attributable to holders of common shares by the weighted average number of common shares outstanding for the period plus the weighted average number of common shares outstanding resulting from the assumed conversion upon the closing of the planned initial public offering of the outstanding redeemable convertible preferred shares and convertible loan.
The following table presents a summary of the balance sheet data as of December 31, 2006:
•   on an actual basis; and
 
•   on a pro forma basis to give effect to (1) the automatic conversion of all of our outstanding convertible preferred shares into 16,134,320 class A common shares immediately upon the completion of this offering, and (2) the conversion of our convertible loan into 3,832,543 class A common shares.
 
•   on an as adjusted basis to give effect to (1) the automatic conversion of all of our outstanding convertible preferred shares into 16,134,320 class A common shares immediately upon the completion of this offering, (2) the conversion of our convertible loan into an estimated 3,832,543 class A common shares and (3) the issuance and sale of 34,615,846 common shares in the form of ADSs by us in this offering, assuming an initial public offering price of $13.00 per ADS, the midpoint of the estimated range of the initial public offering price, after deducting estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no exercise of the underwriters’

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over-allotment option and no other change to the number of ADSs sold by us as set forth on the cover page of this prospectus.
                         
 
As of December 31, 2006
(in thousands)   Actual   Pro forma   As adjusted
 
Balance sheet data
                       
Cash
  $ 36,354       36,354     $ 240,122  
Goodwill
    83,670       83,670       83,670  
Intangible assets
    176,202       176,202       176,202  
Total assets
    399,450       399,450       603,218  
Total current liabilities
    175,067       175,067       175,067  
Convertible loan
    14,017              
Total shareholders’ equity
  $ 101,250       115,267     $ 319,035  
 

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Unaudited pro forma
condensed consolidated financial information
(in U.S. dollars, unless otherwise stated)
Introduction to unaudited pro forma condensed consolidated financial information
The following unaudited pro forma condensed consolidated financial information is derived from the historical financial statements of our company, EconWorld Media Limited, or EconWorld Media (our predecessor), Beijing Century Media Culture Co., Ltd., or Beijing Century Media, Xinhua Finance Advertising Limited (formerly known as Ming Shing International Limited, or Ming Shing), Accord Group Investments Limited, or Accord Group, Beijing Perspective Orient Movie and Television Intermediary Co., Ltd., or Beijing Perspective, and Shanghai Hyperlink Research Co., Ltd., or Hyperlink, appearing elsewhere in this prospectus, after giving effect to the pro forma adjustments described in the notes thereto.
The preparation of the unaudited pro forma condensed consolidated statements of operations appearing below is based on financial statements prepared in accordance with U.S. GAAP. These principles require the use of estimates that affect the reported amounts of assets, liabilities, revenues and expenses. Actual results could differ from those estimates. The objective of the unaudited pro forma condensed consolidated statement of operations is to provide information on the impact of the acquisitions of minority interests in EconWorld Media in June and December 2006, Ming Shing, which is now Xinhua Finance Advertising, in January 2006 by our parent and the acquisition of Accord Group in September 2006, Beijing Perspective in July 2006, Hyperlink in August and September 2006 and Upper Step in September and November 2006 by our company.
The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2006 present adjustments as if the acquisitions had been consummated on January 1, 2006.
The unaudited pro forma condensed consolidated statements of operations should be read in conjunction with historical consolidated financial statements, including the notes thereto, “Management’s discussion and analysis of financial condition and results of operations”, and other financial information included elsewhere in this prospectus.
While the unaudited pro forma condensed consolidated financial information is helpful in showing the financial characteristics of the consolidated companies, it is not intended to show how the consolidated companies would have actually performed if the events described above had in fact occurred on the dates assumed or to project the results of operations or financial position for any future date or period. We have included in the unaudited pro forma condensed consolidated financial statements all the adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the operating results in the historical periods.

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Given the information regarding the acquisitions, the actual consolidated results of operations may differ significantly from the pro forma amounts reflected below.
Unaudited pro forma condensed consolidated statement of operations
For the year ended December 31, 2006(1)(2)(3)
 
                                                                 
    Historical actual            
                 
        Beijing                
        Perspective Orient                
        Accord Group   Movie and   Shanghai   Upper Step            
        Investments Limited   Television   Hyperlink Market   Holding Limited            
    Xinhua Finance   (for the period   Intermediary Co.,   Research Co.,   (for the period            
    Media Limited (for   from January 1,   Ltd. (for the   Ltd. (for the   from January 1,            
    the year ended   2006 to   period from   period from   2006 to            
    December 31,   September 22,   January 1, 2006   January 1, 2006   September 22,   Pro forma        
    2006)   2006)   to July 27, 2006)   to July 31, 2006)   2006)   adjustments   Notes   Pro forma
 
Net revenues:
                                                               
Advertising services
  $ 44,861,952     $     $     $ 1,284,191                           $ 46,146,143  
Content production
    6,545,148                                               6,545,148  
Advertising sales
    6,691,543       1,121,638       830,599                                   8,643,780  
Publishing services
    867,789                                               867,789  
                                                 
Total net revenues
    58,966,432       1,121,638       830,599       1,284,191                             62,202,860  
                                                 
Cost of revenues:
                                                               
Advertising services
    27,653,769                   738,153             5,311,391       (2)       33,703,313  
Content production
    2,829,311                                               2,829,311  
Advertising sales
    1,912,260       730,998       1,100,503                   670,603       (2)       4,414,364  
Publishing services
    1,386,162                                               1,386,162  
                                                 
Total cost of revenues
    33,781,502       730,998       1,100,503       738,153                             42,333,150  
                                                 
Operating expenses:
                                                               
Selling and distribution
    5,276,751       259,710       148,355       140,440       86,676       390,715       (2)       6,302,647  
General and administrative
    12,840,202       460,542       336,792       432,732       32,368       18,070       (2)       14,120,706  
                                                 
Total operating expenses
    18,116,953       720,252       485,147       573,172       119,044                       20,423,353  
                                                 
Income (loss) from operations
    7,067,977       (329,612 )     (755,051 )     (27,134 )     (119,044 )                     (553,643 )
Other income (expenses):
                                                               
Interest expense
    (2,618,398 )     (23 )                                       (2,618,421 )
Interest income
    1,743,368       3,207       3,333       1,276       3,991                       1,755,175  
Other, net
    (22,621 )                                             (22,621 )
                                                 
Income (loss) before provision for income taxes and minority interest
    6,170,326       (326,428 )     (751,718 )     (25,858 )     (115,053 )                     (1,439,510 )
Provision for income taxes (tax benefit)
    1,069,537       (51,629 )           (68,641 )           (1,541,459 )     (2)       (592,192 )
                                                 
Net income (loss) before minority interest
    5,100,789       (274,799 )     (751,718 )     42,783       (115,053 )                     (847,318 )
                                                 
Minority interest
    1,704,287                   (5,874 )           (359,799 )     (3)       1,338,614  
Equity in loss of an investment
    52,211                                               52,211  
Net income (loss)
    3,344,291       (274,799 )     (751,718 )     48,657       (115,053 )                     (2,238,143 )
                                                 
Deemed dividend on redeemable convertible preferred shares
    (2,157,301 )                                             (2,157,301 )
Dividends declared to redeemable convertible preferred shares
    (5,335,000 )                                             (5,335,000 )

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    Historical actual            
                 
        Beijing                
        Perspective Orient                
        Accord Group   Movie and   Shanghai   Upper Step            
        Investments Limited   Television   Hyperlink Market   Holding Limited            
    Xinhua Finance   (for the period   Intermediary Co.,   Research Co.,   (for the period            
    Media Limited (for   from January 1,   Ltd. (for the   Ltd. (for the   from January 1,            
    the year ended   2006 to   period from   period from   2006 to            
    December 31,   September 22,   January 1, 2006   January 1, 2006   September 22,   Pro forma        
    2006)   2006)   to July 27, 2006)   to July 31, 2006)   2006)   adjustments   Notes   Pro forma
 
Net (loss ) income attributable to holders of common shares
  $ (4,148,010 )   $ (274,799 )   $ (751,718 )   $ 48,657     $ (115,053 )                   $ (9,730,444 )
Net income (loss) per share:
                                                               
 
Basic — Class A common share
  $ (0.083 )                                                   $ (0.195 )
 
Basic — Class B common share
  $ (0.083 )                                                   $ (0.195 )
 
Diluted — Class A common share
  $ (0.083 )                                                   $ (0.195 )
 
Diluted — Class B common share
  $ (0.083 )                                                   $ (0.195 )
Shares used in computation:
                                                               
 
Basic — Class A common share
    5,084,366                                                       5,084,366  
 
Basic — Class B common share
    44,693,266                                                       44,693,266  
 
Diluted — Class A common share
    5,084,366                                                       5,084,366  
 
Diluted — Class B common share
    44,693,266                                                       44,693,266  
Pro forma net income (loss) per share on an as converted basis:
                                                               
 
Basic — Class A common shares
    0.076                                                       (0.009 )
 
Basic — Class B common shares
    0.076                                                       (0.009 )
 
Diluted — Class A common shares
    0.073                                                       (0.009 )
 
Diluted — Class B common shares
    0.076                                                       (0.009 )
Share used in calculating pro forma per share amounts on an as converted basis:
                                                               
 
Basic — Class A common share
    21,225,762                                                       21,225,762  
 
Basic — Class B common share
    44,693,266                                                       44,693,266  
 
Diluted — Class A common share
    68,469,817                                                       21,225,762  
 
Diluted — Class B common share
    44,693,266                                                       44,693,266  
 
(1) The operating results of Xinhua Finance Advertising Limited for the period from January 1, 2006 to January 11, 2006 are not material and are not included in the above pro forma.
 
(2) Based on the purchase price allocation, intangible assets of $180,593,431 were recognized as if the acquisitions of the following companies were completed on January 1, 2006. Adjustment of $6,390,779 reflects additional amortization of intangible assets as if they were acquired on January 1, 2006. Tax effects of amortization charges of $1,541,459 were adjusted based on respective statutory tax rates.

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        Intangible assets
Company acquired       recognized
EconWorld Media
          $ 1,206,000  
Xinhua Finance Advertising
            9,900,000  
Accord Group
            1,343,000  
Beijing Perspective
            1,826,000  
Hyperlink
            845,000  
Economic Observer Advertising
            61,388,472  
Upper Step
            104,084,959  
             
            $ 180,593,431  
             
    Intangible assets recognized are as follows:-
  (a) EconWorld Media
                 
        Amortization
        period
        (Years)
Intangible assets comprised of:
               
Advertising customer base
  $ 55,000       6  
Consulting customer base
    256,000       7  
Distribution network
    12,000       10  
Non-compete agreements
    507,000       3  
Publishing title
    170,000       10  
Subscriber base
    206,000       5  
             
Total
  $ 1,206,000          
             
  (b) Xinhua Finance Media
                 
        Amortization
        period
        (Years)
Intangible assets comprised of:
               
Advertising agency right
  $ 4,730,000       4-20  
Advertising customer base
    3,858,000       3-10  
Non-compete agreements
    1,040,000       4  
Others
    272,000       1  
             
Total
  $ 9,900,000          
             
  (c) Accord Group
                 
        Amortization
        period
        (Years)
Intangible asset comprised of:
               
Exclusive advertising agreement
  $ 1,163,000       5  
Advertising customer base
    180,000       3  
             
Total
  $ 1,343,000          
             
  (d) Beijing Perspective

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        Amortization
        period
        (Years)
Intangible assets comprised of:
               
Television station contracts
  $ 134,000       3  
Trademark
    1,013,000       15  
Non-compete agreements
    537,000       5  
Advertising customer base
    142,000       3  
             
Total
  $ 1,826,000          
             
  (e) Hyperlink
                 
        Amortization
        period
        (Years)
Intangible assets comprised of:
               
Customer Relationship
  $ 414,000       4  
Non-compete agreement
    431,000       4  
             
    $ 845,000          
             
  (f) Economic Observer Advertising
        The intangible asset of Economic Observer Advertising represents the exclusive advertising rights, which will be amortized over 50 years.
  (g) Upper Step
        The intangible asset of Upper Step represents television station contracts and the net present value of the payments Upper Step is required to make under the license contract, which will be amortized over 17 to 27 years.
(3) Adjustment to the share of results by minority interest as if the acquisitions of the minority interests in EconWorld Media, Upper Step, Hyperlink, Accord Group, Beijing Perspective, and Economic Observer Advertising were completed on January 1, 2006.

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Risk factors
An investment in our ADSs involves significant risks. You should carefully consider the risks described below before you decide to buy our ADSs. If any of the following risks actually occurs, our business, financial condition and results of operations could be materially harmed, the trading price of our ADSs could decline and you could lose all or part of your investment.
Risks related to our business
Our limited operating history and successive acquisitions make evaluating our business and prospects difficult.
We were incorporated in November 2005. Since our incorporation, we have acquired various operating entities with distinct businesses. Some of the businesses we acquired also have short operating histories. Our successive acquisitions and rapid expansion make comparisons with historical data difficult. Accordingly, you should consider our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving and heavily regulated industries such as the media industry in China. Some of these risks and uncertainties relate to our ability to:
•   successfully integrate the recently acquired companies;
 
•   navigate the regulatory landscape and respond to changes in the regulatory environment;
 
•   offer new and innovative products and services to attract and retain viewers, listeners and readers;
 
•   attract additional advertisers and increase advertising fees;
 
•   increase awareness of our branded media platforms;
 
•   respond to competitive market conditions;
 
•   manage risks associated with intellectual property rights;
 
•   maintain effective control of our costs and expenses;
 
•   raise sufficient capital to sustain and expand our business; and
 
•   attract, retain and motivate qualified personnel.
If we are unsuccessful in addressing any of these risks and uncertainties, or any other risks listed below, our business may be materially and adversely affected.
We rely on key contracts and business relationships, and if our business partners or contracting counterparties fail to perform, or terminate, any of their contractual arrangements with us for any reason or cease operations, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights, which may be time-consuming and expensive.
Our business relies on key contracts and business relationships. Some of these key contracts have long terms, while others have short terms ranging from one year to a few years and will

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need renewal. The longer term contracts, which all expire in 2014 or later, or have no expiration, include, but are not limited to, the following:
•   agreements to provide consulting and advisory services to, offer content to, and be the exclusive external advertising agent for, Shanghai Camera Media Investment Co., Ltd., or Shanghai Camera, which has the exclusive rights to sell advertising for and provides most of the content of Inner Mongolia Satellite Television;
 
•   agreements with Economic Observer Press Office that allow us to have the exclusive rights to sell advertising for the Economic Observer and to provide management and information consulting services;
 
•   agreement with the exclusive advertising agent for China Radio International that allow us to have the exclusive rights to sell advertising for and the right to provide content to its EasyFM stations in Beijing and Shanghai. We intend to only provide non-news content pursuant to this agreement; and
 
•   agreement with Money Journal Press Office that allows us to have the exclusive rights to sell advertising for, and to provide management and information consulting services to, Money Journal.
The shorter term contracts, which expire in 2009 or earlier, include, but are not limited to, the following:
•   agreement with Hunan Television Station that allows us to broadcast Fortune Morning 7 a.m. on Hunan Satellite Television;
 
•   agreement with Dow Jones that allows Money Journal to publish Dow Jones content; and
 
•   agreement with Beijing Television Station’s advertising agents that allow us to act as advertising agent for certain programs.
If any of our business partners or contracting counterparties fails to perform or terminates its agreement with us for any reason (including, for example, a breach by them or the lack of proper regulatory approvals), or if our business partners or contracting counterparties with which we have short-term agreements refuse to extend or renew the agreement or enter into a similar agreement, our ability to carry on operations in that sector, and our ability to cross-sell advertising services among different platforms, may be impaired. Depending on the circumstances, the consequences could be far-reaching and extremely harmful to our reputation, existing business relationships and future growth potential. In addition, we depend on the continued operation of our long-term business partners and contracting counterparties and on maintaining good relations with them. If one of our long-term partners or counterparties is unable (including as a result of bankruptcy or liquidation proceeding) or unwilling to continue operating in the line of business that is the subject of our contract, we may not be able to obtain similar relationships and agreements on terms acceptable to us or at all. The failure to perform or termination of any of the agreements by a partner or a counterparty, the discontinuation of operations of a partner or counterparty, the loss of good relations with a partner or counterparty or our inability to obtain similar relationships or agreements, may have an adverse effect on our operating results and financial condition. In addition, we have not renewed our contract with Hunan Television Station for the broadcast of Fortune Morning 7 a.m. on its satellite channel. Although both parties have continued to

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perform under the contract, we may not be able to enforce this contract if Hunan Television Station were to refuse to perform under the terms of the contract.
In the opinion of our PRC legal counsel, Commerce & Finance Law Offices, these contractual arrangements (except for the agreement with Dow Jones and one of the agreements with Economic Observer Press Office, which are not under PRC law and to which they express no opinion and the agreement with Hunan Television Station, which has not been renewed) are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. If any of these business partners or contracting counterparties fails to perform its obligations, we may not be able to enforce the relevant agreements if the agreements are ruled in violation of the PRC laws as mentioned in “Risk factors— Risks related to the regulation of our business and to our structure—If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and market research industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations”, even if the agreements are otherwise legal and valid.
We will seek to enforce our rights to the maximum extent allowed by law. However, dispute resolution through litigation and arbitration in China could be time-consuming and expensive. Since the results of bringing actions in court and enforcing arbitration awards in China are not predictable, we may not prevail in court or at arbitration hearings even if we believe we should win based on the merits of the case and may not be able to collect arbitration awards even if there is no defect on the arbitration rulings.
In addition, we may need to form new strategic partnerships or joint ventures to access appropriate assets and industry know-how. If we fail to identify, execute and integrate such future partnerships or joint ventures, it may have an adverse effect on our business and operating results.
We are not a party to some of the key contracts on which we rely. Instead, we have contracts with companies which in turn have these key contracts with third parties. If the third parties fail to perform or terminate any of these key contracts for any reason or cease operations, our business could be disrupted, our reputation may be harmed and we will not be able to enforce our rights in court.
Our business relies on certain key contracts to which we are not a party. Instead, we have contracts with the companies that in turn have those key contracts with third parties. The contracts we have allow us to benefit financially and strategically from our contracting counterparties’ roles in the following key contracts:
•   we have contracts with Shanghai Camera, which has the exclusive rights to sell advertising for and provides most of the content of Inner Mongolia Satellite Television under a contract it has with Inner Mongolia Television Station;
 
•   we have a contract with Beijing Guoguang Guangrong Advertising Co., Ltd., or Guoguang Guangrong, the exclusive advertising agent for China Radio International’s domestic stations, giving us the exclusive rights to sell advertising for and the rights to provide content to the EasyFM radio stations in Beijing and Shanghai; and

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•   we have contracts with Beijing Television Station’s advertising agents that allow us to act as advertising agent for certain television programs.
If Inner Mongolia Television Station does not perform or terminates its agreement with Shanghai Camera, if China Radio International does not perform or terminates its agreement with Guoguang Guangrong, or if Beijing Television Station does not perform or terminates its contract with its advertising agent for any reason, including a breach by either party, our ability to use Inner Mongolia Satellite Television, a unit of Inner Mongolia Television Station, the EasyFM stations of Beijing and Shanghai, or Beijing Television Station as a media platform, and our ability to cross-sell advertising services among different platforms, may be impaired. Depending on the circumstances, the consequences of a failure to perform under the terms or the termination of a contract could be far-reaching and extremely harmful to our reputation, existing business relationships and future growth potential. We may not be able to enforce these contracts in court or at arbitration, because we do not have direct contractual relationships with either of these entities. Shanghai Camera and the advertising agents for China Radio International and Beijing Television Station may be unable or unwilling to enforce their rights under the key contracts, and if they are unwilling to do so we have no direct recourse against Inner Mongolia Television Station, China Radio International or Beijing Television Station. In addition, we rely on the continued operation of Inner Mongolia Satellite Television, China Radio International and Beijing Television Station to carry out certain parts of our operations. If either of them is unable or unwilling to continue operating in the line of business that is the subject of our contract, we do not have contractual rights to enforce against them. We may not be able to obtain access to similar platforms on terms acceptable to us or at all. A failure to perform under the terms of or the termination of either of these key contracts, the discontinuing of operations of Inner Mongolia Television Station, China Radio International or Beijing Television Station or our inability to obtain access to similar media platforms, may have an adverse effect on our operating results and financial condition.
We may not be able to achieve the benefits we expect from recent and future acquisitions, and recent and future acquisitions may have an adverse effect on our ability to manage our business.
Our recent acquisitions and any future acquisitions expose us to potential risks, including risks associated with unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the change of laws and policies or their interpretations that affect the operations of the acquired businesses, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, relationships with employees, customers and business partners as a result of integration of new businesses. As of the date of this prospectus, we have not encountered any of those potential risks. In addition, the revenue and cost synergies that we expect to achieve from our acquisitions may not materialize. The overhead and personnel cost of running a large organization could be significantly higher than that of a smaller organization. Any of these events could have an adverse effect on our business and operating results.
Strategic acquisitions are a key part of our growth strategy. Historically we have made acquisitions that were critical in providing us with product and service suites, audience and readers, customer base, market access and our talent pool. If we are presented with appropriate opportunities, we may acquire additional complementary companies, products or technologies. The integration of acquired companies diverts a great deal of management

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attention and dedicated staff efforts from other areas of our business. A successful integration process is important to realizing the benefits of an acquisition. If we encounter difficulty integrating our recent and future acquisitions, our business may be adversely affected. Many of our acquired companies are held in the form of affiliated entities, which provides us less control than if they were direct subsidiaries, and may cause difficulty in the integration process. See “—Risks related to the regulation of our business and to our structure— We rely on contractual arrangements with our PRC operating affiliates and their subsidiaries and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership”. The acquisitions may not result in the expected growth or development, which may have an adverse effect on our business.
We may not be successful in identifying, financing, consummating and integrating future acquisitions, which could significantly impair our growth potential. We plan to continue to make strategic acquisitions, and identifying acquisition opportunities could demand substantial management time and resources. Negotiating and financing the potential acquisitions could involve significant cost and uncertainties. If we fail to continue to execute advantageous acquisitions in the future, our overall growth strategy could be impaired, and our operating results could be adversely affected.
Our business could be materially and adversely affected if our target audience and readers do not continue to accept our programs and content or if we do not continue to produce and purchase programs that generate high ratings.
We target affluent households in major urban centers. The popularity of our programs and content among this group is the primary reason that we are able to maintain and increase our advertising fees. As our targeted audience and readers are highly desirable to us and our competitors, attracting and retaining a loyal following for our media offerings are serious challenges. The taste and preferences of our targeted demographic could be fluid and fickle. If the quality, or the perceived quality, of our media offerings declines and we fail to attract audience and readers going forward, our operating results may be adversely affected.
The media platforms we use must successfully create or purchase, on a cost-effective basis, popular, high-quality programming and content that appeal to the affluent audience. Some significant challenges include:
•   identifying popular programming and content;
 
•   competing with and adapting to new technological innovations, including Internet television, portable entertainment systems, and others;
 
•   attracting viewers, listeners and readers amidst the proliferation of television, radio, magazines and newspapers in China; and
 
•   controlling programming and content sourcing costs.
If the media platforms we use fail to create or purchase popular, high-quality television and radio programming or high-quality print content that appeals to the affluent audience on a cost-effective basis, our operating results could be adversely affected.

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Our future success depends on attracting advertisers who will advertise across our various platforms. If we fail to attract a sufficient number of advertisers, our operating results and revenues may not meet expectations.
One important strategy underlying our recent acquisitions is to create an integrated media platform on which advertisers wishing to reach affluent audience and readers may advertise simultaneously on multiple media outlets. However, advertisers may decide that they do not need to use multiple outlets, find that our targeted demographic does not consist of their desired consumers or a critical mass of consumers, decide to use a competitor’s services or decide not to use our services for other reasons. If the advertisers decide against advertising with us, we may not realize our growth potential or meet investor expectations. Our future operating results and business prospects could be adversely affected.
Some segments of our business have sustained net losses in the past and may continue to sustain net losses in the future or may not grow as expected.
Some of our businesses, including our Fortune China operations and our magazine operations, have sustained net losses in the past and we may sustain net losses in any or all of our subsidiaries operating in the future.
We expect that our operating expenses will increase and the degree of increase in these expenses will depend on anticipated organic growth and strategic acquisitions. We have accounted for a significant amount of goodwill from acquisitions. Furthermore, any additional acquisition giving rise to increased goodwill or any decrease or delay in generating additional sales volume and revenue could result in substantial operating and net losses in future periods. If we sustain net losses or any of our operating groups sustains net losses, it may have an adverse effect on our financial condition and operating results.
We derive a substantial proportion of our revenues from advertising, and the advertising market is particularly volatile.
Most of our operating groups, including our broadcasting, print and advertising groups, derive the majority of their revenues from the provision of advertisement and sponsorships. Advertising spending is volatile and sensitive to changes in the economy. Our advertising customers may reduce the amount they spend on our media for a number of reasons, including:
•   a downturn of economic conditions in China or around the globe;
 
•   a decision to shift advertising expenditure to other media and platforms;
 
•   a deterioration of the ratings of our programs;
 
•   a change of government policy with regard to the type of programs that can be broadcast; or
 
•   a decline in advertising spending in general.
If we are unable to continually attract advertisers to our media services, we will be unable to maintain or increase our advertising fees and sales, which could negatively affect our ability to generate revenues in the future. A decrease in demand for advertising in general and for our advertising services in particular could materially and adversely affect our operating results.

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The market for most of our operating groups is concentrated in a few major cities in China, and if advertising spending decreases in any of these cities, our operating results and revenues could be adversely affected.
The audience and readers of the media platforms we utilize are concentrated in a few of the more affluent urban areas of China, including Beijing, Shanghai, Guangzhou, Shenzhen and, to a lesser extent, in other large cities in China. Beijing, Shanghai and Guangdong province (which includes the major cities of Guangzhou and Shenzhen), together accounted for 51.1% of total advertising spending in China in 2005, according to the State Administration for Industry and Commerce. We expect these cities to continue to constitute important sources of our revenues. If any of these major cities experiences an event negatively affecting its advertising industry, such as an economic downturn, the implementation of an adverse governmental policy or a natural disaster, our business and operating results could be adversely affected.
Our business could suffer if we do not successfully manage current growth and potential future growth.
The business of each of our operating groups has expanded rapidly in recent years. We anticipate further expansion of our operations and workforce. Our growth to date has placed, and our anticipated future operations will continue to place, significant demands on our management, systems and resources. In addition to training and managing our workforce, we will need to continue to improve and develop our financial and managerial controls and our reporting systems and procedures. Any failure to efficiently or effectively manage the growth of our operations may limit our future growth and hamper our business strategy.
We may not have sufficient experience to address the risks frequently encountered by fast growing companies. These risks include our potential failure to:
•   develop new and enhance existing product and services, obtain new customers, and retain existing customers;
 
•   maintain adequate control of our expenses;
 
•   attract and retain qualified personnel; and
 
•   respond to competitive market conditions.
If we do not successfully address each of these risks, our financial position and operating results could be adversely affected.
Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations.
Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. Our quarterly and annual revenues and costs and expenses as a percentage of our revenues may be significantly different from our historical or projected rates. Our operating results in future quarters may fall below expectations. Any of these events could cause the price of our ADSs to fall. Any of the risk factors listed in this “Risk factors” section could cause our operating results to fluctuate from quarter to quarter.
Because of our limited operating history, our rapidly growing business and our recent acquisitions of substantially all of our operations, our historical operating results may not be

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useful to you, and you should not rely on our past results, in predicting our future operating results. Advertising spending in China has historically been volatile, reflecting overall economic conditions as well as budgeting and buying patterns. As we continue to grow, we expect that the volatility in our business may cause our operating results to fluctuate. 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 relative to our operating results from other quarters.
Our quarterly operating results may fluctuate significantly from period to period due to seasonality in our business.
Our quarterly operating results may fluctuate significantly from period to period based on the seasonality of consumer spending and corresponding advertising trends. Revenues for our business are driven largely by advertising and sponsorship across all our operating groups and media platforms, which subject us to the seasonal effects of China’s advertising industry. The advertising cycle in China typically peaks towards the end of the year. Advertising spending tends to decrease during January and February due to the Chinese Lunar New Year holiday. In addition, there is a decrease in advertising during the May 1 Labor Day holiday week, and the October 1 National Day week. As a result, you may not be able to rely on quarterly period comparisons of our operating results as an indication of our future performance.
If we do not maintain and develop our brands and those of our strategic partners, we will not be able to attract audience and readers to the media platforms we use.
Many of the media platforms we use, including Fortune China, Money Journal, EasyFM, the Economic Observer, and Inner Mongolia Satellite Television, attract readers, audience and advertisers partly through brand name recognition. We believe that establishing, maintaining and enhancing our portfolio of brand names and those of our strategic partners will enhance our growth prospects. Some of our competitors have well-established brands in the media industry. The promotion of our brands and those of our strategic partners will depend largely on our success in maintaining a sizable and loyal audience and readership, providing high-quality content and organizing effective marketing programs. While many of the media platforms we utilize currently have a high level of brand recognition, we may not be able to maintain our existing brands or those of our strategic partners or develop new brands on a cost-effective basis, which may have an adverse impact on our operating results.
In addition, Xinhua Financial Network Limited, or Xinhua Financial Network, the predecessor and now subsidiary of our parent, Xinhua Finance Limited, and China Economic Information Service, entered into an agreement, pursuant to which China Economic Information Service granted to Xinhua Financial Network and its affiliates the right to use the word “Xinhua” as the first name worldwide. We have in turn entered into an agreement with Xinhua Financial Network to use the word “Xinhua”. Our agreement with Xinhua Financial Network covers only the rights of Xinhua Financial Network and not any rights held by our parent. Although our parent has applied to register the trademark for the logo containing “Xinhua Finance” in China, it is not clear whether the registration will be accepted in China or whether we or our parent or its affiliates could continue to use the name “Xinhua” if the agreement between Xinhua Financial Network and China Economic Information Service were to terminate. In addition, if we were to cease to be an affiliate of our parent, we may be unable to continue

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using the “Xinhua” name. If we are unable to continue using the name “Xinhua”, our branding will be affected, which may have an adverse impact on our operating results.
If we do not compete successfully against new and existing competitors, we may lose our market share, and our operating results may be adversely affected.
We compete with international and local media entities on various platforms and advertising service providers. The media, advertising and research sectors in China are very competitive and constantly evolving. Many of our competitors have a longer operating history, larger product and service suites, greater capital resources and broader international or local recognition. Given the recent growth in the China market, we expect international competitors to increase their focus in this region and local competitors to increase their focus in these sectors, intensifying the competition in our business areas. If we cannot successfully compete against new or existing competitors, our operating results may be adversely affected.
Our broadcasting and print businesses face increasing competition from new technologies, such as the Internet, broadband wireless and Internet television, and new consumer products, such as portable digital audio players and personal digital video recorders. These new technologies and alternative media platforms compete with our broadcasting and print groups for audience and readership share and advertising revenue, and in the case of some products, allow audience and readers to avoid traditional advertisements. China has also established a timetable to switch its radio and television broadcasting from analog to digital. We are unable to predict the effect such technologies and related services and products will have on our broadcasting operations, but there exist certain risks, including, among others, that the capital expenditures necessary to adapt our products and services to such technologies could be substantial, and other companies employing such technologies could compete with our businesses.
We rely on services from third parties that are also our competitors to carry out certain of our businesses. If any of these firms refuses to continue its cooperative relationship with us, or makes the terms of doing so more onerous, our ability to attract customers or provide services will be affected.
We rely on a number of third parties to attract customers and provide other services. Some of the owners and operators of those third party services also compete with us in one or more of our principal business areas. For example, our advertising group is dependent on large international advertising agencies to attract many of our major international advertising customers, yet we also compete with the same agencies. Also, Inner Mongolia Satellite Television, a platform on which we broadcast, competes with Hunan Satellite Television, the platform on which we broadcast Fortune Morning 7 a.m. In addition, Hunan Television Station’s supervising entity, Hunan Radio, Movie & Television Group, is the sponsoring and supervising entity of our strategic partner in publishing Money Journal. If one or more of those firms refuses to continue their cooperative relationship with us in the future, or makes the terms of doing so more onerous, our ability to attract customers or provide services to our audience, readers and customers will be adversely affected. Furthermore, if our arrangements with any of these third parties are terminated, we may not find an alternative source of support on a timely basis, on terms as advantageous to us or at all. Any of these events could have an adverse effect on our business and operating results.

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Our business depends substantially on the continuing efforts of our key executives. Our business may be severely disrupted if we lose their services.
Our future success heavily depends upon the continued services of our key executives, particularly Fredy Bush, who is the Chief Executive Officer of our company. Our Chief Executive Officer also serves as the Chief Executive Officer of our parent company and will be required to devote a substantial amount of time in that capacity. We rely on the expertise of our key executives in business operations and the advertising and media industries and on their relationships with our shareholders, business partners and regulators. If one or more of our key executives are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all. Therefore, our business may be severely disrupted, our financial condition and results of operations may be materially and adversely affected and we may incur additional expenses to recruit and train personnel.
In addition, if any of these key executives joins a competitor or forms a competing company, we may lose customers and business partners, and our operating results may be adversely affected. Each of our executive officers has entered into an employment agreement with us that contains confidentiality and non-competition provisions. If any disputes arise between our executive officers and us, these agreements may not be enforced effectively.
Our senior management and employees have worked together for a short period of time, which may make it difficult for you to evaluate their effectiveness and ability to address challenges.
Due to our limited operating history, recent acquisitions of substantially all of our business operations and recent additions to our management team, certain of our senior management and employees have worked together at our company for only a relatively short period of time. As we acquired substantially all of our business operations recently, none of our senior management has worked with our operating groups for a substantial period of time. As a result of these circumstances, it may be difficult for you to evaluate the effectiveness of our senior management and other key employees and their ability to work with the employees of our operating groups and address future challenges to our business.
If we are unable to attract, train and retain key individuals, highly skilled employees and important talent, our business may be adversely affected.
We expect to need to hire additional employees, including personnel to maintain and expand our print productions, graphics designers and production personnel to create advertisements and produce programming, information technology and engineering personnel to maintain and expand our delivery platform, marketing personnel to sell our products, and administrative staff to support our operations. Some of our operating groups, especially our broadcasting group, also rely on the appearances of well-known personalities and talents during programming, such as the Fortune China programs. If we are unable to identify, attract, hire, train and retain individuals in these areas or retain our existing employees, due to our failure to provide them with adequate incentives or otherwise, the quality of our products and services may be negatively impacted, which could adversely affect our business and results of operations.

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We may be subject to litigation for information provided in our products and services, which may be time-consuming and costly to defend.
Our products and services contain information such as financial news, interviews, quotes of securities prices, analytical reports, investment recommendations and portrayals of people in our television productions. It is possible that if any information contains errors or false or misleading information, or is perceived to infringe intellectual property rights of others, third parties could take action against us for losses incurred in connection with the use of such information. Any claims, with or without merit, could be time-consuming and costly to defend, result in litigation and divert management’s attention and resources, which could have an adverse effect on our operating results.
We may not be able to prevent others from using our intellectual property, which may harm our business and expose us to litigation.
We regard our content, copyrights, domain names, trade names, trademarks and similar intellectual property as critical to our success. We try to protect our intellectual property rights by relying on trademark, copyright and confidentiality laws and contracts. The copyright, trademark and confidentiality protection in China may not be as effective as in other countries, such as the United States or elsewhere.
We seek to limit the threat of content misappropriation. However, policing unauthorized use of our products and services and related intellectual property is often difficult and the steps we have taken may not in every case prevent the infringement by unauthorized third parties. Developments in technology, including digital copying, file compressing and the growing penetration of high-bandwidth Internet connections increase the threat of content misappropriation by making it easier to duplicate and widely distribute misappropriated material. In addition, the risk exists that some local television stations or channels may, when airing our or Shanghai Camera’s programs, remove the original advertisements we or Shanghai Camera placed from the programs and replace them with their own advertisements. Content misappropriation presents a threat to our revenues from products and services, including, but not limited to, television, radio, media production, and our magazine and newspaper operations.
There can be no assurance that our efforts to enforce our rights and protect our products, services and intellectual property will be successful in preventing content misappropriation. Any misappropriation could have a negative effect on our business and operating results. Furthermore, we may need to resort to litigation to enforce our intellectual property rights. Litigation relating to our intellectual property might result in substantial costs and diversion of resources and management attention.
In addition, the ownership of certain trademarks used by us or our strategic partners may be subject to claims by other parties and if any litigation of such disputes is involved, substantial costs and interruption of our business, or the business of our strategic partners, may be involved, which may adversely affect our business or results of operations.

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Failure to achieve and maintain effective internal controls could have a material and adverse effect on the trading price of our ADSs.
We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, as required under Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, has adopted rules requiring public companies to include a report of management on the effectiveness of such companies’ internal control over financial reporting in their annual reports. In addition, an independent registered public accounting firm for a public company must attest to and report on management’s assessment of the effectiveness of our company’s internal control over financial reporting. These requirements will first apply to our annual report on Form 20-F for the fiscal year ending December 31, 2008. Management may not conclude that our internal control over financial reporting is effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if such firm is not satisfied with our internal control over financial reporting or the level at which our controls are documented, designed, operated or reviewed, or if such firm interprets the relevant requirements differently from us. In addition, during the course of such evaluation, documentation and testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404.
During the process of preparing our consolidated financial statements for the period from May 26, 2005 to December 31, 2005, and for the year ended December 31, 2006, we have identified a number of control deficiencies. The significant control deficiencies identified by us included, among others: (i) the lack of sufficient financial reporting and accounting personnel to fulfill the post-offering U.S. GAAP reporting requirements; and (ii) the lack of a comprehensive accounting policies and procedures manual to communicate to accounting and finance personnel to ensure the consistent application of U.S. GAAP. We have taken, and will continue to take, measures to remediate these control deficiencies. See “Management’s discussion and analysis of financial condition and results of operations— Internal control over financial reporting”.
If we fail to achieve and maintain the adequacy of our internal controls, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, any failure to achieve and maintain effective internal control over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could negatively impact the trading price of our ADSs. Furthermore, we may need to incur significant costs and use significant management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements.
We may need additional capital to finance future acquisitions and we may not be able to obtain it.
We believe that our current cash and cash equivalents, cash flow from operations and the proceeds from this offering will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources in order to make acquisitions. We plan to expand through acquisitions, but have not yet identified many of the

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targets for acquisition. Often the cost of acquisitions is not known until the opportunities are analyzed, due diligence has commenced and negotiations are underway. If the cost of the acquisitions that our management deems appropriate are higher than our cash resources, we will need to seek additional cash resources, and may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. If we sell additional equity securities and our shareholders experience dilution, you will also experience dilution of your ADSs. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We may not be able to obtain financing in amounts or on terms acceptable to us, if at all. As a result, our operating results and financial condition could be adversely affected.
We may be required to record a significant charge to earnings if our goodwill or acquired intangible assets are determined to be impaired.
We are required to review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and intangible assets with indefinite lives are required to be tested for impairment at least annually, or more frequently if events or changes in circumstances indicate that the asset might be impaired. For the years ended December 31, 2005 and 2006, we recorded $0.1 million and $3.5 million as amortization of intangible assets, respectively. As of December 31, 2005 and 2006, the amount of our goodwill was $4.1 million and $83.7 million, respectively, and the amount of our total intangible assets, including license agreements and exclusive advertising agreements, was $0.6 million and $176.2 million, respectively. Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or acquired intangible assets may not be recoverable include, but are not limited to, a decline in stock price and market capitalization and slower growth rates in our industry. Should the carrying value of our goodwill or acquired intangible assets be determined to be impaired, their carrying value would be written down. We have recorded significant goodwill and intangible assets relating to our recent acquisitions and because we cannot ensure the future profitability of the acquired entities, we may be required to record a significant charge to earnings in our financial statements during the period in which our goodwill or acquired intangible assets is determined to be impaired, which would adversely affect our operating results.
Our strategy of expanding our Internet and new media presence may not be well received or may be more expensive than we expected.
We may expand our presence on the Internet and expand the media platforms we use to include new media, such as broadband wireless broadcasting and Internet television. However, the market for Internet and new media platforms is rapidly evolving and is becoming increasingly competitive. We cannot predict whether, or how fast, this market will grow. Moreover, if we fail to expand our Internet and new media presence or adapt to the rapid change in the Internet and new media markets and technology, our business, competitiveness, or results of operations could be materially affected.

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Our success with expansion into these media platforms depends on a number of factors, including:
•   sufficient demand for these services from our existing and potential audience and readers, and sufficient advertising revenues from customers, to offset the substantial investment we will make in order to provide them;
 
•   our ability to compete effectively with other providers of these services;
 
•   our ability to adapt and develop our products and services in order to conform to market conditions and customer needs; and
 
•   our ability to form, acquire or cooperate with Internet content and service providers and obtain the appropriate licenses to conduct this business.
The absence or failure of any one or more of these factors, based on our inability to predict the effect of emerging technology or competition on the viability of our broadcasting operations, products or investments, may materially and adversely affect our business, results of operations, financial condition and prospects.
The pro forma condensed consolidated financial information is not necessarily reflective of what our actual financial results would have been had the businesses acquired been under common management during the periods presented in the pro forma financial information and our actual financial results for future periods may differ significantly from the pro forma financial results.
The unaudited pro forma condensed consolidated financial information presented in this prospectus was prepared in accordance with the rules and regulations promulgated by the Securities and Exchange Commission for such information. The pro forma condensed consolidated financial information includes all adjustments that management believes are necessary for a fair presentation of the pro forma operating results in the historical periods. In preparing the unaudited pro forma condensed consolidated financial information, management has made certain assumptions, such as the anticipated allocation of purchase price and amortization of related intangible assets. In addition, it is impossible to quantify and reflect the impact of the combinations on results of operations in periods prior to the combinations actually occurring. Because of the uncertainties inherent in the preparation of pro forma information, the unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the results that would have been reported had the events for which pro forma effect has been given actually occurred on the dates specified, nor are they necessarily indicative of our future results of operations.
Risks related to the regulation of our business and to our structure
If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and market research industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations.
Most of our operations are conducted through operating subsidiaries in China, and through our contractual arrangements with several of our affiliated entities and their shareholders in

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China. PRC regulations currently prohibit or restrict foreign ownership of media, advertising and market research companies. For a description of these regulations, see “Regulation— Regulations on investment of foreign and private capital in the media, advertising and market research industries”. We have entered into contractual arrangements with these affiliated entities and their shareholders, all PRC citizens, which enable us to, among other things, exercise effective control over these affiliated entities and their respective subsidiaries. See “Corporate structure— Our corporate structure and contractual arrangements”. In the opinion of our PRC legal counsel, Commerce & Finance Law Offices, the business operations of our subsidiaries in China and our affiliated entities and their respective subsidiaries comply in all material respects with existing PRC laws and regulations.
However, if we or any of our subsidiaries or affiliated entities are found to be in violation of any existing or future PRC laws or regulations (for example, if we are deemed to be holding equity interests in certain of our affiliated entities in which direct foreign ownership is prohibited) the relevant PRC regulatory authorities, including the State Administration of Radio, Film and Television, and the Ministry of Culture, which regulate the media, would have broad discretion in dealing with such violations, including:
•   revoking the business and operating licenses of our PRC subsidiaries or affiliates;
 
•   confiscating relevant income and imposing fines and other penalties;
 
•   discontinuing or restricting our PRC subsidiaries’ or affiliates’ operations;
 
•   requiring us or our PRC subsidiaries or affiliates to restructure the relevant ownership structure or operations;
 
•   restricting or prohibiting our use of the proceeds of this offering to finance our businesses and operations in China; or
 
•   imposing conditions or requirements with which we or our PRC subsidiaries or affiliates may not be able to comply.
The imposition of any of these penalties would result in a material and adverse effect on our ability to conduct our business.
We conduct our business through agreements with our strategic partners. Under these agreements, we provide services to our strategic partners in return for a fee from, or the exclusive rights to sell advertising for, our strategic partners. For details of these agreements, see “Arrangements with partners and suppliers”. If any of these agreements is found to be in violation of any existing or future PRC laws or regulations, we would have to terminate our operation under that particular agreement or otherwise restructure our operation to bring it in compliance with the relevant laws or regulations. In addition, the relevant PRC regulatory authorities may impose further penalties. Any of these consequences could have a material and adverse effect on our operations.
In many cases, existing regulations with regard to investments from foreign investors and domestic private capital in the media industry lack detailed explanations and operational procedures, and are subject to interpretation, which may change over time. Most of these regulations have not been interpreted by the relevant authorities in circumstances similar to our corporate structure. Accordingly, we cannot be certain how the regulations will be applied to our business, either currently or in the future. Moreover, new regulations may be adopted

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or the interpretation of existing regulations may change, any of which could result in similar penalties, resulting in a material and adverse effect on our ability to conduct our business.
We rely on contractual arrangements with our PRC operating affiliates and their subsidiaries and shareholders for our China operations, which may not be as effective in providing operational control as direct ownership.
We rely on contractual arrangements with several affiliated PRC entities and their shareholders, including Shanghai Yuan Zhi Advertising Co., Ltd., or Yuan Zhi, Beijing Century Advertising Co., Ltd., or Century Media Advertising, Beijing Taide Advertising Co., Ltd., or Beijing Taide, Shenzhen Active Trinity Advertising Co., Ltd., or Shenzhen Trinity, Beijing Xintai Huade Advertising Co., Ltd., or Xintai Huade, and Guangzhou Jingshi Culture Intermediary Co., Ltd., or Guangzhou Jingshi, to operate our businesses. For a description of these contractual arrangements, see “Corporate structure”. In the opinion of our PRC legal counsel, Commerce & Finance Law Offices, these contractual arrangements are valid, binding and enforceable, and will not result in any violation of PRC laws or regulations currently in effect. These contractual arrangements may not be as effective in providing us with control over these entities as direct ownership. If we had direct ownership of these entities, we would be able to exercise our rights as a shareholder to effect changes in the boards of directors of these entities, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level. However, if any of these entities or any of their subsidiaries or their shareholders fails to perform its or his respective obligations under these contractual arrangements, we may not be able to enforce the relevant agreements if the agreements are ruled in violation of the PRC laws as mentioned above, even if the contracts are otherwise legal and valid. We may have to incur substantial costs and resources to enforce them, and seek legal remedies under PRC law, including specific performance or injunctive relief, and claiming damages, which may not be effective. Accordingly, it may be difficult for us to change our corporate structure or to bring claims against any of these entities if they do not perform their obligations under their contracts with us.
Many of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through either arbitration or litigation in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities, and our ability to conduct our business may be negatively affected.
The shareholders of our PRC affiliated entities may breach our agreements with them or may have potential conflicts of interest with us, and we may not be able to enter further agreements to extract economic benefits from these entities, which may materially and adversely affect our business and financial condition.
The shareholders of Yuan Zhi, Century Media Advertising, Beijing Taide, Shenzhen Trinity, Xintai Huade and Guangzhou Jingshi may breach or cause our PRC affiliated entities and their subsidiaries to breach or refuse to renew the existing contractual arrangements that allow us to effectively control our PRC affiliated entities and their subsidiaries, and receive economic

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benefits from them. In addition, Wang Yong Hong, the shareholder of Century Media Advertising and a shareholder of Beijing Taide, is also our Director of Business Development. Jiang Gui Bin, the shareholder of Guangzhou Jingshi, is the Director of Sales for Southern China for our magazine operations. All other contracting shareholders are PRC citizens with no significant relationship with us or our parent. Conflicts may arise between their dual roles as a shareholder and as an employee. We cannot assure you that when conflicts of interest arise, they will act in the best interests of our company or that conflicts of interests will be resolved in our favor. We do not have existing arrangements to address potential conflicts of interest between these individuals and our company. We have made long-term loans in an aggregate principal amount of RMB 19.4 million ($2.5 million) to these shareholders. We extended these loans to help them fund the initial capitalization, additional capitalization or purchase of those entities. The security on the loans is limited to their pledge of the shares of those affiliates. We are unable to register the pledges of the shares these shareholders have pledged to us due to the refusal of the relevant public registrars to register these interests, which could allow the shareholders to dishonor their pledges to us and re-pledge the shares to another entity or person. We rely on these individuals to abide by the contract laws of China and honor their contracts with us. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of our PRC affiliated entities, we would have to rely on legal proceedings, which could result in disruption of our business. There is also substantial uncertainty as to the outcome of any such legal proceedings.
In addition, we do not yet have contractual arrangements in place for some of our affiliated entities that would enable us to receive economic benefits from them, and the shareholders may refuse to enter into these contracts. Moreover, some of the subsidiaries of these entities have minority shareholders and we may not be permitted to enter into contracts to receive economic benefits from the entities, because these contracts may not be on an arm’s length basis. If we are unable to enter into these contractual arrangements, we may attempt to receive dividends through the shareholders of these entities, but the minority shareholders may also be entitled to their share of dividends. Any inability to transfer economic benefits from our affiliated entities to us may have an adverse effect on our business, and on our ability to pay dividends to our shareholders, including our ADS holders.
Contractual arrangements we have entered into with our subsidiaries and affiliated entities or acquisitions of offshore entities that conduct PRC operations through affiliates in China may be subject to scrutiny by the PRC tax authorities, and we may have to pay additional taxes or be found ineligible for a tax exemption.
Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions we have entered into with our subsidiaries and affiliated entities are found not to be on an arm’s-length basis, or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow our tax savings, adjust the profits and losses of our respective PRC entities and assess late payment interest and penalties. A finding by the PRC tax authorities that we are ineligible for any such tax savings we may achieve, or that any of our affiliated entities are not eligible for their tax exemptions, would substantially increase our taxes owed and reduce our net income and the value of your investment. In addition, in the event that in connection with some of our acquisitions of offshore entities that conducted their PRC operations through their affiliates in China, the sellers of such entities failed to pay any taxes required under PRC law, the PRC tax authorities could require us to pay the tax, together with late-payment interest

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and penalties. The occurrence of any of the foregoing could have a negative impact on our operating results and financial condition.
Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business.
Some of our operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. If we or our strategic partners do not receive any necessary licenses or approvals, broaden the authorized business scope or narrow the scope of the activities as appropriate, we or the relevant strategic partner may have to cease the operations or contract our operations to third parties who hold the appropriate licenses. In addition, counterparties to contracts we make when engaging in activities that require licenses may legally default on those contracts if we or the relevant strategic partner do not possess the appropriate licenses. The occurrence of any of these events would have an adverse effect on our business and results of operations.
The authorities may refuse to grant any licenses we may seek. For companies that exceeded the scope of their business licenses or permitted activities or operated without a license or needed approval in the past but are now compliant, as well as for any companies that may currently operate without the appropriate license or approval or outside the scope of their business license or permitted activities, the relevant PRC authorities have the authority to impose fines or other penalties, sometimes as much as five to ten times the amount of the illegal revenues and may require the disgorgement of profits or revocation of the business license. Due to the inconsistent nature of regulatory enforcements in the PRC, those of our PRC operating companies and strategic partners that exceeded the scope of their business licenses or permitted activities or operated without the appropriate licenses or approvals in the past or may be doing so currently may be subject to the above fines or penalties, including the disgorgement of profits or revocation of the business license of one or more of these companies. These fines or penalties may have a material adverse effect on our business.
Any limitation on the ability of our subsidiaries and affiliated entities to make dividend or distribution payments to us could have a material adverse effect on our ability to conduct our business.
Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries and affiliated entities in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital, and to further set aside a portion of its after-tax profits to fund the employee welfare fund at the discretion of the shareholders’ meeting or the board. These reserves are not distributable as cash dividends. Furthermore, if our subsidiaries and affiliated entities in China incur debt on their own behalf in the future, the loan agreements governing that debt may restrict their ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would

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materially and adversely affect our subsidiaries’ ability to pay dividends and other distributions to us. Any limitation on the ability of our subsidiaries and affiliated entities to distribute dividends or other payments to us could materially limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, or otherwise fund and conduct our business.
The PRC government may prevent us or our strategic partners from producing or distributing, and we or they may be subject to liability for, content that it believes is inappropriate.
The media sector in China is highly regulated and closely monitored by various government agencies in China, in particular the State Administration of Radio, Film and Television. China has enacted laws and regulations governing the production and distribution of news, information or other content. In the past, the PRC government has stopped the production or distribution of information or content that it believes violates PRC law and the media entities in breach of such laws have been severely reprimanded. The State Administration of Radio, Film and Television continues to promulgate new regulations which prohibit information and content from being distributed through the media. If the State Administration of Radio, Film and Television were to find the information or content inappropriate. Inappropriate content includes, among others, information that threatens the unity, sovereignty, and territorial integrity of the PRC, endangers national security, incites violence and uprising, propagates obscenity or undermines public morality.
In addition, the State Administration of Radio, Film and Television has published regulations that subject media operators to potential liability for content distributed through their broadcast or print media.
Under applicable PRC regulations, we or our strategic partners may be held liable for any content we or they offer or will offer through the media platforms we utilize, including news articles, interviews, television and radio programs, and advertisements.
It may be difficult to determine the type of content that may result in liability. Censorship is carried out on a case by case basis, often without consistency between the cases and without explanation. If any of our content or the content of our strategic partners is deemed to have violated any of such content restrictions, we or they would not be able to continue to create or distribute such content and could be subject to penalties, including confiscation of income, fines, suspension of business and revocation of licenses for operating media services, which would materially and adversely affect our business, financial condition and operating results.
The PRC law on advertising content is such that we may be subject to liability for advertisements produced by us or advertisements displayed on our or our strategic partners’ media platforms.
PRC advertising laws and regulations require advertisers, advertising operators and advertising distributors, including businesses such as ours, to ensure that the content of the advertisements they prepare or distribute is fair and accurate and is in full compliance with applicable law. Violation of these laws or regulations may result in penalties, including fines, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish an advertisement correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator’s license for advertising business operations.

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We and our strategic partners are obligated under PRC laws and regulations to monitor the advertising content that is shown, displayed or printed on any of our or their media outlets for compliance with applicable law. In addition, for advertising content related to specific types of products and services, such as alcohol, cosmetics, pharmaceuticals and medical facilities, we and our strategic partners are required to confirm that the advertisers have obtained requisite government approvals, including the advertiser’s operating qualifications, proof of quality inspection of the advertised products, government pre-approval of the contents of the advertisement and filing with the local authorities. We and, to our best knowledge, our strategic partners, employ qualified advertising inspectors who are trained to review advertising content for compliance with relevant PRC laws and regulations, and we endeavor to comply, and encourage our strategic partners to take measures to comply, with such requirements, by methods including requesting relevant documents from the advertisers.
Civil claims may be filed against us for fraud, defamation, subversion, negligence, copyright or trademark infringement or other violations due to the nature and content of the advertisements displayed on our advertising network. In addition, our reputation will be tarnished and our results of operations may be adversely affected.
If the PRC government finds that the financial data and media services we provide do not comply with PRC laws and regulations relating to the provision of securities investment advisory services, we may suffer severe disruption to our business operations and lose a substantial portion of our revenue.
PRC laws require entities providing securities investment advisory services to the public to obtain a securities advisory permit from the China Securities Regulatory Commission, or the CSRC. Because we do not have this permit, if we or any of our subsidiaries are found to be in violation of PRC laws and regulations relating to the provision of securities investment advisory services, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including imposing monetary penalties on us, or forcing us to pursue more limited business objectives that do not include offering financial data and media services. Therefore, if the CSRC were to conclude that we provide securities investment advisory services, we could suffer severe disruption to our business operations and lose a substantial portion of our revenue.
We are controlled by our parent company, whose interests may differ from other shareholders.
After this offering, our parent company, Xinhua Finance Limited, Patriarch Partners Media Holdings, LLC, or Patriarch Partners, and Fredy Bush, the Chairman of our Board of Directors and our Chief Executive Officer, will beneficially own approximately 36.6%, 8.0% and 5.8% of the outstanding shares of our equity, respectively. The shares held by our parent are class B common shares, which have ten votes per share, compared with one vote per share for our class A common shares, giving our parent effective control of approximately 85.3% of the voting rights after this offering. Patriarch Partners is also a shareholder in our parent and has agreements with our parent regarding voting rights in us, an investor rights agreement with us, and a credit agreement with us, as well as special privileges due to its holding of our convertible preferred shares. See “Related party transactions—Transactions with Patriarch Partners”. Accordingly, our parent, Patriarch Partners and our Chief Executive Officer will have significant influence in determining the outcome of any corporate transaction or other matter

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submitted to the shareholders for approval, including mergers, consolidations, the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They will also have significant influence in preventing or causing a change in control. In addition, without their consent, we may be prevented from entering into transactions that could be beneficial to us. Their interests may differ from the interests of our other shareholders, including our ADS holders.
Fredy Bush is also the Vice Chairman and Chief Executive Officer of our parent, Xinhua Finance Limited and will be required to devote a substantial amount of time in that capacity. Conflicts of interest between her duties to our parent and us may arise. We cannot assure you that when conflicts of interest arise, the conflicts of interest will be resolved in our favor. These conflicts may result in lost corporate opportunities, including opportunities that are never brought to our attention, or actions that may prevent us from taking advantage of opportunities to expand and improve our operations.
Landing rights for satellite television in China are increasingly granted through auction, which may increase our cost of broadcasting rights or result in our strategic partner’s inability to obtain landing rights.
Since 2004, certain cities have used an auction process to sell landing rights to China’s provincial satellite stations, as the increasing number of satellite channels seeking landing rights exceeded the bandwidth limit of cable systems. This may greatly increase the cost of broadcasting rights in such cities or may prevent Inner Mongolia Television Station from obtaining landing rights altogether. There is also a risk that Inner Mongolia Television Station may lose landing rights previously granted at no cost under reciprocal arrangements. If this development has an adverse effect on Inner Mongolia Satellite Television, it may also adversely affect our operating results.
Risks related to doing business in China
The PRC’s economic, political and social conditions, as well as governmental policies, could affect the financial markets in China and our liquidity and access to capital and our ability to operate our business.
Substantially all of our business operations are conducted in China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to economic, political and legal developments in China. China’s economy differs from the economies of developed countries in many respects, including with respect to the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth in the past 20 years, growth has been uneven across different regions and among various economic sectors of China. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may have a negative effect on us. For example, our financial condition and results of operations may be adversely affected by government control over capital investments, especially in major metropolitan areas, or changes in tax regulations that are applicable to us. More generally, if the business environment in China deteriorates from the perspective of domestic or international investors, our business in China may also be adversely affected.

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Uncertainties with respect to the PRC legal system could adversely affect us.
We conduct our business primarily through our subsidiaries and affiliated entities in China. Our operations in China are governed by PRC laws and regulations. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to wholly foreign-owned enterprises. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value.
Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, China has not developed a fully integrated legal system and recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, because these laws and regulations are relatively new, and because of the limited volume of published decisions and their non-binding nature, the interpretation and enforcement of these laws and regulations involve uncertainties. In addition, the PRC legal system is based in part on government policies and internal rules (some of which are not published on a timely basis or at all) that may have a retroactive effect. As a result, we may not be aware of our violation of these policies and rules until some time after the violation. In addition, any litigation in China, regardless of outcome, may be protracted and result in substantial costs and diversion of resources and management attention.
We face risks related to health epidemics and other outbreaks, or acts of terrorism, which could result in reduced demand for advertising or disrupt our operations.
Our business could be materially and adversely affected by the outbreak of avian flu, severe acute respiratory syndrome or another epidemic, or an act of terrorism. From time to time, there have been reports on the occurrences of avian flu in various parts of China, including a few confirmed human cases and deaths. Any prolonged recurrence of avian flu, severe acute respiratory syndrome or other adverse public health developments in China or elsewhere in Asia may have a material and adverse effect on our business operations. In addition, terrorist attacks, such as those that took place on September 11, 2001, geopolitical uncertainty and international conflicts, could have an adverse effect on our business operations. Any of these events could adversely affect China’s economy and cause an immediate and prolonged drop in consumer demand, especially consumer demand for luxury or non-essential goods and services. As we operate in the media and advertising industries of affluent areas and many of the products we advertise are luxury or non-essential goods and services, an immediate and prolonged drop in consumer demand, especially that for luxury or non-essential goods and services, could severely disrupt our business operations and adversely affect our results of operations.
The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with this offering under a recently adopted PRC regulation; any requirement to obtain prior CSRC approval could delay this offering and a failure to obtain this approval, if required, may create uncertainties for this offering and could have a material adverse effect on our business, operating results, reputation, prospects and trading price of our ADSs; the regulation also establishes more complex procedures for acquisitions conducted by foreign investors which could make it more difficult to pursue growth through acquisitions.
On August 8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the

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State Administration for Industry and Commerce, the CSRC, and the PRC State Administration of Foreign Exchange, jointly adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the New M&A Rule, which became effective on September 8, 2006. This New M&A Rule purports, among other things, to require offshore special purpose vehicles formed for overseas listing purposes through acquisitions of PRC domestic companies and controlled by PRC companies or individuals, to obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange. On September 21, 2006, the CSRC published a notice on its official website specifying documents and materials required to be submitted to it by special purpose vehicles seeking CSRC approval of their overseas listings. While the application of the New M&A Rule remains unclear, we believe, based on the advice of our PRC counsel, Commerce & Finance Law Offices, that CSRC approval is not required in the context of this offering because (1) we are not a special purpose vehicle formed or controlled by PRC companies or PRC individuals, and (2) we established our PRC subsidiaries by means of direct investment other than by merger or acquisition of PRC domestic companies. However, we cannot assure you that the relevant PRC government agencies, including the CSRC, would reach the same conclusion as our PRC counsel. If the CSRC or other PRC regulatory body subsequently determines that we need to obtain the CSRC’s approval for this offering, we may face sanctions by the CSRC or other PRC regulatory agencies. In such event, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our operations in the PRC, delay or restrict the repatriation of the proceeds from this offering into the PRC, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies may also take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered by this prospectus.
The New M&A Rule also established additional 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 when a foreign investor acquires equity or assets of a PRC domestic enterprise. Complying with the requirements of the New M&A Rule 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 our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.
According to the New M&A Rule and other PRC rules regarding foreign exchange, an offshore company’s shares can be used as consideration for acquisition of a domestic PRC company’s equity only under very limited circumstances and prior approval from the Ministry of Commerce must be obtained before such a share swap could be done.
When we acquired control of certain of our PRC affiliates, we issued class A common shares to Stephen Xie Wei, Zhao Li and Yu Gang, who are PRC citizens, in exchange for each of them entering into a non-competition agreement. Stephen Xie Wei and Yu Gang were originally shareholders of certain affiliated entities. Zhao Li was formerly an officer of the seller of one of our affiliated entities and is currently the director of the Economic Observer Press Office and the general manager of our affiliated entity, Economic Observer Advertising. Our PRC counsel, Commerce & Finance Law Offices, advised us that even though under PRC law the transaction of entering into such a non-competition agreement and the acquisition of the corresponding affiliated entity are regarded as separate transactions, the PRC governmental agencies may

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consider that the shares issued for a non-competition agreement are in substance part of the consideration for the corresponding acquisition of domestic equities because we have accounted for them as if they are related transactions, and therefore may take the view that we have acquired the equity of domestic companies by using offshore shares as consideration without prior approval of the Ministry of Commerce and are therefore in violation of the PRC laws. In such an event, we may face sanctions by the Ministry of Commerce, the State Administration of Foreign Exchange, and the State Administration for Taxation.
Recent PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. If our shareholders who are PRC residents fail to make any required applications and filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.
Regulations were recently promulgated by the PRC National Development and Reform Commission and the PRC State Administration of Foreign Exchange, that will require registrations with, and approvals from, PRC government authorities in connection with direct or indirect offshore investment activities by PRC residents, including PRC individuals and PRC corporate entities. These regulations apply to our shareholders who are PRC residents and may also apply to certain of our offshore acquisitions as well.
The State Administration of Foreign Exchange regulations retroactively require registration of direct or indirect investments previously made by PRC residents in offshore companies. In the event that a PRC shareholder with a direct or indirect stake in an offshore parent company fails to make the required State Administration of Foreign Exchange registration, the PRC subsidiaries of that 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. Further, failure to comply with the various State Administration of Foreign Exchange registration requirements described above could result in liability under PRC law for foreign exchange evasion.
We have already notified our shareholders and the shareholders of the offshore entities in our corporate group who are PRC residents, to urge them to make the necessary applications and filings as required under these regulations and under any implementing rules or approval practices that may be established under these regulations. However, as a result of the newness of the regulations, lack of implementing rules and uncertainty concerning the reconciliation of the new regulations with other approval requirements, it remains unclear how these regulations, and any future legislation concerning offshore or cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. We attempt to comply, and attempt to ensure that our shareholders who are subject to these regulations comply, with the relevant rules. However, we cannot provide any assurances that all of our shareholders who are PRC residents will comply with our request to make or obtain any applicable registration or approvals required by these regulations or other related legislation. The failure or inability of our PRC resident shareholders to receive any required approvals or make any required registrations may subject us to fines and legal sanctions, restrict our overseas or cross-border investment activities, limit our PRC subsidiaries’ ability to make distributions or pay dividends or affect our ownership structure, as a result of which our acquisition strategy and business operations and our ability to distribute profits to you could

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be materially and adversely affected. See “Regulation— Regulations on foreign currency exchange— Foreign exchange registration of offshore investment by PRC residents”.
Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
The PRC government imposes controls on the convertibility of RMB into foreign currencies and, in certain cases, the remittance of currency out of China. We receive much of our revenues in RMB. Under our current structure, our income is primarily derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiaries and our affiliated entities to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB are to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of bank loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
Fluctuation in the value of RMB may have a material adverse effect on your investment.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in political and economic conditions. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a managed band based on market supply and demand and by reference to a basket of certain foreign currencies. This change in policy has resulted in an approximately 5.7% appreciation of the RMB against the U.S. dollar between July 21, 2005 and December 29, 2006. While the international reaction to the RMB revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which may result in a further and more significant appreciation of the RMB against the U.S. dollar.
Our revenues and costs are mostly denominated in RMB, while a significant portion of our financial assets are denominated in U.S. dollars. We rely entirely on dividends and other fees paid to us by our subsidiaries and affiliated entities in China. Any significant revaluation of RMB may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. For example, an appreciation of RMB against the U.S. dollar would make any new RMB denominated investments or expenditures more costly to us, to the extent that we need to convert U.S. dollars into RMB for such purposes.
We have limited insurance coverage in China.
The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited insurance products. We have determined that the risks of disruption or

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liability from our business, or the loss or damage to our property, including our facilities, equipment and office furniture, the cost of insuring for these risks, and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China except for insurance on certain vehicles. Any uninsured occurrence of loss or damage to property, litigation or business disruption may result in our incurring substantial costs and the diversion of resources, which could have an adverse effect on our operating results.
Risks related to the ADSs and this offering
There has been no public market for our ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.
Prior to this initial public offering, there has been no public market for our ADSs. Following the offering, our common shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. We have applied to have our ADSs listed on the Nasdaq Global Market. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected. The initial public offering price for our ADSs is determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after this initial public offering. An active trading market for our ADSs may not develop and the market price of our ADSs may decline below the initial public offering price.
The market price for our ADSs may be volatile.
The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
•   announcements of technological or competitive developments;
 
•   regulatory developments in our target markets affecting us, our customers or our competitors;
 
•   announcements of studies and reports relating to the circulation, ratings, audience or readership size or composition, quality or effectiveness of our and our strategic partners’ products and services or those of our competitors;
 
•   actual or anticipated fluctuations in our quarterly operating results;
 
•   changes in financial estimates by securities research analysts;
 
•   changes in the economic performance or market valuations of other media and advertising companies;
 
•   addition or departure of our executive officers and key personnel;
 
•   fluctuations in the exchange rates between the U.S. dollar and RMB;
 
•   release or expiration of lock-up or other transfer restrictions on our outstanding ADSs; and
 
•   sales or perceived sales of additional ADSs.

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In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.
Because the initial public offering price is substantially higher than our net book value per ADS, you will incur immediate and substantial dilution.
If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ADSs on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately $8.33 per ADS (assuming no exercise by the underwriters of options to acquire additional ADSs), representing the difference between our net book value per ADS as of December 31, 2006, after giving effect to this offering, and the initial public offering price of $13.00 per ADS, the midpoint of the estimated price range. In addition, you may experience further dilution to the extent that our ADSs are issued upon the exercise of share options.
Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.
Sales of our ADSs in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Upon completion of this offering, we will have 23,076,923 ADSs outstanding. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ADSs outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Any or all of these shares may be released prior to expiration of the lock-up period at the discretion of the joint lead underwriters. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.
You may not have the same voting rights as the holders of our common shares and may not receive voting materials in time to be able to exercise your right to vote.
Except as described in this prospectus and in the deposit agreement, holders of our ADSs will not be able to exercise voting rights attaching to the shares represented by our ADSs on an individual basis. Holders of our ADSs will appoint the depositary or its nominee to vote the shares represented by the ADSs. You may not receive voting materials in time to instruct the depositary to vote and it is possible that you, or persons who hold their ADSs through brokers, dealers or other third parties, will not have the opportunity to exercise a right to vote. Upon our written request, the depositary will mail to you a shareholder meeting notice which contains, among other things, a statement as to the manner in which your voting instructions may be given, including an express indication that such instructions may be given or deemed given to the depositary to give a discretionary proxy to a person designated by us if no instructions are received by the depositary from you on or before the response date established by the depositary. However, no voting instruction shall be deemed given and no such discretionary proxy shall be given with respect to any matter as to which we inform the

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depositary that (i) we do not wish such proxy given, (ii) substantial opposition exists, or (iii) such matter materially and adversely affect the rights of shareholders.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.
In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our common shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of common shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute that property and you will not receive that distribution.
We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than that under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, the Cayman Islands Companies Law 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 that from English common law, which has persuasive, but not binding, authority 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 than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.
As a result of all of the above, public shareholders of our company may have more difficulty in protecting their interests in the face of actions taken by management, members of the board

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of directors or controlling shareholders of our company than they would as shareholders of a U.S. public company.
Our management will have considerable discretion as to the use of the net proceeds to be received by us from this offering.
We have allocated much of the net proceeds of this offering to be received by us for acquisitions and general corporate purposes. Our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to maintain profitability or increase our share price. The net proceeds from this offering may be placed in investments that do not produce income or that lose value.
Our dual-class common share structure with different voting rights could discourage others from pursuing any change of control transactions that holders of our class A common shares and ADSs may view as beneficial.
On July 24, 2006, our shareholders amended and restated our memorandum and articles of association to provide for a dual-class common share structure. Our common shares are divided into class A common shares and class B common shares. Holders of class A common shares are entitled to one vote per share, while holders of class B common shares are entitled to ten votes per share. We will issue class A common shares represented by our ADSs in this offering. Our parent, Xinhua Finance Limited, is the only holder of our class B common shares. We intend to maintain the dual-class common share structure after the closing of this offering. Each class B common share is convertible into one class A common share at any time by its holder. Class A common shares are not convertible into class B common shares under any circumstances. Upon any transfer of class B common shares by a holder thereof to any person or entity which is not a wholly-owned and wholly-controlled subsidiary of our parent, such class B common shares shall be automatically and immediately converted into an equal number of class A common shares.
Due to the disparate voting powers attached to these two classes, our existing shareholders will have significant voting power over matters requiring shareholder approval, including election of directors and significant corporate transactions, such as a merger or sale of our company or our assets. This concentrated control could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of class A common shares and ADSs may view as beneficial.
Our memorandum and articles of association contain anti-takeover provisions that could adversely affect the rights of holders of our common shares and ADSs.
Our shareholders recently adopted an amended and restated articles of association that will become effective immediately upon the closing of this offering. We have included certain provisions in our new memorandum and articles of association that could limit the ability of others to acquire control of our company, and deprive our shareholders of the opportunity to

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sell their shares at a premium over the prevailing market price by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transactions.
We have included the following provisions in our new articles that may have the effect of delaying or preventing a change of control of our company:
•   Our board of directors has the authority to establish from time to time one or more series of preferred shares without action by our shareholders and to determine, with respect to any series of preferred shares, the terms and rights of that series, including the designation of the series; the number of shares of the series; the dividend rights, dividend rates, conversion rights, voting rights; and the rights and terms of redemption and liquidation preferences.
 
•   Our board of directors may issue series of preferred shares without action by our shareholders to the extent of available authorized but unissued preferred shares. Accordingly, the issuance of preferred shares may adversely affect the rights of the holders of the common shares. Issuance of preference shares may dilute the voting power of holders of common shares.
 
•   Subject to applicable regulatory requirements, our board of directors may issue additional common shares without action by our shareholders to the extent of available authorized but unissued shares.
You may have difficulty enforcing judgments obtained against us.
We are a Cayman Islands company and most of our assets are located outside of the United States. Most 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 for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors, most of whom are not residents in the United States and the substantial majority of whose assets are located outside of the United States. In addition, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of U.S. courts. See “Enforceability of civil liabilities”.
We will incur increased costs as a result of being a public company.
As a public company, we will incur a significantly higher level of legal, accounting and other expenses than we did as a private company. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules subsequently implemented by the SEC and the Nasdaq Global Market, have required changes in corporate governance practices of public companies. We expect these new rules and regulations to increase our legal and financial compliance costs and to make certain activities more time-consuming and costly. As a result of becoming a public company, we will establish additional board committees and adopt and implement additional policies regarding internal controls over financial reporting and disclosure controls and procedures. In particular, compliance with Section 404 of the Sarbanes-Oxley Act, which requires public companies to include a report of management on the effectiveness of such company’s internal control over financial reporting, will increase our costs. In addition, we will incur costs associated with public company reporting requirements, such as the requirements to file an annual report and

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other event-related reports with the Securities and Exchange Commission. We also expect the rules and regulations that govern public companies to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. We are currently evaluating and monitoring developments with respect to these new rules.
We may be classified as a passive foreign investment company, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ADSs or common shares.
Although it is not clear how the contractual arrangements between us and our affiliated entities will be treated for purposes of the passive foreign investment company, or PFIC, rules, we believe that we should not be treated as a PFIC for our current taxable year ending December 31, 2007 or for the foreseeable future. However, we must make a separate determination each year as to whether we are a PFIC, and accordingly, even if we are not a PFIC for our current taxable year our PFIC status may change. A non-U.S. corporation will be considered a PFIC for any taxable year if either (1) at least 75% of its gross income is passive income or (2) at least 50% of the value of its assets is attributable to assets that produce or are held for the production of passive income. If we were treated as a PFIC for any taxable year during which a U.S. person held an ADS or a common share, certain adverse U.S. federal income tax consequences could apply to that U.S. person. See “Taxation— United States federal income taxation— Passive foreign investment company”.

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Special note regarding forward-looking statements
We make “forward-looking statements” in the “Summary,” “Risk factors,” “Management’s discussion and analysis of financial condition and results of operations,” “Industry,” “Regulation” “Arrangements with partners and suppliers” and “Business” sections and elsewhere throughout this prospectus. Whenever you read a statement that is not simply a statement of historical fact (such as when we describe what we “believe,” “expect” or “anticipate” will occur, and other similar statements), you must remember that our expectations may not be correct, even though we believe that they are reasonable. The forward-looking statements included in this prospectus relate to, among others:
•  our goals and strategies;
 
•  our future business development, financial condition and results of operations;
 
•  projected revenues, profits, earnings and other estimated financial information;
 
•  our plans to expand our Internet presence, and expand into new media, such as, broadband wireless and Internet television;
 
•  the growth or acceptance of our integrated platform;
 
•  our plans to identify and create new advertising networks that target specific consumer demographics, which could allow us to charge a separate fee;
 
•  competition in the PRC media and advertising industries; and
 
•  the expected growth in advertising spending levels.
We do not guarantee that the transactions and events described in this prospectus will happen as described or that they will happen at all. You should read this prospectus completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements made in this prospectus relate only to events as of the date on which the statements are made. We undertake no obligation, beyond that required by law, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made, even though our situation will change in the future.
Whether actual results will conform to our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. Some of the assumptions, future results and levels of performance expressed or implied in the forward-looking statements we make inevitably will not materialize, and unanticipated events may occur which will affect our results. The “Risk factors” section of this prospectus describes the principal contingencies and uncertainties to which we believe we are subject.
This prospectus also contains data related to the media and advertising markets in several countries, including China. This market data, including market data from ZenithOptimedia, an independent research firm, include projections that are based on a number of assumptions. The

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media, advertising and research markets may not grow at the rates projected by the market data, or at all. The failure of the markets to grow at the projected rates may materially and adversely affect our business and the market price of our ADSs. In addition, the rapidly changing nature of the media and advertising markets subjects any projections or estimates relating to the growth prospects or future condition of our market to significant uncertainties. If any one or more of the assumptions underlying the market data proves to be incorrect, actual results may differ from the projections based on these assumptions. You should not place undue reliance on these forward-looking statements.

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Use of proceeds
We estimate that we will receive net proceeds for this offering of approximately $204 million, after deducting estimated underwriting discounts, commissions and estimated offering expenses payable by us. For the purposes of estimating net proceeds, we are assuming an initial public offering price of $13.00 per ADS, the midpoint of the estimated range of the initial public offering price. A $1.00 increase (decrease) in the assumed public offering price of $13.00 per ADS would increase (decrease) the net proceeds to us from this offering by $16 million.
We intend to use the net proceeds from this offering as follows:
•   approximately $50 million to repay certain outstanding indebtedness to our parent and Xinhua Financial Network Limited. The indebtedness is due on demand and the interest rates are not specified. The indebtedness was to pay for the costs related to our acquisitions from our parent of equity interests our parent had held before March 31, 2006 in Xinhua Finance Advertising Limited and the contractual control our parent had held before March 31, 2006 in Beijing Century Media Culture Co., Ltd. as well as advances from our parent and Xinhua Financial Network enabling us to acquire 19.0% equity interests in Upper Step Holdings Limited, or Upper Step, and Accord Group Investments Limited, or Accord Group;
 
•   an undetermined amount for strategic acquisitions of complementary businesses. At this time, we have not entered into advanced discussions or negotiations with respect to any potential acquisitions except for the acquisition of the remaining equity of Beijing Perspective; and
 
•   the balance to fund working capital and for other general corporate purposes.
We have not yet determined all of our anticipated expenditures and therefore cannot estimate the amounts to be used for acquisitions or general corporate purposes. The amounts and timing of any expenditure will vary depending on the amount of cash generated by our operations, competitive and technological developments and the rate of growth, if any, of our business. Accordingly, our management will have significant discretion in the allocation of the net proceeds we will receive for this offering. Depending on future events and other changes in the business climate, we may determine at a later time to use the net proceeds for different purposes. Pending their use, we intend to invest the proceeds in a variety of capital preservation instruments, including short-term, investment-grade, interest-bearing instruments.
The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering differently than as described in this prospectus.
We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

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Dilution
If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net book value per ADS after this offering. Dilution results from the fact that the initial public offering price per common share is substantially in excess of the book value per common share attributable to the existing shareholders for our presently outstanding common shares.
Our net book value as of December 31, 2006 was approximately $101.2 million, or $1.23 per common share and $2.46 per ADS. Net book value represents the amount of our total consolidated assets, minus the amount of our total consolidated liabilities. Our pro forma net book value as of December 31, 2006 was $115.3 million, or $1.13 per ordinary share and $2.26 per ADS. Pro forma net book value per common share represents the amount of total consolidated assets less total consolidated liabilities, divided by the number of common shares outstanding after giving effect to (1) the automatic conversion of all outstanding convertible preferred shares into 16,134,320 class A common shares and (2) the conversion of our convertible loan into 3,832,543 class A common shares. Without taking into account any other changes in such net book value after December 31, 2006, other than to give effect to the issuance and sale of 34,615,846 common shares in the form of ADSs by us in this offering, at the initial public offering price of $13.00 per ADS, the midpoint of the estimated public offering price range, and after deduction of the underwriting discounts and commissions and estimated offering expenses of this offering payable by us, our adjusted net book value as of December 31, 2006 would have increased to $319 million or $2.33 per common share or $4.67 per ADS. This represents an immediate increase in net book value of $1.20 per common share or $2.41 per ADS to the existing shareholders, and an immediate dilution in net book value of $4.17 per common share or $8.33 per ADS to investors purchasing ADSs in this offering. The following table illustrates such per share dilution:
         
Estimated initial public offering price per common share
  $ 6.50  
Net book value per common share as of December 31, 2006
  $ 1.23  
Pro forma net book value per common share as of December 31, 2006
  $ 1.13  
Pro forma net book value per common share after giving effect to this offering
  $ 2.33  
Amount of dilution in net book value per common share to new investors in this offering
  $ 4.17  
Amount of dilution in net book value per ADS to new investors in this offering
  $ 8.33  
A $1.00 increase (decrease) in the assumed public offering price of $13.00 per ADS would increase (decrease) our pro forma net book value after giving effect to the offering by $16 million, the pro forma net book value per common share and per ADS after giving effect to this offering by $0.12 per common share and $0.24 per ADS and the dilution in pro forma net book value per common share and per ADS to new investors in this offering by $0.38 per common share and $0.76 per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other offering expenses. The pro forma information discussed above is illustrative only. Our net book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

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The following table summarizes, on a pro forma basis as of December 31, 2006, the differences between existing shareholders and the new investors with respect to the number of common shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per common share/ ADS paid before deducting the underwriting discounts and commissions and estimated offering expenses. The total number of common shares does not include common shares underlying the ADSs issuable upon the exercise of the over-allotment option granted to the underwriters.
                                                 
 
    Common shares       Average    
    purchased   Total consideration   price per   Average
            common   price per
    Number   Percent   Amount   Percent   share   ADS
 
Existing shareholders
    102,032,635 (1)     74.7 %   $ 117,227,718       36.5 %     $1.15       $ 2.30  
New investors
    34,615,846       25.3       203,767,534       63.5       $5.89       $11.77  
     
Total
    136,648,481       100.0 %   $ 320,995,252       100.0 %     $2.35       $ 4.70  
 
(1)  Common shares includes common shares available upon conversion of convertible preferred shares and the convertible loan of Patriarch Partners.
A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per ADS would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per ADS paid by all shareholders by $16 million, $16 million and $0.24, respectively, assuming no change in the number of ADSs sold by us as set forth on the cover page of this prospectus and without deducting underwriting discounts and commissions and other offering expenses.
The discussion and tables above assume no exercise of any outstanding share options or warrants. Pursuant to our agreement with Patriarch Partners Media Holdings LLC, which limits the number of share options that may be granted before this offering, as of December 31, 2006, there were 10,698,141 common shares issuable upon exercise of outstanding share options at an exercise price of $0.78 per share, and there were 1,029,461 common shares available for future issuance as share grants or upon the exercise of future grants under individual option agreements that may be entered into. For details see “Related party transactions—Transactions with Patriarch Partners”. There are also additional common shares available for future issuance under future grants of options pursuant to our 2007 share option plan. In addition, there are 2,049,984 warrants held by Sino Investment, 2,049,984 warrants held by the Dennis L. Pelino Family Trust and 221,280 warrants held by Ken Chen that are immediately exercisable, as well as 630,000 warrants held by Billy Kung that are subject to a five-year lock-up period. If all of these options and the 4,321,248 immediately exercisable warrants had been exercised at the time of this offering, after giving effect to this offering, our net book value would have been approximately $343 million, or $2.26 per common share and $4.52 per ADS, and the dilution in net book value to new investors would have been $4.24 per common share and $8.48 per ADS. In addition, the dilution to new investors will be $4.08 per common share and $8.16 per ADS, if the underwriters exercise their option to purchase additional ADSs in full.

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Dividend policy
We have never declared or paid any dividends on our common shares, nor do we have any present plan to pay any cash dividends on our ADSs in the foreseeable future. We currently intend to retain most of our available funds and any future earnings to operate and expand our business. We have, however, paid dividends to the holder of our convertible preferred shares of approximately $1.7 million per quarter since March 2006, which payment we plan to continue until June 30, 2007. We will discontinue these dividends upon conversion of the convertible preferred shares.
As we are a holding company, we rely on dividends paid to us by our wholly-owned subsidiaries Upper Step Holdings Limited, Accord Group Investments Limited, and Xinhua Finance Advertising Limited, all of which are British Virgin Islands business companies, and by our wholly-owned subsidiary EconWorld Media Limited, a Hong Kong company, for our cash requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses.
In the British Virgin Islands, the payment of dividends is subject to limitations. A British Virgin Islands business company that prior to January 1, 2007 existed as an international business company is permitted to declare and pay dividends only out of surplus, meaning the excess, if any, at the time of the determination, of the total assets of the company over the sum of its total liabilities, as shown in the books of account, plus its capital. In addition, such company may not declare or pay a dividend unless the directors of the company determine that immediately after the payment of the dividend the company will be able to satisfy its liabilities as they become due in the ordinary course of its business and the realizable value of the assets of the company will not be less than the sum of its total liabilities, other than deferred taxes, as shown in the books of account, and its capital.
In Hong Kong, the payment of dividends is also subject to limitations. Dividends may only be distributed out of accumulated, realized profits less accumulated, realized losses. Accumulated, realized profits must not have been previously distributed or capitalized. Accumulated, realized losses do not include those previously written off in a reduction or reorganization of capital.
Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant. Cash dividends on our ADSs, if any, will be paid in U.S. dollars.

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Capitalization
The following table sets forth our capitalization as of December 31, 2006:
•   on an actual basis; and
 
•   on an as adjusted basis to give effect to (1) the automatic conversion of all of our outstanding convertible preferred shares into 16,134,320 class A common shares immediately upon the completion of this offering, (2) the conversion of our convertible loan into 3,832,543 class A common shares and (3) the issuance and sale of 34,615,846 common shares in the form of ADSs by us in this offering, assuming an initial public offering price of $13.00 per ADS, the midpoint of the estimated range of the initial public offering price, after deducting estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no exercise of the underwriters’ over-allotment option and no other change to the number of ADSs sold by us as set forth on the cover page of this prospectus.
You should read this table together with our financial statements and the related notes included elsewhere in this prospectus and the information under “Management’s discussion and analysis of financial condition and results of operations.”
                   
 
As of December 31, 2006
(in thousands)   Actual   As adjusted
 
Convertible loan
  $ 14,017     $  
Shareholders’ equity:
               
Class A common shares and non-vested shares, $0.001 par value, 69,035,751 shares authorized; 32,011,154 shares issued and outstanding(1)
    32       87  
Class B common shares, $0.001 par value, 50,054,619 shares authorized; 50,054,618 shares issued and outstanding
    7       7  
Preferred shares, $0.001 par value, 15,600,000 shares authorized; 15,585,254 shares issued and outstanding (liquidation value $115,770,726)
    16        
 
Additional paid-in capital(2)
    103,155       320,901  
 
Accumulated other comprehensive income
    837       837  
 
Deficit
    (2,797 )     (2,797 )
Total shareholders’ equity(2)
    101,250       319,035  
Total capitalization(2)
  $ 115,267     $ 319,035  
 
(1)  Excludes 10,698,141 common shares issuable upon the exercise of options outstanding as of December 31, 2006 and 1,029,461 common shares reserved for future issuance under any individual option agreements that may be entered into.
 
(2)  A $1.00 increase (decrease) in the assumed initial public offering price of $13.00 per ADS would increase (decrease) each of additional paid-in capital, total shareholders’ equity and total capitalization by $16 million.

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Exchange rate information
Our business is primarily conducted in China and substantially all of our revenues are denominated in RMB. However, periodic reports made to shareholders will be expressed in U.S. dollars using the then applicable exchange rates. This prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this prospectus were made at a rate of RMB 7.8041 to $1.00, the noon buying rate in New York, New York for cable transfers in Renminbi per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate, as of December 29, 2006. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. On February 20, 2007, the noon buying rate was RMB 7.7466 to $1.00.
The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Bank of New York.
                                 
 
Period   Period end   Average(1)   Low   High
 
    (RMB per $1.00)
2002
    8.2800       8.2772       8.2800       8.2700  
2003
    8.2767       8.2771       8.2800       8.2765  
2004
    8.2765       8.2768       8.2774       8.2764  
2005
    8.0702       8.1826       8.2765       8.0702  
Year ended December 31, 2006
    7.8041       7.9579       8.0702       7.8041  
August
    7.9538       7.9722       8.0000       7.9538  
September
    7.9040       7.9334       7.9545       7.8965  
October
    7.8785       7.9018       7.9168       7.8728  
November
    7.8340       7.8622       7.8750       7.8303  
December
    7.8041       7.8220       7.8350       7.8041  
2007
                               
January
    7.7714       7.7876       7.8127       7.7705  
February (through February 20)
    7.7466       7.7531       7.7632       7.7426  
 
(1)  Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

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Enforceability of civil liabilities
We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as political and economic stability, an effective judicial system, a favorable tax system, the absence of exchange control or currency restrictions and the availability of professional and support services. However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include that the Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection to investors, and Cayman Islands companies do not have standing to sue before the federal courts of the United States. Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.
Most of our current operations are conducted in China, and most of our assets are located in China. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon us or such persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.
We plan to appoint Law Debenture Corporate Services Inc. as our agent to receive service of process with respect to any action brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.
Conyers Dill & Pearman, our counsel as to Cayman Islands law, and Commerce & Finance Law Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:
•   recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or
 
•   entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.
Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as debt in the courts of the Cayman Islands under the common law doctrine of obligation. Civil liability provisions of the U.S. federal and state securities law permit punitive damages against us. However, according to Conyers Dill & Pearman, the Cayman Islands courts would not recognize or enforce judgments against us to the extent the judgment is punitive or penal. It is uncertain as to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws would be determined by the Cayman

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Islands courts as penal or punitive in nature. Such a determination has yet to be made by any Cayman Islands court.
Commerce & Finance Law Offices has advised us further that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. Courts in China may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions.

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Selected consolidated financial data
The following selected consolidated statements of operations data for EconWorld Media Limited (our predecessor) for the year ended December 31, 2004 and the period ended May 25, 2005, and for our company for the period from May 26, 2005, the date our parent acquired 60% of EconWorld Media Limited, to December 31, 2005 and the year ended December 31, 2006 and the selected consolidated balance sheet data for EconWorld Media Limited as of December 31, 2004 and for our company as of December 31, 2005 and 2006 have been derived from our audited financial statements included elsewhere in this prospectus. You should read the selected consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s discussion and analysis of financial condition and results of operations”. The selected consolidated statement of operations data for the year ended December 31, 2003 and the selected consolidated balance sheet data as of December 31, 2003 of EconWorld Media Limited have been derived from the unaudited financial statements of EconWorld Media Limited that are not included in this prospectus. Our 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.
                                           
 
    Period from   Period from    
    Year ended   Year ended   January 1,   May 26,    
    December   December   2005 to May   2005(1) to   Year ended
(in thousands,   31, 2003   31, 2004   25, 2005   December 31,   December 31,
except per share data)   (Predecessor)   (Predecessor)   (Predecessor)   2005   2006
 
Statement of operations data
                                       
Net revenues:
                                       
 
Content production
  $     $     $     $ 3,641     $ 6,545  
 
Advertising sales
    157       48       240       387       6,691  
 
Advertising services
    23       301       53       580       44,862  
 
Publishing services
    9       52       55       787       868  
                               
Total net revenues
    189       401       348       5,395       58,966  
                               
Cost of revenues:
                                       
 
Content production
                      651       2,829  
 
Advertising sales
    11       35       42       85       1,912  
 
Advertising services
    56       248       66       154       27,654  
 
Publishing services
    51       325       347       534       1,386  
                               
Total cost of revenues
    118       608       455       1,424       33,781  
                               
Operating expenses:
                                       
 
Selling and distribution
    18       418       322       293       5,277  
 
General and administrative(2)
    692       608       456       1,248       12,840  
                               
Total operating expenses
    710       1,026       778       1,541       18,117  
                               
Income (loss) from operations
    (639 )     (1,233 )     (885 )     2,430       7,068  
                               
Other income (expense), net
    26       (10 )     (3 )     (22 )     (898 )
                               
Provision for income taxes (benefit)
    1       5       (4 )     929       1,070  
                               
Minority interest
                      129       1,704  
                               
Equity in loss of an Investment
                            52  
Net income (loss)
  $ (614 )   $ (1,248 )   $ (884 )   $ 1,350     $ 3,344  

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    Period from   Period from    
    Year ended   Year ended   January 1,   May 26,    
    December   December   2005 to May   2005(1) to   Year ended
(in thousands,   31, 2003   31, 2004   25, 2005   December 31,   December 31,
except per share data)   (Predecessor)   (Predecessor)   (Predecessor)   2005   2006
 
Deemed dividend on redeemable convertible preferred shares
                            (2,157 )
                               
Dividends declared to redeemable convertible preferred shares
                            (5,335 )
Net income (loss) attributable to holders of common shares
    (614 )     (1,248 )     (884 )     1,350       (4,148 )
                               
Net income (loss) per share:
                                       
 
Basic — Class A common share
  $     $     $     $     $ (0.08 )
 
Basic — Class B common share
  $ (8.53 )   $ (13.13 )   $ (7.85 )   $ 0.03     $ (0.08 )
 
Diluted — Class A common share
  $     $     $     $     $ (0.08 )
 
Diluted — Class B common share
  $ (8.53 )   $ (13.13 )   $ (7.85 )   $ 0.03     $ (0.08 )
Shares used in computation:
                                       
 
Basic — Class A common share
                            5,084  
 
Basic — Class B common share
    72       95       113       42,613       44,693  
 
Diluted — Class A common share
                            5,084  
 
Diluted — Class B common share
    72       95       113       42,613       44,693  
Pro forma income per share on an as converted basis(3):
                                       
 
Basic — Class A common share
                          $ 0.076  
 
Basic — Class B common share
                          $ 0.076  
 
Diluted — Class A common share
                          $ 0.073  
 
Diluted — Class B common share
                          $ 0.076  
Shares used in calculating pro forma per share amount on an as converted basis:
                                       
 
Basic — Class A common share
                            21,225,762  
 
Basic — Class B common share
                            44,693,266  
 
Diluted — Class A common share
                            68,469,817  
 
Diluted — Class B common share
                            44,693,266  
 
(1)  Date our parent acquired 60% of EconWorld Media Limited, our predecessor.
 
(2)  Includes share-based compensation expense of $2.4 million for the year ended December 31, 2006.
 
(3)  Pro forma basic and diluted net income per common share is computed by dividing net income attributable to holders of common shares by the weighted average number of common shares outstanding for the period plus the weighted average number of common shares outstanding resulting from the assumed conversion upon the closing of the planned initial public offering of the outstanding redeemable convertible preferred shares and convertible loan.

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    Predecessor   Successor   Pro forma
             
            As of
    As of   As of   As of   As of   December 31,
    December 31,   December 31,   December 31,   December 31,   2006
(in thousands)   2003   2004   2005   2006   (Note)
 
Balance sheet data
                                       
Cash
    $   131       $   21       $2,081     $ 36,354     $ 36,354  
Restricted cash
                      12,580       12,580  
Accounts receivable
    13       69       2,467       17,404       17,404  
Deposits for program advertising right
                      1,507       1,507  
Prepaid advertising program
                                       
 
space and airtime
                      3,420       3,420  
Prepaid expenses
          23       97       3,671       3,671  
Amounts due from related parties
    216       9       41       8,787       8,787  
Promissory note receivable
                      7,900       7,900  
Deferred tax assets
          16       44       32       32  
Other current assets
                181       5,395       5,395  
Capitalized content production costs, net
                538       1,397       1,397  
Deposits for content production
                      4,457       4,457  
Property and equipment, net
    41       60       159       4,367       4,367  
License agreements
                      103,844       103,844  
Exclusive advertising agreement, net — Economic Observer Advertising
                      60,781       60,781  
Other intangible assets, net
                628       11,576       11,576  
Goodwill
                4,070       83,670       83,670  
Investments
                      500       500  
Deposits for acquisitions of subsidiaries
                      29,247       29,247  
Deposits for acquisition of intangible asset
                      2,561       2,561  
     
Total assets
    401       198       10,306       399,450       399,450  
     

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    Predecessor   Successor   Pro forma
             
            As of
    As of   As of   As of   As of   December 31,
    December 31,   December 31,   December 31,   December 31,   2006
(in thousands)   2003   2004   2005   2006   (Note)
 
Accounts payable
    173       32       388       3,237       3,237  
Accrued expenses and other payables
    1       278       685       7,899       7,899  
Amount due to parent and its affiliates
                5,600       138,694       138,694  
Amounts due to other related parties
    50       938       909       2,367       2,367  
Long-term payables, current portion
                      8,901       8,901  
Bank borrowings
                      11,218       11,218  
Income tax payable
          21       997       2,751       2,751  
Deferred tax liability
                207       41,168       41,168  
Convertible loan
                      14,017        
Long term payables, non current portion
                      64,938       64,938  
     
Total liabilities
    224       1,269       8,786       295,190       281,173  
     
Minority interest
                167       3,010       3,010  
Total owners’ and shareholders’ (deficiency) equity
    177       (1,071 )     1,353       101,250       115,267  
Total liabilities and owners’ and shareholders’ (deficiency) equity
    $   401       $  198       $10,306       $399,450       $399,450  
 
Note:
The unaudited pro forma balance sheet information as of December 31, 2006 assumes the conversion upon completion of the initial public offering of all redeemable convertible preferred shares of $59,051,612 and convertible loan of $14,017,289 outstanding as of December 31, 2006 into common shares.

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Management’s discussion and analysis of financial
condition and results of operations
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and related notes included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations, the fulfillment of which is uncertain and subject to risks. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk factors” or in other parts of this prospectus.
Overview
We are a leading diversified media company in China. Since we were established in November 2005, we have developed a unique, integrated media platform through acquisitions and strategic partnerships. We operate our businesses along five segments: media production, broadcasting, print, advertising and research.
We serve the following constituencies:
•   Advertisers and marketing services customers. Our primary source of revenue is advertising in various forms, including advertisements broadcast during advertising breaks during or between television or radio programs, advertisements placed in print pages as well as advertisements in the form of sponsorship and sponsored programming.
   Sponsorship can take various forms, including when products, services or expertise are promoted during a program. Sponsored programming refers to programs that typically are supplied by the advertiser and promote a product or service. We serve advertisers not only by providing the media platform, but also by creating the advertisements, and providing research services to enable the advertiser to better understand its target market.
 
   We provide marketing services to financial institutions and other types of companies, leveraging on the brand names of the media platforms of our strategic partners, especially that of Money Journal. Our marketing services include events organization and other services such as our Affluent Integrated Marketing Solutions services. The events we organize include investment seminars or other finance-related forums. For the events we organize, we typically manage substantially the entire process, including arranging for advertising or public notices, booking venues, inviting speakers and providing cross-media content.
•   Audience and readers. We seek to attract audience and readers to the media platforms of our strategic partners. We have staff working to provide some of the content for various media outlets including Inner Mongolia Satellite Television, Hunan Satellite Television, various local stations airing Fortune China, and China Radio International’s EasyFM stations in Beijing and Shanghai. We also offer management and information consulting services to our strategic partners to help improve the content of the Economic Observer and Money Journal. In addition, we obtain content from other providers, such as our parent and Dow Jones.
 
•   Television stations or channels. In addition to creating content for the media platforms of our strategic partners, our media production group produces television programs, including

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drama series for other customers. For these types of customers, our media production group also engages in broadcast design as well as animation and post-production services.
 
•   Research customers. In addition to providing research services to our other operating groups, our research group serves international and China-based customers who need to conduct market research in China. We study market characteristics, consumer preferences and opinions with respect to advertising and media content, and business and technology issues as needed for each project.

Although we currently operate all five operating groups and serve all of the constituencies described above, our consolidated financial statements for the period from May 26, 2005 to December 31, 2005, which are included elsewhere in this prospectus, reflect the operating results of only two operating groups— the media production group and our predecessor, the Money Journal operations of our print group. Our consolidated financial statements for the year ended December 31, 2006, which also are included in this prospectus, reflect the operating results of all five operating groups.
We have grown rapidly since we were established due to acquisitions. We expect our future growth to be driven by a number of factors and trends, including, among others:
•   overall economic growth in China, which we expect should contribute to an increase in advertising spending, particularly in major urban areas in China where consumer spending is concentrated;
 
•   our ability, and the ability of our strategic partners to operate in, and react to, an uncertain and developing regulatory environment; and
 
•   our ability to
  •   successfully integrate our acquisitions;
 
  •   expand our sales and marketing efforts and integrate and coordinate such efforts across our operating groups;
 
  •   increase advertising sales by attracting new advertising customers and increase spending per customer through promotion of our services and cross-selling;
 
  •   maintain the popularity and high-quality of our content, while generating greater volumes of high-quality content;
 
  •   generate higher ratings and circulation numbers from the content we produce and source;
 
  •   attract an audience that represents a desirable demographic for our advertising customers;
 
  •   successfully develop our presence in and use new media, such as the Internet, as media platforms for delivery of our products and services to consumers, and attract advertisements on those new platforms;

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  •   acquire companies that operate media-related or advertising businesses complementary to our existing operations; and
 
  •   maintain existing and enter into new strategic partnerships that allow us to access appropriate media assets and know-how.
As we continue to grow, we expect to face a number of challenges. We have made acquisitions in rapid succession to build our integrated platform of products and services. We must integrate all these acquisitions successfully, as well as any future acquisitions. Some of our businesses have incurred net losses in the past, such as our Fortune China operations in our broadcasting group and our magazine operations in our print group, and we must ensure they are profitable in the future. In addition, we must adapt to continuing technological innovations and changes in the regulatory environment.
Acquisitions
We were established on November 7, 2005 by our parent, Xinhua Finance Limited. We have acquired the companies listed below to build our integrated platform of products and services.
We acquired all of our operating groups in 2006. We issued two promissory notes on March 31, 2006, one in favor of our parent for $68.5 million and the other in favor of its subsidiary Xinhua Financial Network Limited, or Xinhua Financial Network, for $38.2 million, in return for the following transfers and advances: Two of our acquired entities, Beijing Century Media Culture Co., Ltd, or Beijing Century Media, and Ming Shing International Limited, or Ming Shing, were initially acquired by our parent and subsequently transferred to us. In addition, our parent and Xinhua Financial Network advanced the purchase price for our purchase of 19.0% of the equity of Upper Step Holdings Limited, or Upper Step, and 19.0% of the equity of Accord Group Investments Limited, or Accord Group. See “Related party transactions— Transactions with our parent or its subsidiaries— Loan agreements between us and our parent or its subsidiaries”. The transaction agreements for some of our acquisitions contain earn-out provisions that would require payment of additional consideration based on the financial performance of the acquired company. Our parent is contractually obligated for paying these earn-out considerations except for the earn-out for Shanghai Hyperlink Market Research Co., Ltd., or Hyperlink, for which we and our parent are both responsible. Although the contracts do not specify whether the parent has a right to make such a request, if the amount of the earn-outs exceeds original estimates, our parent may request us to pay for the difference between these payments and the amounts due under the promissory notes or otherwise paid by us to our parent or Xinhua Financial Network for certain acquisitions. Several of the entities listed below are affiliated entities or subsidiaries that exercise effective control over affiliated entities, and we have contractual arrangements with each affiliated entity and all of its shareholders that enable us to effectively control such entity. Several others are subsidiaries of affiliated entities. For a description of these contractual arrangements, see “Corporate structure— Our corporate structure and contractual arrangements”.
•   Media Production. Our parent, through a subsidiary, lent funds to two PRC citizens, who used the funds to buy a combined 100% equity interest in Beijing Century Media on September 9, 2005. On the same day, the subsidiary of our parent entered into a set of agreements with these two PRC citizens to give our parent effective control over Beijing Century Media. Our parent transferred its control of Beijing Century Media to us through

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one of our affiliated entities on March 16, 2006 at a price of $11.4 million. This amount was included in our promissory notes to our parent and Xinhua Financial Network.
 
•   Broadcasting. Our broadcasting group was formed through the following three acquisitions:

  •   Upper Step. We signed a series of agreements pursuant to which we acquired 19.0% of the equity of Upper Step on February 28, 2006, at an initial price of $5.1 million. This amount was paid by Xinhua Financial Network and included in our promissory notes to Xinhua Financial Network and our parent. As part of the same series of agreements, Sino Investment Holdings Limited, or Sino Investment, also purchased 37.0% of Upper Step. We also injected an additional $3.2 million into Upper Step. Of that amount, $2.0 million was a loan from us paid by Xinhua Financial Network, and we subsequently repaid Xinhua Financial Network. On September 22, 2006, we acquired an additional 37.0% of the equity of Upper Step from Sino Investment for a consideration of 6,478,437 class A common shares, $9.1 million paid by our parent and 4,099,968 warrants to purchase our class A common shares at $3.659 per share. The warrants are immediately exercisable and valid for five years. In addition, Sino Investment issued a demand promissory note to us in the amount of $7.9 million as part of this transaction. On October 24, 2006, we made an additional payment of $10.0 million partially under our obligations for the purchase of 19.0% of Upper Step and partially to meet the obligations of Sino Investment for its purchase of 37.0% of Upper Step. On November 1, 2006, we acquired the remaining 44.0% of the equity of Upper Step from Honour Rise Services Limited, or Honour Rise, a wholly-owned subsidiary of Shanghai Wai Gao Qiao Free Trade Zone Development Co., Ltd., for 6,407,018 class A common shares. Primarily through Upper Step’s subsidiaries and affiliated entities, we have our strategic partnership with Shanghai Camera Media Investment Co., Ltd., or Shanghai Camera, the content and advertising provider to Inner Mongolia Satellite Television. Until Upper Step entered into this strategic partnership, it had no operations.
 
  •   Beijing Perspective. Through Beijing Century Media, an affiliated entity, we acquired 51.0% of the equity of Beijing Perspective Orient Movie and Television Intermediary Co., Ltd., or Beijing Perspective, on July 28, 2006. Xinhua Financial Network financed the purchase price for this acquisition. Beijing Perspective engages in the production, distribution and syndication of Fortune China. On January 31, 2007, our parent entered into a letter of intent by which it agreed to use its best efforts to enter into a purchase agreement for the remaining shares of Beijing Perspective by September 30, 2007. After the acquisition, we intend to purchase this equity from our parent. The closing of the acquisition is conditional on a number of events, including compliance with PRC laws, receipt of necessary approvals and delivery of customary legal opinions.
 
  •   Accord Group. We acquired 19.0% of the equity of Accord Group on January 23, 2006 at a price of $440,000, which was paid by Xinhua Financial Network. This amount was included in our promissory notes to Xinhua Financial Network and our parent. On September 22, 2006, we acquired 61.0% of the equity of Accord Group from Sino Investment by issuing 451,107 class A common shares to Sino Investment. On November 1, 2006, we acquired the remaining 20.0% of the equity of Accord Group from Honour Rise for 125,053 class A common shares. Through Accord Group and its affiliated entity, Century Media Advertising, we have a partnership with China Radio International’s exclusive advertising agent to provide content to and exercise the exclusive right to sell advertising for the EasyFM stations of Beijing and Shanghai.

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•   Print. Our print group was formed through the following two acquisitions:
  •   Economic Observer Advertising. Through Beijing Taide Advertising Co., Ltd., or Beijing Taide, an affiliated entity, we acquired 50.0% of the equity of Beijing Jingguan Xincheng Advertising Co., Ltd., or Economic Observer Advertising, on June 8, 2006. Our parent financed the purchase price for this acquisition, and we subsequently issued 5,761,317 class B common shares to our parent as consideration. We acquired the remaining 50.0% of the equity of Economic Observer Advertising through Beijing Taide on September 15, 2006. Economic Observer Advertising has the exclusive rights to sell advertising for and provides advisory services and other management consulting services to the Economic Observer newspaper.
 
  •   EconWorld Media. Our parent subscribed for 60.0% of the equity of EconWorld Media Limited, or EconWorld Media, on May 26, 2005 at an initial price of $1.5 million and transferred that interest to us on January 12, 2006. On June 8, 2006, we subscribed to one additional share of EconWorld Media at a price of $2.8 million in fulfillment of an earn-out obligation, which was paid by our parent. We issued one share to our parent as consideration, which was subsequently divided into 1,000 shares. We acquired another 12.0% of the equity of EconWorld Media on June 21, 2006 at a price of $1.1 million, which was also paid by our parent. On December 18, 2006, we acquired the remaining 28.0% at a price of $5.0 million, which was paid by our parent. EconWorld Media operates the magazine business of our print group. EconWorld Media is our predecessor.
•   Advertising. Our parent acquired 100% of the equity in Ming Shing at a cost of $29.0 million plus a series of earn-out obligations, which, together with the first payment, were estimated to be $80.5 million, on January 12, 2006 and subsequently transferred Ming Shing to us on March 16, 2006, at a price of $80.5 million. Our parent is responsible for the future earn-out payments. This amount was included in our promissory notes to our parent and Xinhua Financial Network. Ming Shing subsequently changed its name to Xinhua Finance Advertising Limited, or Xinhua Finance Advertising, on June 19, 2006. Xinhua Finance Advertising and certain of its subsidiaries and affiliated entities operate as our advertising group.
 
•   Research. Through Beijing Taide, an affiliated entity, we acquired 51.0% of the equity of Hyperlink on August 1, 2006. Our parent financed the purchase price for this 51.0% equity, and we subsequently issued 1,679,012 class B common shares to our parent as consideration. On September 18, 2006, we acquired the remaining 49.0% of the equity of Hyperlink through Beijing Taide. Hyperlink operates as our research group.
For certain acquisitions the consideration we paid was made in two parts, one part within China, and the other part outside of China. This exposes us to tax liability if the sellers did not pay appropriate taxes. See “Risk factors—Risks related to the regulation of our business and to our structure—Contractual arrangements we have entered into with our subsidiaries and affiliated entities or acquisitions of offshore entities that conduct PRC operations through affiliates in China may be subject to scrutiny by the PRC tax authorities, and we may have to pay additional taxes or be found ineligible for a tax exemption”.
We have a short operating history. For the period from November 7, 2005, the date of our incorporation, to December 31, 2005, we did not have any subsidiaries or PRC affiliated entities. We acquired all of our operating groups in 2006. We have included in this prospectus

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the following financial statements of our company, our predecessor and certain companies we have acquired:
•   The audited consolidated financial statements of our company, for the period from May 26, 2005, the date our parent acquired 60% of EconWorld Media (our predecessor), to December 31, 2005 and for the year ended December 31, 2006 and as of December 31, 2005 and 2006.
 
•   The audited consolidated financial statements of EconWorld Media (our predecessor) for the year ended December 31, 2004 and the period from January 1, 2005 to May 25, 2005, and as of December 31, 2004 and May 25, 2005.
 
•   The audited consolidated financial statements of Beijing Century Media, for the period from June 25, 2004 (the date of establishment) to December 31, 2004 and the period from January 1, 2005 to September 8, 2005, and as of December 31, 2004 and September 8, 2005.
 
•   The audited consolidated financial statements of Xinhua Finance Advertising for the period from December 21, 2005 (the date Xinhua Finance Advertising acquired Active Advertising Agency Limited, its predecessor) to, and as of, December 31, 2005.
 
•   The audited consolidated financial statements of Active Advertising Agency Limited, one of the predecessors of Xinhua Finance Advertising, for the year ended December 31, 2004 and for the period from January 1, 2005 to December 21, 2005, and as of December 31, 2004 and December 21, 2005.
 
•   The audited consolidated financial statements of Beijing Taide, the other predecessor of Xinhua Finance Advertising, for the period from March 23, 2005 (the date of establishment) to, and as of, December 20, 2005.
 
•   The audited consolidated financial statements of Century Media Advertising (the predecessor of Accord Group) for the period from February 1, 2005 (the date of establishment of Century Media Advertising) to, and as of, August 18, 2005 and of Accord Group for the period from August 19, 2005 (the date Accord Group acquired Century Media Advertising) to, and as of, December 31, 2005. The unaudited consolidated financial statements of Century Media Advertising for the period from February 1, 2005 to, and as of, June 30, 2005 and of Accord Group for the six months ended and as of, June 30, 2006.
 
•   The audited consolidated financial statements of Beijing Perspective, a subsidiary of one of our affiliated entities, for the years ended, and as of, December 31, 2004 and 2005, and the unaudited consolidated financial statements of Beijing Perspective for the six months ended, and as of, June 30, 2005 and 2006.
 
•   The audited consolidated financial statements of Hyperlink, a subsidiary of one of our affiliated entities, for the years ended, and as of, December 31, 2004 and 2005, and the unaudited consolidated financial statements of Hyperlink for the six months ended, and as of, June 30, 2005 and 2006.
General factors affecting our results of operations
We have benefited significantly from China’s overall economic and population growth. The overall economic and population growth and the increase in the gross domestic product per capita in China have led to a significant increase in spending on advertising in China. We

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anticipate that advertising spending in China will continue to increase as China’s economy continues to grow and as disposable income of urban households continues to rise. However, any adverse changes in the economic or political conditions in China may have a material adverse effect on the media industry in China and advertising spending, which in turn may harm our business and results of operations.
PRC laws relating to foreign investments in the media and advertising industries are relatively new compared with those in more mature markets, and the PRC government continues to promulgate and implement new laws and regulations. We believe our current ownership structure, the ownership structure of our subsidiaries, including our affiliated PRC entities, the contractual arrangements among us, our subsidiaries, including affiliated PRC entities, and their shareholders, our business operations and the approvals and licenses to carry them out are in compliance with all existing PRC laws, rules and regulations in material respects. See “Risk factors— Risks related to the regulation of our business and to our structure— Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which could have a material adverse effect on our business”. In addition, there are substantial uncertainties regarding the interpretation, application and administration of current PRC laws and regulations, and the impact of any new laws and regulations is unknown. See “Risk factors—Risks related to the regulation of our business and to our structure—If the PRC government finds that the agreements that establish the structure for operating our China businesses do not comply with PRC governmental restrictions on foreign investment in the media and market research industries, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations”. Accordingly, if PRC government authorities ultimately take a view contrary to our position, our business may suffer substantial interruptions and our operating results may be negatively affected.
Specific factors affecting our results of operations
While our business is affected by factors relating to the media industry in China generally, we believe that our results of operations are also affected by company-specific factors. We believe that the results of operations of our broadcasting, print and advertising operations are affected by, among other factors, the following:
•   the quality of the content and ratings of our strategic partners’ broadcast programs;
 
•   the reach and timing of our strategic partners’ broadcast;
 
•   the circulation numbers, the quality of the content of, and the composition and location of the readership of, our strategic partners’ publications;
 
•   the quality of the advertising we produce for advertisers;
 
•   the quality of the research services that we offer to advertisers;
 
•   the pricing of our advertising; and
 
•   the pricing and quality of our marketing services, including events organization.

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We believe that the results of operations of our media production operations are affected by, among other factors, the following:
•   the quality of the programming we create;
 
•   the popularity of the programs; and
 
•   the pricing of our television programs and production services.
We believe that the results of operations of our research group are affected by the pricing for its services and the quality of its services, among other factors.
Our future results of operations will depend significantly upon our ability to integrate our acquisitions and make new acquisitions, manage the growth of new media successfully, continue to attract and expand our base of audience and readers and continue to attract and expand our base of advertisers. If we cannot accomplish these matters, our financial condition and results of operations may be materially and adversely affected.
We have acquired all our business operations recently and continue to seek other acquisition opportunities. See “—Acquisitions”. Strategic acquisitions are a key part of our growth strategy. We must ensure that our recent and future acquisitions are successfully integrated into our operations in order to achieve the intended benefits from these acquisitions.
We must continue to attract and expand our base of audience and readers, which is important to attracting advertisers. We must continue to attract our current base while also expanding this base in order to grow.
We must continue to attract and expand our base of advertisers. Advertising accounts for the largest portion of our revenue, and our success depends on maintaining our current base of advertisers while expanding that base.
Revenues for our business are driven largely by advertising and sponsorship across all our operating groups and media platforms, which subjects us to the seasonal effects of the Chinese advertising industry. The advertising cycle in China typically peaks towards the end of the year. Advertising spending tends to decrease during January and February due to the Chinese Lunar New Year holiday. In addition, there is a decrease in advertising during the May 1 Labor Day holiday week, and the October 1 National Day week.
Due to certain restrictions and qualification requirements under PRC law that apply to foreign investment in China’s media industry, most of our businesses are currently conducted through contractual arrangements among us, our wholly-owned subsidiaries in China, our affiliated entities in China and their shareholders, and our strategic partners in China. Since December 10, 2005, foreign investors with at least three years of direct operations in the advertising industry outside of China have been permitted to own directly a 100% interest in advertising companies in China. We may decide to change the ownership structure of our advertising group to that of a direct ownership in the future.
In our media production, advertising and market research businesses, our affiliated entities and their subsidiaries hold the requisite licenses and permits. See “Risk factors— Risks related to the regulation of our business and to our structure— Certain of our PRC operating companies or strategic partners have previously engaged or may currently engage in activities without appropriate licenses or approvals or outside the authorized scope of their business licenses or permitted activities. This could subject those companies to fines and other penalties, which

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could have a material adverse effect on our business”. In our broadcasting and print businesses, our affiliated entities and their subsidiaries maintain some of the requisite licenses and permits to conduct the business, and enter into agreements with publishing institutions and the exclusive advertising agents for radio stations or television stations to provide them with various services and act as their advertising business party. See “Arrangements with partners and suppliers” for a description of those contractual relationships. We depend on these affiliated entities and their subsidiaries to operate a substantial portion of our businesses.
We expect to continue to depend on these affiliated entities and their subsidiaries to operate a substantial portion of our businesses unless and until we are permitted under PRC laws and regulations to directly own and operate media-related businesses without constraints. Under certain agreements we have with the shareholders of these entities, we may acquire the affiliated entities, in part or in whole, to make them our direct subsidiaries.
Our revenues
Net revenues. For the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006, we generated total net revenues of $5.4 million and $59.0 million, respectively. Our net revenues differed substantially in 2006 due to our acquisition and consolidation of the acquired entities. Our revenues are net of PRC business taxes, advertising rate adjustments and discounts.
We currently derive revenues from the following sources:
•   advertising sales, which accounted for 7.2% and 11.3% of our total net revenues for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006, respectively;
 
•   content production, which accounted for 67.5% and 11.1% of our total net revenues for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006, respectively;
 
•   advertising services, which accounted for 10.7% and 76.1% of our total net revenues for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006, respectively; and
 
•   publishing services, which accounted for 14.6% and 1.5% of our total net revenues for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006, respectively.
Our net revenue mix, and especially our net revenues from advertising services, differed substantially in 2006 due to our acquisition and consolidation of the acquired entities.
Advertising sales revenues. We generate advertising sales revenues from the following media sources:
•   the Economic Observer (by the print group);
 
•   Money Journal (by the print group);
 
•   certain pages of the Beijing Review (by the print group);
 
•   Inner Mongolia Satellite Television (by the broadcasting group);

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•   Hunan Satellite Television’s and certain local television channels’ broadcasts of Fortune China programs (by the broadcasting group); and
 
•   China Radio International’s EasyFM stations in Beijing and Shanghai (by the broadcasting group).
In the year ended December 31, 2006, we generated revenues from advertising, sponsorship and sponsored programming on Inner Mongolia Satellite Television through our strategic partnership with Shanghai Camera, which has the exclusive rights to sell advertising for Inner Mongolia Satellite Television. In that same period and currently we also generate revenues based on our provision of content to Shanghai Camera and our provision of consulting and advisory services to Shanghai Camera, both in relation to Inner Mongolia Satellite Television. However, these revenues are categorized as advertising services revenues. See “—Our revenues— Advertising services revenues”. We recognize revenues through our agreements with Shanghai Camera. See “Arrangements with partners and suppliers— Arrangements regarding Shanghai Camera”. Initially, we recognized these revenues monthly and received cash payment from Shanghai Camera monthly for the amount due in the previous month. In November 2006, we began to recognize revenues from Shanghai Camera by this method specifically in relation to the consulting and advisory services and provision of content. In December 2006, we began recognizing revenues from advertising, sponsorship and sponsored programs directly, rather than through Shanghai Camera, as the services were performed, which revenues are categorized as advertising sales revenues. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we acquired a majority interest in Upper Step, which had entered into the strategic partnership with Shanghai Camera through its subsidiaries and affiliated entity, in September 2006. This strategic partnership was based on agreements that were replaced with new agreements in November and December 2006. Our consolidated results of operations for the year ended December 31, 2006 included these revenues from the date of our acquisition of a majority interest in Upper Step. However, as we began recognizing revenues directly from advertising sales only in January 2007, all our revenues from this business for the year ended December 31, 2006 were advertising services revenues. Upper Step had no operations for periods ending on or before December 31, 2005.
We generate revenues from selling advertising time slots and sponsorship on Hunan Satellite Television during its broadcast of Fortune Morning 7 a.m. We are entitled to keep all revenues from selling sponsorship for the show, and share advertising revenues generated by the show with Hunan Television Station on an equal basis. We also generate revenues from placing advertisements and selling sponsorship rights on the local television station broadcasts of the Fortune China programs that we syndicate. We recognize these revenues when the related advertisements or programs with sponsorship sold by us are aired. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we acquired our Fortune China operations in July 2006 as part of the acquisition of 51% of Beijing Perspective. Our consolidated results of operations for the year ended December 31, 2006 included these revenues from the date of our acquisition of 51% of Beijing Perspective.
We generate revenues from selling advertising time slots and sponsorship on China Radio International’s EasyFM stations in Beijing and Shanghai. We recognize these revenues when the related advertisements are broadcast. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we acquired a

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majority interest in Accord Group, which, through its affiliated entity, had entered into a partnership with China Radio International’s exclusive advertising agent in November 2006, replacing a prior agreement entered into in September 2006. Our consolidated results of operations for the year ended December 31, 2006 included these revenues from the date of our acquisition of a majority interest in the Accord Group.
We generate revenues from selling advertising space on the pages of the Economic Observer. We have the exclusive rights to sell advertisements for the Economic Observer, and typically other advertising agents engage us to place advertisements on its pages. We receive payments through these agents or, when an advertiser directly advertises with us, from the advertiser. We recognize these revenues when the related advertisements are published. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we acquired our Economic Observer operations in June 2006. Our consolidated results of operations for the year ended December 31, 2006 included these revenues from the date of the acquisition.
We generate revenues from selling advertising space on the pages of Money Journal. Most advertisements placed in Money Journal will result in revenues to us, except for those advertisements placed in Money Journal by Dow Jones, most of which result in revenues to Dow Jones. See “Arrangements with partners and suppliers— Our print group’s relationship with Dow Jones”. We generate some advertising sales revenues directly from advertisers, and some through agents. We recognize these revenues when the related advertisements are published. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006 include these revenues as our parent acquired a controlling interest in the Money Journal operations in September 2005.
We generate revenues from placing advertisements on certain pages of Beijing Review. Content for those pages is provided by our parent and by Money Journal. We generate some advertising sales revenues directly, and some through agents. We recognize these revenues when the related advertisements are published. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we established this relationship with Beijing Review in July 2006. Our consolidated results of operations for the year ended December 31, 2006 included these revenues from the date we established the relationship with Beijing Review.
We price our advertising depending upon the type of advertising we are providing and the media outlet where the advertisement is placed. Even within one outlet, prices can vary greatly. For example, television advertisement prices are highly sensitive to the time of the day an advertisement is shown. Our pricing also varies according to factors that affect the demand for advertising, such as the ratings of our strategic partners’ broadcast programs, the reach and timing of our strategic partners’ broadcast and the circulation numbers, and the composition and location of the readership of our strategic partners’ publications.
Content production revenues. Our content production revenues consist of revenues from:
•   sales of television programs;
 
•   sales of television drama series;
 
•   broadcast design;
 
•   production of animation;

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•   production of visual effects for television commercials and films; and
 
•   post-production services.
We produce television programs, including drama series, and purchase the rights to distribute some drama series that are produced by other companies. We sell the rights to broadcast these programs to television stations and channels. We typically retain the distribution rights, and at the end of the contract we may re-sell the broadcasting rights to another buyer. For drama series that we produce, we start by creating a pilot. After evaluating the pilot, we may decide to produce the entire series before selling if we believe the pilot has a high chance of success. For most pilots, we typically show the pilot to potential buyers and, if a buyer decides to buy a drama series based on the pilot, we enter into a contract to produce the drama series. We often receive some payment in advance if a television station purchases a drama series. We recognize revenues for television programs when the master tape of a television program is available for first airing under the terms of the relevant licensing agreement we have entered into with a television station or channel.
We engage in broadcast design for television channels. Broadcast design mainly includes design of television channel logos, production of trailers for advertising the television channels, and image consulting and branding for the television channels. We also produce three-dimensional animation advertisements, education and public instruction, engage in post-production for television commercials and create special visual effects for television commercials and films. We recognize revenues when products are delivered to and accepted by all customers or as our services are provided.
Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 and for the year ended December 31, 2006 include these content production revenues from the date of acquisition as our parent acquired our media production group in September 2005.
Our pricing for these services varies. Our average price for television programs, including drama series, varies substantially upon the quality and popularity of the programs. Our pricing for broadcast design, animation production and post-production services is usually determined through negotiations with our customers.
Advertising services revenues. We generate advertising services revenues for:
•   acting as an advertising agent to place advertisements on certain programs aired by Beijing Television Station and other television stations, on billboards on some university campuses in Shanghai and in certain print and electronic media (by the advertising group);
 
•   designing and producing television, print and billboard advertisements (by the advertising group);
 
•   marketing services, primarily events organization (by the print group, the broadcasting group and the advertising group);
 
•   research services (by the research group); and
 
•   advertising, sponsorship and sponsored programming on Inner Mongolia Satellite Television and provision of content and advisory services to Shanghai Camera (by the broadcasting group).

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We generate revenues from advertising broadcast on Beijing Television Station and other television stations during certain programs. We also generate revenues from advertising on billboards placed on some university campuses in Shanghai and from advertising in certain print and electronic media. We may also provide additional services in relation to the placement and sales of advertisements, including the creation of the advertising or research services as part of our service package. We recognize these revenues when the related advertisements are aired on television, placed on the billboards or published in the print or electronic media, respectively. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we acquired our advertising group, which conducts these operations, in March 2006 from our parent. Our consolidated results of operations for the year ended December 31, 2006 include these revenues from January 12, 2006, the date our parent acquired Xinhua Finance Advertising.
Most of our marketing services are provided by our print and advertising groups, although our broadcasting group also engages in events organization. The fees we charge for marketing services vary, depending primarily on competition and our estimated costs of providing the services. We recognize these revenues when the services are provided. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 included the portion of these revenues derived from our Money Journal operations as our parent acquired our Money Journal operations in September 2005. Our consolidated results of operations for the year ended December 31, 2006 also included marketing services revenues generated by the newspaper operations of our print group, our advertising group and our broadcasting group. For the year ended December 31, 2006, we organized one promotional event in Beijing and recognized ticket sales and sponsorship revenues from the event.
We generate revenues for providing research services to companies relating to market characteristics, consumer preferences and opinions with respect to advertising and media content, as well as business and technology issues if needed for each project. The fees we charge for research projects vary, depending on competition and our estimated costs for providing the research services. We recognize these revenues when the reported data is accepted by the customer. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 did not include these revenues as we acquired our research operations in August 2006. Our consolidated results of operations for the year ended December 31, 2006 included these revenues from the date we acquired a majority interest in Hyperlink.
In the year ended December 31, 2006, we generated advertising services revenues from advertising, sponsorship and sponsored programming on Inner Mongolia Satellite Television through our strategic partnership with Shanghai Camera. In that same period and currently, we also generate revenues based on our provision of content to Shanghai Camera and our provision of consulting and advisory services to Shanghai Camera.
In January 2007, we began recognizing revenues from advertising, sponsorship and sponsored programming directly rather than through Shanghai Camera, and at that point we began to categorize our revenues for advertising, sponsorship and sponsored programming in relation to Inner Mongolia Satellite Television as advertising sales revenues. However, we continue to categorize our revenues for providing consulting and advisory services and provision of content as advertising services revenues. See “—Our revenues— Advertising sales revenues”.

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Publishing services revenues. Since September 20, 2006, publishing services revenues include revenues we generate in connection with our management and information consulting services relating to the subscriptions and sales of Money Journal. These revenues are generated by our print group. Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006 include these revenues as our parent acquired our Money Journal operations in September 2005.
Guangzhou Jingshi Culture Intermediary Co., Ltd., or Guangzhou Jingshi, our affiliated entity, provides management and information consulting services to the publisher of Money Journal. In return, Guangzhou Jingshi receives a fee from Money Journal. Before September 20, 2006 Guangzhou Jingshi received a fee reflecting the subscription fees and retail sales of Money Journal, and we recognized revenues in connection with the subscription revenues for Money Journal over the subscription period. During that time, we recognized revenues in connection with single copy sales of the magazine through distributors or retail outlets such as newsstands, supermarkets and convenience stores when a copy was sold to an ultimate customer.
Although we no longer act as book publishing agent, for the period from May 26, 2005 to December 31, 2005 and the year ended December 31, 2006, we engaged in this business and received revenues from this source. The revenue contribution from book sales was immaterial for these periods.
Operating costs and expenses
Our operating costs and expenses consist of cost of revenues, selling and distribution expenses and general and administrative expenses. The following table sets forth the components of our operating costs and expenses, both in dollar amounts and as a percentage of total net revenues for the periods indicated.
                                   
 
    The period from    
    May 26, 2005(1) to   Year ended
    December 31, 2005   December 31, 2006
(in thousands, except percentages)   $   %   $   %
 
Total net revenues
    5,395       100.0       58,966       100.0  
Operating costs and expenses:
                               
Cost of revenues
                               
 
Content production
    651       12.1       2,829       4.8  
 
Advertising sales
    85       1.6       1,912       3.2  
 
Advertising services
    154       2.9       27,654       46.9  
 
Publishing services
    534       9.9       1,386       2.4  
Selling and distribution
    293       5.4       5,277       8.9  
General and administrative
    1,247       23.1       12,840       21.8  
     
Total operating costs and expenses
    2,964       55.0       51,898       88.0  
     
 
(1)  Date our parent acquired 60% of EconWorld Media, our predecessor.
Cost of revenues. Our cost of revenues primarily consists of the following four components:
•   Advertising sales. Advertising sales costs primarily consist of (1) the fees we pay to our strategic partners, and amortization of these fees, in return for advertising revenues

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generated from Inner Mongolia Satellite Television, China Radio International’s EasyFM stations in Beijing and Shanghai, Money Journal, the Economic Observer and Beijing Review, (2) program production costs for the Fortune China programs and (3) royalties to Dow Jones.
 
•   Content production. Content production costs are primarily direct costs we incur in producing television programs, including production overhead, development costs and pre-production costs, the cost of purchasing distribution rights of programs produced by other production companies, salaries and purchases of software and hardware.
 
•   Advertising services. Advertising services costs primarily consist of our direct costs to secure advertising time or space with various broadcast and print media, costs to produce advertisements, marketing services costs and research costs. Marketing services costs represent our direct costs of providing marketing services, including events organization. Research costs are the direct costs relating to providing research services to companies that hire us to conduct market research for them including costs for conducting interviews and holding focus groups.
 
•   Publishing services. Publishing services costs primarily represent our costs incurred relating to the publication and distribution of Money Journal and certain books.

We anticipate that our total cost of revenues will continue to increase as we continue to expand our operations. In particular, we expect our content production costs will increase as we leverage on our content production capabilities to produce content for the media platforms we use. Also, we expect the cost for acquiring media for our advertising services will increase as we expand our business in this area.
Selling and distribution expenses. Our selling and distribution expenses primarily consist of amortization of non-compete agreements, salaries and benefits for our sales and marketing personnel and promotional and marketing expenses. We expect that our selling and distribution expenses will increase significantly as we further expand our operations.
General and administrative expenses. Our general and administrative expenses primarily consist of compensation and benefits of administrative staff and fees, office rent and travel expenses. We expect that our general and administrative expenses will increase in the near term as we hire additional personnel and incur additional costs in connection with the expansion of our business. We are also contemplating a new enterprise resource planning system to facilitate stronger management of our acquisitions, which would also increase costs. In addition we expect to incur increased costs as we become a publicly listed company in the United States. As a result of becoming a public company, we will establish additional board committees and will adopt and implement additional policies regarding internal controls over financial reporting and disclosure controls and procedures. In particular, compliance with Section 404 of the Sarbanes-Oxley Act, which requires public companies to include a report of management on the effectiveness of such company’s internal control over financial reporting, will increase our costs. In addition, we will incur costs associated with public company reporting requirements, such as the requirements to file an annual report and other event-related reports with the Securities and Exchange Commission. As a result, our legal, consulting and audit fees will increase. We also expect the rules and regulations that govern public companies, including Securities and Exchange Commission regulations and Nasdaq Stock Market, Marketplace Rules, to increase our costs and to make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. For the year

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ended December 31, 2007, we have budgeted $0.4 million to prepare for compliance with the Sarbanes-Oxley Act, $0.8 million for auditing fees for audits required as a public company and for preparation of U.S. GAAP financial statements, and $0.6 million for additional legal fees. In addition, we have budgeted $0.3 million for an expected increase in investor relations and corporate communications expenses and $0.3 million for costs associated with improvements in internal processes in finance, human resources and information technology.
Share-based compensation expenses. In the year ended December 31, 2005, we did not issue any restricted shares or grant any stock options. In June 2006, we issued 11,050,000 restricted class A common shares to our Chief Executive Officer. In July 2006, we entered into individual option agreements in order to attract and retain quality personnel for positions of substantial responsibility, provide additional incentive to employees and consultants and promote the success of our business. Under these option agreements, we have reserved class A common shares amounting to approximately 11.0% of our total common shares and convertible preferred shares outstanding as of the date of this prospectus for issuance. In addition, our shareholders adopted a 2007 share option plan on February 7, 2007. See “Management — Share options.” Because our proposed option plan will cover all of our employees, the change in the amount of share-based compensation expenses will primarily affect our reported net income, earnings per share and all line items of our operating costs and expenses, which include cost of revenues, selling and distribution expenses and general and administrative expenses.
Under Statement of Financial Accounting Standard No. 123R, “Share-Based Payment”, or SFAS No. 123R, which became effective January 1, 2006, we are required to recognize share-based compensation as compensation expense in our statement of operations based on the fair value of equity awards on the grant date, with the compensation expense recognized over the period in which the recipient is required to provide service in exchange for the award (usually the vesting period). This statement also requires us to adopt a fair value-based method of measuring the compensation expense related to share-based compensation. For restricted shares granted to our employees, we record share-based compensation expense for the fair value of the restricted shares at the grant date. For options granted to employees, we record share-based compensation expense for the fair value of the options at the grant date. We recognize such share-based compensation expense over the vesting period of the restricted shares or options, respectively.
The determination of fair value of equity awards such as restricted shares and options requires making complex and subjective judgments about the projected financial and operating results of the subject company. It also requires making certain assumptions such as cost of capital, general market and macroeconomic conditions, industry trends, comparable companies, share price volatility of the subject company, expected lives of options and discount rates. These assumptions are inherently uncertain. Changes in these assumptions could significantly affect the amount of employee share-based compensation expense we recognize in our consolidated financial statements.
We engaged American Appraisal China Limited, an independent appraiser, to assess the fair values of our common shares as of each relevant grant date on a contemporaneous basis. Typically fair value is determined either by the income approach, which applies discount rates to projected cash flows from estimated forecasts, and/ or the market approach, which analyzes and applies the financial metrics of comparable companies engaged in the same or a similar line of business to determine a value of the subject company’s common shares. Determining

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the fair value of the business enterprise and common shares requires making complex and subjective judgments regarding projected financial and operating results, our unique business risks, the expected volatility and liquidity of our shares, and our operating history and prospects at the grant date. These fair values are inherently uncertain and highly subjective. The assumptions used in deriving the fair values include: no material changes in the existing political, legal, fiscal and economic conditions in China; no material changes in tax law in China or the tax rates applicable to our subsidiaries and consolidated affiliated entities in operations; and no material deviation in market conditions from economic forecasts. These assumptions are inherently uncertain. If the independent appraiser had used different assumptions and judgments, the valuation would have been different and the amount of share-based compensation would also have been different because the fair value of the non-vested shares and the options granted would have been different.
In determining the fair value of common shares, the first step was to determine the business enterprise value of our company. In June 2006, since we were planning a series of acquisitions and were in the process of integrating entities we had acquired, we were not able to produce a long-term financial forecast necessary for the application of the income approach. Therefore, the independent appraiser adopted a combination of a sum-of-the-parts approach and a market approach to determine our business enterprise value. As of June 2006, our company owned and derived earnings solely from its shareholdings in three business units, namely Beijing Century Media, EconWorld Media and Xinhua Finance Advertising. The independent appraiser first developed the fair value of equity interest in each of these three business units through the market approach. Under the market approach, the independent appraiser considered the market profile and performance of comparable companies in the television program production, publishing and advertising industries. The independent appraiser applied leading enterprise value/ earning before interest, tax, depreciation and amortization, or leading EV/ EBITDA, leading enterprise value/ earning before interest and tax, or leading EV/ EBIT and leading price/ earning, or leading P/ E, multiples as metrics. Adjustments were also made to the metrics for the differences between the business units and the comparable companies in terms of growth rate, risks factors and tax rates.
When valuing the business units based on the comparable companies’ multiples, the level of value is presented on a freely traded and non-controlling basis. Since we owned a controlling interest in the three business units, control premiums were also considered. To estimate the control premium applicable to the business units, the independent appraiser considered the monthly data of control premiums of acquisition transactions of Asia Pacific media and advertising industries, extracted from a third party source.
The fair values of equity interest of the three business units attributable to our company were added up to derive the value of the combined operations of our company. The independent appraiser then added the balances of cash and cash equivalents, securities investments and net non-operating assets to, and subtracted the balance of amounts due to our parent and related companies and capitalized corporate overhead from the value of operations to derive the fair value of invested capital attributable to common shares, preferred shares and convertible loan holders.
To reflect the fact that we were a private company at the time of the valuation, a 17% lack of marketability discount, or LOMD, was applied to the fair value of the invested capital. The independent appraiser quantified the LOMD by the option pricing method. Under the option pricing method, the cost of a put option, which can hedge the price change before the

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privately held shares can be sold, was considered as a basis to determine LOMD. The farther the valuation date is from a liquidation event, the higher the option value and thus the higher the implied LOMD. The basis of key input parameters used in the option pricing method for quantification of LOMD are risk free interest rate, volatility of our company’s common shares and the time to expiration of the option.
After developing the fair value of the invested capital of our company, the independent appraiser then used the option pricing method to allocate the value to different classes of capital (i.e., convertible loans, preferred shares and common shares). The option pricing method treats convertible loans, preferred shares and common shares as call options to purchase the underlying enterprise at a predetermined or exercise price. In applying the option pricing method, the independent appraiser considered the same key input parameters used for the quantification of LOMD discussed above, namely, the risk-free interest rate, volatility of our company’s underlying common shares and the time to expiration of the option. In addition, the independent appraiser considered the liquidation preference and conversion mechanism of the convertible loans and preferred shares. After the allocation, the value attributable to common shareholders was then divided by the number of outstanding common shares and non-vested shares to arrive at a fair value of $0.60 per share.
Set forth below is a summary of our share-based awards granted in 2006:
•   We granted the following restricted class A common shares to our chief executive officer:
                                 
 
    Number of       Fair value of    
    common   Share purchase   non-vested   Type of
Grant date   shares granted   price   shares   valuation
 
June 13, 2006
    11,050,000       Par value     $ 0.60       Market approach  
 
•   We granted options to our employees as follows:
                                         
 
    Number of       Fair value of    
    common       underlying   Fair value of    
    shares underlying       common   option at   Type of
Grant date   options granted   Option exercise price   shares   grant date   valuation
 
July 11, 2006
    11,198,180 (1)   $ 0.78     $ 0.60     $ 0.14       Market approach  
 
(1)  Options representing an aggregate of 500,039 common shares have been cancelled due to termination of employment.
The independent appraiser has used the market approach to assess the fair value of common shares underlying the options we granted in July 2006.
The independent appraiser determined the fair value of the options using the Black-Scholes option pricing model at each option grant date under the following assumptions: 38.3% volatility, no dividends, a risk-free interest rate of 5.68%, and an expected option life of 3.61 years. If different assumptions were used, our share-based compensation expenses, net income and income per share could have been significantly different.
In respect of the options, the total expenses that will be recognized for the vesting period from July 2006 to December 2009 will be approximately $1,526,000. In respect of the non-vested shares, the total expenses that will be recognized for the vesting period from June 2006 to June 2011 were approximately $6,630,000.

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Although it is reasonable to expect that the completion of this offering may increase the value of our common shares underlying our outstanding options as a result of their increased liquidity and marketability, the amount of such additional value cannot be measured with precision or certainty.
Our estimated fair value per common share increased from $0.60 in June 2006 to $6.50 in February 2007. At the time of the June 2006 valuation by American Appraisal, our scale of operations and revenue base were relatively small as we were formed in November 2005. As of June 2006, we had acquired controlling interests in three businesses: print, production and advertising. Our focus was on executing a strategy of increasing our interest in existing assets and acquiring additional assets in order to build our media platform. Additionally, given our limited operating history, our ability to make and integrate acquisitions was untested. The June 2006 valuation considered our future prospects in light of the risks and uncertainties experienced by early stage companies in evolving and heavily regulated industries such as the media industry in China. In light of our limited operating history and operating assets at that time, there was significant execution risk in our strategy to acquire and integrate other media assets.
The primary factors and events which contributed to the increase in the fair value of our common shares from June 2006 to the date of this prospectus can be categorized broadly into three groups: acquisitions, operations and integration. The following is a summary of the significant factors and events within each group that contributed to the increase:
(1) We made a number of acquisitions that significantly expanded our scope of business. These include:
•   Our Fortune China operations, through acquisition of Beijing Perspective;
 
•   Our right to advertise on China Radio International’s Beijing and Shanghai stations through acquisition of the Accord Group;
 
•   Our right to advertise and provide content through Shanghai Camera on Inner Mongolia Satellite Television through acquisition of Upper Step;
 
•   Our exclusive rights to sell advertising for and provide management and information consulting services to the Economic Observer newspaper, through acquisition of Economic Observer Advertising; and
 
•   Our research group, through acquisition of Hyperlink.
(2) Since June 2006, we significantly improved our operations, with several of our operating units achieving better operating results than expected. This was due to number of factors, including the better ratings of television programs aired on Inner Mongolia Satellite Television, improved circulation of Money Journal, our strengthening of our strategic partnerships in television and radio, respectively, and increased advertising inventory secured for 2007.
(3) We expect the completion of the above-mentioned acquisitions and integration of the existing and acquired businesses to generate synergies and enhance the value of our company. These expected synergies include:
•   Cross-selling, which we believe should increase the quality of our services and amount of our revenue;

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•   Integrated product offerings, which would enhance revenue growth through sales of bundled products; and
 
•   Cost synergies, which are derived from rationalization of sales, administration and services and thereby increase cost-efficiency.
(4) In addition to the above-mentioned factors, the positive performance of equity markets in the United States and China and positive share performance of comparable companies since June 2006 have also contributed to the increased fair value of our common shares.
Taxation
We and each of our subsidiaries, including affiliated entities, file separate income tax returns.
The Cayman Islands, the British Virgin Islands and Hong Kong
Under the current laws of the Cayman Islands and the British Virgin Islands, we and our subsidiaries incorporated in the British Virgin Islands are not subject to income or capital gains taxes. In addition, dividend payments are not subject to withholding tax in those jurisdictions. Our subsidiaries incorporated in Hong Kong are subject to a profits tax rate of 17.5% of its assessable profits. Payment of dividends is not subject to withholding tax in Hong Kong.
PRC
Pursuant to the PRC enterprise income tax laws, enterprise income tax is calculated based on taxable income. Most of our subsidiaries, including affiliated entities, in China are subject to the standard enterprise income tax rate, which currently is 33.0% (30.0% of state income tax plus 3.0% of local income tax). The enterprise income tax is calculated based on taxable income under PRC GAAP. For some entities, the enterprise income tax is calculated based on the actual revenue or expense at a deemed tax rate according to the local practices of the respective local tax bureaus in charge. In particular, Shanghai Yuanxin Advertising Co., Ltd. and Shanghai Heyuan Media Co., Ltd. have been filing their enterprise income tax based on a deemed tax basis at 3.5% and 4.0% on revenues, respectively. In addition, our subsidiaries and affiliated entities in China are subject to a 3.0% to 5.0% business tax on gross revenues generated from providing services. Business tax generally includes two additional fees, the city construction fee and the education fee, which are generally calculated at 7.0% and 3.0%, respectively, on business tax. Our advertising revenues are generally also subject to an additional 3.0% culture charges. However, some of our subsidiaries, including affiliated entities, in China are entitled to certain preferential income treatments described below.
The State Administration of Taxation and its delegates are authorized to grant exemptions from enterprise income tax of up to two years to newly established domestic companies that are engaged in consulting services, technology services or are in the information industry. Some of our subsidiaries, including consolidated entities, are entitled to tax exemptions. For example, Beijing Taide and Shangtuo Zhiyang International Advertising (Beijing) Co., Ltd., two affiliated entities in our advertising group, were granted exemptions from enterprise income tax in 2005 and 2006 and in 2006 and 2007, respectively. Beijing Jin Long Run Xin Advertising Co., Ltd., a subsidiary of an affiliated entity in our advertising group, was granted an exemption from enterprise income tax for 2005 and 2006. Also, Shanghai Yuan Zhi Advertising Co., Ltd., an affiliated entity in our broadcasting group, and Economic Observer Advertising, a subsidiary of an affiliated entity, which is part of our print group, were granted exemptions from enterprise

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income tax for 2006 and 2007. Beijing Jingshi Jingguan Advertising Co., Ltd., a subsidiary of an affiliated entity in our print group, received an exemption from enterprise income tax for 2006. Xintai Huade Advertising Co., Ltd., an affiliated entity in our advertising group, was granted an exemption from enterprise income tax for 2007 and 2008. Beijing Century Media received an exemption from enterprise income tax for 2006. Beijing Century Workshop Communications Co., Ltd., a subsidiary of an affiliated entity in our media production group, has received exemptions from enterprise income tax in 2005 and 2006 and plans to apply for an exemption for 2007.
Preferential tax treatments granted to some of our consolidated entities are subject to review and may be adjusted or revoked at any time. In addition, if the government regulations or authorities were to phase out preferential tax benefits currently granted to newly established domestic companies that are engaged in consulting services, technology services or the information industry, our consolidated entities that have been entitled to such preferential tax benefits would be subject to the standard statutory tax rate, which currently is 33%. The discontinuation of any preferential tax treatments currently available to us will cause our effective tax rate to increase, which could have a material adverse effect on our results of operations.
Internal control over financial reporting
During the process of preparing our consolidated financial statements for the period from May 26, 2005 to December 31, 2005, and the year ended December 31, 2006, we have identified a number of control deficiencies. The significant control deficiencies identified by us included, among others: (i) the lack of sufficient financial reporting and accounting personnel to fulfill the post-offering U.S. GAAP reporting requirements; and (ii) the lack of a comprehensive accounting policies and procedures manual to communicate to accounting and finance personnel to ensure the consistent application of U.S. GAAP.
To address these control deficiencies, we have hired a director of accounting and reporting with experience in U.S. GAAP and compliance with the Sarbanes-Oxley Act. We are also in the process of recruiting an internal audit director with 10 to 15 years of audit and finance experience from a major international auditing firm or a multinational organization with experience in the planning and implementation of Sarbanes-Oxley Act related activities. The internal audit director will report to the chief financial officer and audit committee, establish the audit framework, in particular focusing on the planning and implementation of Sarbanes-Oxley Act internal controls, oversee financial, operational and risk-based audits at various locations, and provide recommendations on improvements to current processes and systems to ensure compliance with corporate policies and procedures. In addition, since identifying these deficiencies prior to July 1, 2006, we also have added five new staff members to our accounting department, two of whom are certified public accountants. Furthermore, we are in the process of implementing the following measures to further remedy the control deficiencies: (i) hiring and training qualified financial reporting and accounting personnel with experience in U.S. GAAP; (ii) developing a comprehensive U.S. GAAP accounting policies and procedures manual, a treasury manual and a compliance manual for Section 404 of the Sarbanes-Oxley Act; (iii) establishing an internal audit team separate from that of our parent; and (iv) introducing a training program on the fundamentals of U.S. GAAP for staff accountants. We are also in the process of forming an audit committee, as described in “Management—Committees of the board of directors—Audit committee.”

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In addition, under the supervision, and with the participation, of our senior management, including our Chief Executive Officer and Chief Financial Officer, we are in the process of conducting further evaluations of our internal control over financial reporting. We plan to engage an external consultant to assist us in evaluating, designing, implementing and testing our internal controls over financial reporting.
Results of operations
The following table sets forth a summary of the consolidated results of operations of our company for the periods indicated. This information should be read together with the consolidated financial statements of our company, including the related notes, that appear elsewhere in this prospectus. Because these periods are of different lengths and our scope of operations during these periods changed, the results of operations for these periods are not comparable. Our limited operating history makes it difficult to predict our future operating results. Therefore, our historical consolidated results of operations are not necessarily indicative of our results of operations you may expect for any future period.
                   
 
    Period from    
    May 26,    
    2005(1) to   Year ended
    December 31,   December 31,
(in thousands)   2005   2006
 
Net revenues:
               
 
Content production
  $ 3,641       6,545  
 
Advertising sales
    387       6,691  
 
Advertising services
    580       44,862  
 
Publishing services
    787       868  
             
Total net revenues
    5,395       58,966  
             
Cost of revenues:
               
 
Content production
    651       2,829  
 
Advertising sales
    85       1,912  
 
Advertising services
    154       27,654  
 
Publishing services
    534       1,386  
             
Total cost of revenues
    1,424       33,781  
             
Operating expenses:
               
 
Selling and distribution
    293       5,277  
 
General and administrative(2)
    1,248       12,840  
             
Total operating expenses
    1,541       18,117  
             
Income from operations
    2,430       7,068  
             
Other income (expense), net
    (22 )     (898 )
             
Provision for income taxes (benefit)
    929       1,070  
             
Minority interest
    129       1,704  
             
Equity loss of an investment
          52  
             
Net income
  $ 1,350     $ 3,344  
Deemed dividend on redeemable convertible preferred shares
          (2,157 )
Dividends declared to redeemable convertible preferred shares
          (5,335 )
             

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    Period from    
    May 26,    
    2005(1) to   Year ended
    December 31,   December 31,
(in thousands)   2005   2006
 
Net income (loss) attributable to holders of common shares
  $ 1,350     $ (4,148 )
             
Net income (loss) per share:
               
 
Basic — Class A common share
        $ (0.08 )
 
Basic — Class B common share
  $ 0.03     $ (0.08 )
 
Diluted — Class A common share
        $ (0.08 )
 
Diluted — Class B common share
  $ 0.03     $ (0.08 )
Shares used in computation:
               
 
Basic — Class A common share
          5,084  
 
Basic — Class B common share
    42,613       44,693  
 
Diluted — Class A common share
          5,084  
 
Diluted — Class B common share
    42,613       44,693  
 
(1)  Date our parent acquired 60% of EconWorld Media, our predecessor.
 
(2)  Includes share-based compensation expense of $2.4 million for the year ended December 31, 2006.
Our consolidated results of operations for the year ended December 31, 2006.
Net revenues. Our total net revenues of $59.0 million for the year ended December 31, 2006 were generated from the following sources:
•   Content production. Our net revenues of $6.5 million from content production constituted 11.1% of our total net revenues for the year ended December 31, 2006 and represented primarily revenues from the production and distribution of drama series and other television programs, graphic design services, provision of post-production services and animation.
 
•   Advertising sales. Our net revenues of $6.7 million from advertising sales, representing 11.3% of our total net revenues for the year ended December 31, 2006, primarily consisted of advertising sales generated by the Economic Observer and Money Journal, provision of content and sales of advertising in relation to radio and sales of advertising and sponsorship on our Fortune China programs.
 
•   Advertising services. Our net revenues of $44.9 million from advertising services accounted for 76.1% of our total net revenues for the year ended December 31, 2006 and were derived primarily from advertising agency services for print and television for advertising, marketing services, including events organization, visual design and production, advertising services for billboards and websites and research services.
 
•   Publishing services. Our net revenues of $868,000 from publishing services, representing 1.5% of our total net revenues for the year ended December 31, 2006, primarily consisted of subscription fees and retail sales of Money Journal.
Cost of revenues. Our total cost of revenues of $33.8 million for the year ended December 31, 2006 consisted of the following:
•   Content production. Our content production cost of $2.8 million constituted 8.4% of our total cost of revenues for the year ended December 31, 2006 and represented primarily costs of purchasing distribution rights of programs, development costs, pre-production costs, production overhead and purchases of software and hardware.
 
•   Advertising sales. Our advertising sales cost of $1.9 million, representing 5.6% of our total cost of revenues for the year ended December 31, 2006, primarily consisted of amortization

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of advertising rights in relation to the Economic Observer, commissions we paid to advertising agents for placing advertisements on the pages of Money Journal, production fees for our Fortune China operations and costs to secure advertising time for radio.
 
•   Advertising services. Our advertising services cost of $27.7 million accounted for 81.9% of our total cost of revenues for the year ended December 31, 2006 and was incurred primarily in connection with the purchase of advertising time or space from various media and events organization cost.
 
•   Publishing services. Our publishing services cost of $1.4 million, representing 4.1% of our total cost of revenues for the year ended December 31, 2006, primarily consisted of cost incurred relating to the publication and distribution of Money Journal and certain books.

Operating expenses. Our total operating expenses of $18.1 million for the year ended December 31, 2006 consisted of the following:
•   Selling and distribution expenses. Our selling and distribution expenses of $5.3 million, representing 29.1% of our total operating expenses for the year ended December 31, 2006, primarily consisted of amortization of non-compete agreements and customer-based intangible assets, promotion and marketing expenses and salaries and benefits for our sales and marketing personnel.
 
•   General and administrative expenses. Our general and administrative expenses of $12.8 million, or 70.9% of our total operating expenses for the year ended December 31, 2006, primarily consisted of compensation and benefits of our administrative staff, rental and travel expenses.
Other expense, net. Our other expense, net, of $898,000 for the year ended December 31, 2006 represented interest expense of a convertible loan, imputed interest on long-term obligations, and other liabilities net of interest income.
Provision for income taxes. For the year ended December 31, 2006, we recorded a provision of $1,069,537 for income taxes according to the laws of the relevant tax authorities. Our effective tax rate was 17.3% for the same period.
Minority interest. Minority interest of $1.7 million for the year ended December 31, 2006 represented the portions of our income certain minority shareholders of Beijing Century Media and Xinhua Finance Advertising Limited’s subsidiaries were entitled to receive.
Net income. We had net income of $3.3 million for the year ended December 31, 2006, while a loss of $4.1 million was attributable to holders of common shares, due to dividends and deemed dividends to Patriarch Partners, the holder of our preferred shares.
Our consolidated results of operations for the period from May 26, 2005 to December 31, 2005
Net revenues. Our total net revenues of $5.4 million represented revenues of $3.6 million from content production and revenues of $1.8 million from advertising sales, advertising services and publishing services.
•   Content production. Net revenues of $3.6 million from content production constituted 67.5% of our total net revenues and represented primarily revenues earned by Beijing Century

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Media in producing and distributing television drama series and other programs, providing graphic design services and creating animation.
 
•   Advertising sales. Net revenues of $387,000 from advertising sales, representing 7.1% of our total net revenues, primarily consisted of revenues generated by placing advertisements on the pages of Money Journal.
 
•   Advertising services. Net revenues of $580,000 from advertising services accounted for 10.8% of our total net revenues and were derived primarily from providing marketing services, including events organization services.
 
•   Publishing services. Net revenues of $787,000 from publishing services, representing 14.6% of our total net revenues, primarily consisted of subscription fees and retail sales of Money Journal.

Cost of revenues. Our total cost of revenues of $1.4 million consisted of content production cost of $651,000 and cost of $773,000 relating to advertising sales, advertising services and publishing services.
•   Content production. Content production cost of $651,000 constituted 45.7% of our total cost of revenues and represented primarily amortization of capitalized cost in producing, purchasing and distributing television drama series and other programs.
 
•   Advertising sales. Advertising sales cost of $85,000, representing 6.0% of our total cost of revenues, primarily consisted of commissions we paid to advertising agents for placing advertisements on the pages of Money Journal.
 
•   Advertising services. Advertising services cost of $154,000 accounted for 10.8% of our total cost of revenues and was incurred primarily in connection with our events organization services, including booking venues, printing material and purchasing flight tickets for certain guests.
 
•   Publishing services. Publishing services cost of $534,000, representing 37.5% of our total cost of revenues, primarily consisted of costs incurred relating to the publication and distribution of Money Journal and certain books.
Operating expenses. Our total operating expenses of $1.5 million consisted of selling and distribution expenses of $293,000 and general and administrative expenses of $1.2 million.
•   Selling and distribution expenses. Our selling and distribution expenses of $293,000 represented 19.0% of our total operating expenses and primarily consisted of salaries and benefits for our sales and marketing personnel and promotional and marketing expenses.
 
•   General and administrative expenses. Our general and administrative expenses of $1.2 million accounted for 81.0% of our total operating expenses and primarily consisted of compensation and benefits of administrative staff, rental and travel expenses.
Other income (expense), net. Our other expense, net, of $22,000 represented interest payments to certain minority shareholders of EconWorld Media for outstanding loans from such shareholders in excess of interest income we earned over the same period.
Provision for income taxes. We recorded a provision of $929,000 for income taxes according to the laws of the relevant tax authorities. Our effective tax rate was 38.6%.

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Minority interest. Minority interest of $129,000 represented the portions of our income certain minority shareholders of Beijing Century Media were entitled to receive.
Net income. We had a net income of $1.4 million which is 25.0% of our total net revenues.
Discussion of segment operations
In our management’s view, we operate through five operating groups that offer distinct products and services, consisting of media production, broadcasting, print, advertising and research. These five operating groups constitute our five reportable segments. However, for the period from May 26, 2005 to December 31, 2005, we only had two reportable segments, namely, media production and print. For the year ended December 31, 2006, we had all five reportable segments. The following table lists our net revenues and operating costs and expenses by reportable segments for the periods indicated.
                   
 
    Period from    
    May 26, 2005(1) to   Year ended
(in thousands)   December 31, 2005   December 31, 2006
 
Net revenues of reportable segments:
               
 
Media production
  $ 3,641     $ 6,545  
 
Print
    1,754       13,589  
 
Advertising
          35,628  
 
Broadcasting
          1,401  
 
Research
          1,803  
     
Total net revenues of reportable segments
    5,395       58,966  
     
Total net revenues of our company
    5,395       58,966  
     
Cost of revenues and other operating expenses excluding depreciation and amortization:
               
 
Media production
    460       2,539  
 
Print
    1,627       7,112  
 
Advertising
          26,178  
 
Broadcasting
          1,988  
 
Research
          1,079  
 
XFM Corporate
    301       7,767  
     
Total cost of revenues and other operating expenses excluding depreciation and amortization
    2,388       46,663  
     
Depreciation and amortization:
               
 
Media Production
    461       1,263  
 
Print
    116       795  
 
Advertising
          2,489  
 
Broadcasting
          571  
 
Research
          110  
 
XFM Corporate
          7  
     
Total depreciation and amortization
    577       5,235  
     

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    Period from    
    May 26, 2005(1) to   Year ended
(in thousands)   December 31, 2005   December 31, 2006
 
Operating income (loss):
               
 
Media Production
    2,720       2,743  
 
Print
    11       5,682  
 
Advertising
          6,961  
 
Broadcasting
          (1,158 )
 
Research
          614  
 
XFM Corporate
    (301 )     (7,774 )
             
Total operating income (loss)
  $ 2,430     $ 7,068  
             
 
(1)  Date our parent acquired 60% of EconWorld Media, our predecessor.
Year ended December 31, 2006
Net Revenues. Our total net revenues of $59.0 million for the year ended December 31, 2006 were generated by our operating groups as follows:
•   Media production. Net revenues of $6.5 million from the media production group constituted 11.1% of our total net revenues and represented primarily revenues from the production and distribution of drama series and other television programs, animation, graphic design services and provision of post-production services.
 
•   Print. Net revenues of $13.6 million from the print group, or 23.0% of our total net revenues, were derived primarily from marketing services, including events organizing, advertising sales relating to the Economic Observer and Money Journal, and publishing revenues.
 
•   Advertising. Net revenues of $35.6 million from the advertising group, representing 60.4% of our total net revenues, primarily consisted of advertising services revenues derived from advertising agency services for print and television, revenues derived from marketing services, including events organization, visual design, and advertising services for billboard and websites.
 
•   Broadcasting. Net revenues of $1.4 million from the broadcasting group constituted 2.4% of our total net revenues, and primarily consisted of provision of content and sales of advertising in relation to radio, sales of advertising and sponsorship on Inner Mongolia Satellite Television, and sales of advertising and sponsorship on our Fortune China programs.
 
•   Research. Net revenues of $1.8 million from the research group constituted 3.1% of our total net revenues.
Cost of revenues and other expenses excluding depreciation and amortization. Our total costs of revenues and other expenses excluding depreciation and amortization of $46.7 million for the year ended December 31, 2006 consisted of the following:
•   Media production. Media production group costs of $2.5 million constituted 5.4% of our total cost of revenues and other operating expenses excluding depreciation and amortization and represented primarily costs of purchasing distribution rights of programs, development

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costs, pre-production costs, salaries and allowances, production overhead and purchases of software and hardware.
 
•   Print. Print group costs of $7.1 million, or 15.2% of our total cost of revenues and other operating expenses excluding depreciation and amortization, were incurred primarily from event organization costs, including booking venues, printing material and purchasing flight tickets for certain guests, costs incurred relating to the publication and distribution of Money Journal and certain books and sales commissions.
 
•   Advertising. Advertising group costs of $26.2 million, representing 56.1% of our total cost of revenues and other operating expenses excluding depreciation and amortization, primarily consisted of the purchase of advertising time or space from various media outlets, events organization costs, salaries and allowances, marketing costs, and sales commissions.
 
•   Broadcasting. Broadcasting group costs of $2.0 million constituted 4.3% of our total cost of revenues and other operating expenses excluding depreciation and amortization, and primarily consisted of production fees and salaries of reporters and editors.
 
•   Research. Research group costs of $1.1 million constituted 2.3% of our total cost of revenues and other operating expenses excluding depreciation and amortization, and primarily consisted of salaries, costs for outsourcing research, translation costs and transportation costs.
 
•   XFM corporate. Corporate costs of $7.8 million constituted 16.6% of our total cost of revenues and other operating expenses excluding depreciation and amortization and consisted primarily of staff benefits, staff salary, auditor remuneration and legal and professional fees.

Period from May 26, 2005 to December 31, 2005
Net Revenues. Our total net revenues of $5.4 million represented revenues of $3.6 million from our media production group and revenues of $1.8 million from our print group.
•   Media production. Net revenues of $3.6 million from the media production group constituted 67.5% of our total net revenues and represented primarily revenues earned by Beijing Century Media in producing and distributing television drama series and other programs, creating animation and providing graphic design services.
 
•   Print. Net revenues of $1.8 million from the print group, or 32.5% of our total net revenues, are derived from selling Money Journal through subscription and retail channels, providing events organization services and selling advertisements on the pages of Money Journal.
Cost of revenues and other expenses excluding depreciation and amortization. Our total costs of revenues and other expenses excluding depreciation and amortization of $2.4 million consisted of media production group cost of $460,000, print group cost of $1.6 million, and XFM corporate cost of $301,000.
•   Media production. Media production group cost of $460,000 constituted 19.3% of our total cost of revenues and other operating expenses excluding depreciation and amortization and represented primarily amortization of capitalized cost in producing, purchasing and distributing television drama series and other programs marketing and promotion expenses

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and other costs related to our selling and marketing activities, and compensation and benefits of administrative staff.
 
•   Print. Print group cost of $1.6 million, or 68.1% of our total cost of revenues and other operating expenses excluding depreciation and amortization, consisted primarily of cost in connection with the publication and distribution of Money Journal and certain books, events organization cost, and commissions paid to advertising agents.

Selected quarterly results of operations
The following table presents our unaudited consolidated selected quarterly results of operations for the four quarters ended December 31, 2006. You should read the following table in conjunction with our audited consolidated financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited consolidated financial information on the same basis as our audited consolidated financial statements. The unaudited consolidated financial information includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented.
                                 
 
    Three months ended
     
(in thousands)   March 31, 2006   June 30, 2006   September 30, 2006   December 31, 2006
 
Net revenues
  $ 7,145     $ 9,006     $ 18,719     $ 24,096  
Cost of revenues and operating expenses
    6,753       8,818       16,810       19,517  
Income from operations
    392       188       1,909       4,579  
Net income (loss)
    (1,242 )     636       849       3,101  
Net income (loss) attributable to holders of common shares
    (1,535 )     (2,707 )     (1,320 )     1,414  
 
Our net revenues have increased due to both growth in our business and acquisitions. In the first quarter, our operating results reflected only our magazine operations, our advertising group and our media production group. As we made significant acquisitions in the third quarter, our net revenues for the third quarter reflect the revenues from our acquisitions of Economic Observer Advertising, which is part of our print group, our broadcasting group and our research group, and our net revenues for the fourth quarter more fully reflect these revenues. At the same time, we have experienced organic growth from our magazine operations, our advertising group and our media production group.

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We experienced sequential quarter-on-quarter growth in 2006 for our income from operations and net income. This growth was offset in part by a corresponding increase in our cost of revenues and operating expenses. As our income from operations grew, our net loss for the first quarter became net income in the remaining quarters. After dividends and deemed dividends to Patriarch Partners, the holder of our preferred shares, we recorded a net loss in each of the first three quarters, and net income in the fourth quarter.
As we have a limited operating history, our growth has occurred during the most recent quarters and our quarterly results have fluctuated, our operating results for any quarter are not necessarily indicative of results of any future quarters or for a full year. Furthermore, we have grown in large part due to acquisitions. See “Risk factors—Risks related to our business—Our limited operating history and successive acquisitions make evaluating our business and prospects difficult”, “—Our operating results may fluctuate, which makes our results difficult to predict and could cause our results to fall short of expectations” and “—Our quarterly operating results may fluctuate significantly from period to period due to seasonality in our business”.
Critical accounting policies
Management’s discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, and related disclosure of our contingent assets and liabilities. We base our estimates and judgments on historical experience, knowledge of current conditions and beliefs of what could occur in the future given available information. We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment. If actual results differ significantly from management’s estimates and projections, there could be a material effect on our financial statements.
Revenue recognition
As of December 31, 2006, we do not have multiple element arrangements and each source of revenue is typically generated from unrelated arrangements. We recognize advertising sales revenue when advertisements are published. Magazines are either sold on a subscription basis or through distributors. We recognized subscription revenue over the subscription period and single copy sales were recognized when sold to the ultimate customers. Revenue from book sales was recognized when books were sold to end customers. We did not carry book and magazine inventories. We no longer act as book publishing agents. Magazines and books were delivered to distributors when they were published. Because we did not provide distributors the right to return unsold books and magazines and did not provide them with any refunds, costs of publishing were charged to cost of revenue as incurred.
Advertising services revenue is generally recognized as services are provided.
Episodic television series are produced or acquired for distribution to the television market. Revenues are recognized when the master tape of the program is available for first airing under the terms of the related licensing agreement. When accounting for program production costs, we exercise judgment relating to the process of estimating the total revenues to be

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earned throughout a program’s estimated life cycle. We estimate the ultimate revenues, less additional costs to be incurred, in order to determine whether the carrying value of a program is impaired and thus requires an immediate write-off of unrecoverable program costs. The amount of capitalized program costs recognized as cost of revenue for a given program throughout its life cycle is based on the proportion of the program’s revenues recognized during such reporting period to the program’s estimated ultimate total revenue. Prior to release, we base our estimates of ultimate revenue for each program on the historical performance of similar programs. We update such estimates based on information available on the progress of the program production and, upon release, the actual results of each program.
We record revenues net of rate adjustments, discounts, and applicable business taxes. We estimate allowances for estimated rate adjustments and discounts based on historical experiences. In certain arrangements, we act as or use an intermediary or agent in placing advertising with TV stations with third parties. We recognize revenue for this type of transaction either on a gross or net basis depending on whether we act as the principal or agent in the transaction. For transactions in which we purchase blocks of advertising time and attempt to sell the time to advertisers, because we bear substantial risks and rewards of ownership we record revenue on a gross basis. For those transactions in which we find advertising space for advertisers, we do not have substantial risks and rewards of ownership, we are considered to be the agent in the transaction and record revenue on a net basis.
Impairment of goodwill and long-lived assets
We are required to review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and intangible assets with indefinite lives are required to be tested for impairment at least annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Should the carrying value of our goodwill or acquired intangible assets be determined to be impaired, their carrying value would be written down.
To assess potential impairment of goodwill, we perform an assessment of the carrying value of our reporting units at least on an annual basis or when events and changes in circumstances occur that would more likely than not reduce the fair value of our reporting units below their carrying value. If the carrying value of a reporting unit exceeds its fair value, we would perform the second step in our assessment process and record an impairment loss to earnings to the extent the carrying amount of the reporting unit’s goodwill exceeds its implied fair value. We estimate the fair value of our reporting units through internal analysis and external valuations, which utilize income and market valuation approaches through the application of capitalized earnings and discounted cash flow. These valuation techniques are based on a number of estimates and assumptions, including the projected future operating results of the reporting unit, appropriate discount rates and long-term growth rates.
Income taxes
We recognize deferred income taxes for temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements, net operating loss carryforwards and credits by applying enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in our opinion, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Current

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income taxes are provided for in accordance with the laws of the relevant taxing authorities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics.
Income taxes generated from our Hong Kong operations have not been material as we have not had significant operations in Hong Kong to date. For our operations based in the PRC, we are taxed at a statutory rate of 33% (30% state income tax plus 3% local income tax) applied to PRC taxable income reported in our PRC statutory financial statements unless one or more of our operations qualifies as “cultural media enterprise”, and are exempt from taxation in certain periods.
Valuation of share-based compensation
We account for share-based compensation to our employees based on SFAS No. 123R and will record compensation expense based on the fair value of the options, shares and warrants on the date of grant. We incurred share-based compensation expenses of $2,404,240 for the year ended December 31, 2006.
With respect to the non-vested shares granted in June 2006, we retained an independent appraiser to produce a valuation report on the fair value of our company. Significant management judgment is involved in determining the underlying variables. We concluded that $0.60 was the fair value based on management’s evaluation of the report.
In the third quarter of 2006, we granted share options to our employees. In addition, we issued warrants to purchase common shares to a consultant in December 2006. We used the Black-Scholes option-pricing model to determine the amount of employee share-based compensation expense. This approach requires us to make assumptions on such variables as share price volatility, expected lives of options and discount rates. Changes in these assumptions could significantly affect the amount of employee share-based compensation expense we recognize in our consolidated financial statements. See “—Operating costs and expenses— Share-based compensation expenses”.
Liquidity and capital resources
Our principal sources of liquidity have been cash generated from financing activities, which consisted of our private placements of convertible preferred shares to, and borrowing from, Patriarch Partners. See “Related party transactions— Transactions with Patriarch Partners”. As of December 31, 2006, we had $36.4 million in cash and $12.6 million in restricted cash. We do not have direct access to cash or future earnings of any of our PRC affiliated entities but can direct the use of their cash through agreements that provide us with effective control of these entities. See “Corporate structure— Agreements that provide effective control over our affiliated entities”.
We require cash to fund our ongoing business needs, particularly future acquisitions. Since our incorporation on November 7, 2005, we have made a number of strategic acquisitions and expect to continue to acquire businesses that complement our existing operations. See “—Overview— Acquisitions”. To date, we have not encountered any difficulties in meeting our cash obligations. We believe that our current cash, anticipated cash flow from operations, and the net proceeds we expect to receive from this offering will be sufficient to meet our anticipated cash needs for the foreseeable future, given our current growth plans.

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On March 31, 2006, we issued a promissory note in the amount of $38.2 million for the benefit of Xinhua Financial Network and a promissory note in the amount of $68.5 million for the benefit of our parent. Both notes are due on demand and the interest rates are not specified. See “Related party transactions—Transactions with our parent and its subsidiaries—Loan agreement with our parent and its subsidiaries”. These notes are subordinated to our borrowing from Patriarch Partners. If our parent and Xinhua Financial Network were to demand immediate payment of the outstanding amount under these notes, we would not have sufficient cash on hand to meet such demand and, as a result, would have difficulty meeting our other cash needs.
The following table sets forth a summary of our cash flows for the periods indicated:
                 
 
    Period from    
    May 26, 2005(1) to   Year ended
(in thousands)   December 31, 2005   December 31, 2006
 
Net cash provided by (used in) operating activities
  $ 109     $ (4,463 )
Net cash provided by (used in) investing activities
    376       (32,214 )
Net cash provided by financing activities
    1,594       70,104  
Effect of exchange rate changes
    2       846  
             
Net increase in cash
    2,081       34,273  
Cash at beginning of period
          2,081  
             
Cash at end of period
  $ 2,081     $ 36,354  
 
(1)  Date our parent acquired 60% of EconWorld Media, our predecessor.
Operating activities
We have financed our operating activities primarily through cash generated from financing activities. We currently anticipate that we will be able to fund our operations beyond the next twelve months with operating cash flow, existing cash balances generated from financing activities, and the portion of the net proceeds from this offering reserved for general corporate purposes.
Net cash used in operating activities totaled $4.5 million for the year ended December 31, 2006 and was primarily attributable to (i) an increase in accounts receivable of $11.1 million, (ii) an increase in capitalized content production costs of $4.5 million, and (iii) an increase in prepaid expenses and other current assets of $3.8 million, partially offset by (i) net income of $3.3 million and (ii) the add-back of non-cash items including depreciation and amortization of $5.2 million and share-based compensation of $2.4 million. The increase in prepaid expenses and other current assets is primarily due to an advisory fee we paid to Patriarch Partners and a deposit to Small World for content production. See “Related party transactions—Transactions with Patriarch Partners—Advisory agreement among us, our parent, and Patriarch Partners Management Group, LLC” and “Arrangements with partners and suppliers—Agreements related to Small World Television LLC”.
Net cash provided by operating activities amounted to approximately $109,000 in the period from May 26, 2005 to December 31, 2005 and was primarily attributable to (i) net income of $1.3 million, (ii) an add-back of non-cash items, such as $577,000 in depreciation and

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amortization, (iii) an increase of $169,000 in accounts payable, and (iv) an increase of $835,000 in income taxes payable, partially offset by an increase of $2.0 million in accounts receivable and a decrease of $847,000 in accrued expenses and other payables.
Investing activities
Net cash used in investing activities totaled $32.2 million for the year ended December 31, 2006 and was primarily attributable to an increase in restricted cash of $9.4 million, cash paid for acquisitions of subsidiaries, net of cash received of $7.9 million, an advance to an independent third party of $4.6 million and purchases of intangible assets of $4.2 million. The restricted cash is cash deposited in order to secure loans in RMB. The advance to an independent third party is for business development purposes.
Net cash provided by investing activities of $376,000 in the period from May 26, 2005 to December 31, 2005 primarily related to cash totaling $464,000 received in excess of cost from the acquisition of certain subsidiaries, partially offset by purchases of property and equipment totaling $88,000.
Financing activities
Net cash provided by financing activities totaled $70.1 million for the year ended December 31, 2006 and was attributable to the issuance of $60.0 million of convertible preferred shares to Patriarch Partners, the borrowing of a $10.0 million loan from Patriarch Partners and bank borrowings of $5.6 million, partially offset by dividends paid on preferred shares of $3.6 million. See “Related party transactions—Transactions with Patriarch Partners”.
Our net cash provided by financing activities of $1.6 million in the period from May 26, 2005 to December 31, 2005 consisted of proceeds from the issuance of EconWorld Media ordinary shares, partially offset by a decrease in the amount due to a related party.

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The following table summarizes our outstanding borrowings as of December 31, 2006:
                                 
 
    Date of borrowing    
Lender   initiation   Due date   Principal   Interest rate
                 
 
Xinhua Financial Network Limited
    March 31, 2006       (1)       $38.2 million       (1)  
 
Xinhua Finance Limited (our parent)
    March 31, 2006       (1)       $68.5 million       (1)  
 
Patriarch Partners Media Holdings, LLC
    March 16, 2006       December 31, 2008       $10.0 million       (2)  
 
Shanghai Pudong Development Bank Zhabei Sub-branch
    March 30, 2006       March 29, 2007     RMB 14.0 million ($1.7 million)     5.02%  
 
Shanghai Pudong Development Bank Zhabei Sub-branch
    May 8, 2006       May 7, 2007     RMB 7.1 million ($880,000)     5.27%  
 
Shanghai Pudong Development Bank Zhabei Sub-branch
    July 26, 2006       July 25, 2007     RMB 22.6  million ($2.9  million)     5.85 %
 
Shanghai Pudong Development Bank Zhabei Branch
    August 31, 2006       August 30, 2007     RMB 21.4 million ($2.7 million)     5.51 %
 
Shanghai Pudong Development Bank Zhabei Branch
    November 9, 2006       November 8, 2007     RMB 22.5 million ($2.9 million)     5.81 %
 
(1)  Notes are due on demand. Interest rate is not specified. See “Related party transactions— Transactions with our parent or its subsidiaries— Loan agreements between us and our parent or its subsidiaries”.
 
(2)  Interest is LIBOR plus 2.75%, plus an additional $3.0 million, as described in “Related party transactions— Transactions with Patriarch Partners— Credit agreement among us, Patriarch Partners, Patriarch Partners Agency Services, LLC and our direct subsidiaries, as guarantors”.
In addition to the promissory notes to Xinhua Financial Network and our parent, we have additional amounts payable to them in the amounts of $25.2 million and $6.7 million, respectively. These amounts are due in relation to payments that Xinhua Financial Network and our parent paid on our behalf for certain acquisition costs, as well as amounts loaned to us by Xinhua Financial Network for certain operating expenses and group services charges.
Capital expenditures
Our capital expenditures were incurred primarily in connection with the purchase of property and equipment and acquired intangible assets totaling $6.3 million during the year ended December 31, 2006 and $88,000 during the period from May 26, 2005 to December 31, 2005. We plan to continue to make acquisitions of businesses and assets that complement our operations when suitable opportunities arise.

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Contractual Obligations
The following table sets forth our contractual obligations as of December 31, 2006:
                                         
 
Payment due by December 31   Less than   1-3   3-5   More than
(in thousands)   Total   1 year   years   years   5 years
 
Long-term debt obligations(1)
  $ 10,000     $     $ 10,000     $     $  
Interest on long-term debt obligations (1)
    6,376       1,654       4,722              
Short-term debt obligations(2)
    117,968       117,968                    
Interest related to short-term debt obligations(3)
    379       379                    
Capital (finance) lease obligations
                             
Operating lease obligations
    998       769       174       55        
Purchase obligations(4)
    88,960       14,540       6,152       7,833       60,435  
Other long-term liabilities reflected on the balance sheet(5)
    152,955       10,306       20,612       20,612       101,425  
     
Total
  $ 377,636     $ 145,616     $ 41,660     $ 28,500     $ 161,860  
 
(1)  Represents the loan with Patriarch Partners mentioned above under “—Liquidity and capital resources— Financing activities”, and interest on the loan is at a rate of LIBOR plus 2.75%. Interest is estimated based on a LIBOR of 5.32%, which was the rate as of December 31, 2006.
(2)  Represents promissory notes to our parent and Xinhua Financial Network, as well as loans from Shanghai Pudong Development Bank. See “—Liquidity and capital resources— Financing activities”.
(3)  Interest on short-term debt is calculated based on the interest rates under the relevant loans, ranging from 5.0% to 5.9%. The loans are the loans mentioned above under “—Liquidity and capital resources— Financing activities” for Shanghai Pudong Development Bank Zhabei Sub-branch.
 
(4)  Represents obligations to purchase advertising rights on various media outlets, to purchase advertising rights for our magazine operations, to pay for production costs for television programs, to pay for obtaining network services from internet providers, to obtain a publishing right from a publisher, to pay for outsourcing of research services, to pay for consulting services to partners and vendors of the research group and to pay for events organizing services.
 
(5)  Represents commitments under contracts in relation to our newspaper operations and securing advertising rights in relation to Shanghai Camera.
Holding company structure
We are a holding company with no material operations of our own. We conduct our operations in the PRC primarily through our wholly- and majority-owned subsidiaries, other affiliated entities and strategic partners in the PRC and Hong Kong. As a result, our ability to pay dividends and to finance any debt we may incur depends upon dividends paid by our subsidiaries and service fees paid by an affiliated entity, Beijing Century Media. If our current or future subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly- and majority-owned subsidiaries in the PRC are permitted to pay dividends to us out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Under PRC law, each of our subsidiaries and affiliated entities in the PRC is required to set aside at least 10% of its after-tax profits each year, if any, to fund certain statutory reserves until such reserves reach 50% of its registered capital, and to further set aside a portion of its after-tax profits to fund the employee welfare fund at the discretion of each subsidiary’s or affiliate’s board of directors or shareholders’ meeting. Although the statutory reserves can be used to, among other uses, increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserves

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may not be distributed as cash dividends except in the event of liquidation of the companies. See Note 25 of our consolidated financial statements included elsewhere in this prospectus.
Off-balance sheet commitments and arrangements
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties, except for a guarantee described in “Related party transactions— Transactions with our parent and its subsidiaries— Transaction securing banking facility of Xinhua Investment Consulting (Shanghai) Co., Ltd“. We did not enter into any derivative contracts that are indexed to our shares and classified as owners’ and shareholders’ equity, or that are not reflected in our consolidated financial statements. Furthermore, we did not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We did not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
Inflation
Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of Statistics of China, the increase of the consumer price index in China was 3.9% in 2004, 1.8% in 2005 and 1.3% from January to November 2006.
Quantitative and qualitative disclosure about market risk
Market risk is the potential loss arising from adverse changes in market rates and prices, such as interest rates, and foreign currency exchange rates.
Interest rate risk
Our exposure to interest rate risk primarily relates to the interest rates for our outstanding debt and the interest income generated by excess cash invested in liquid investments with original maturities of three months or less. As of December 31, 2006, our total bank borrowings amounted to $11.2 million with interest rates varying from 5.0% to 5.9% for those borrowings with declared interest rates. Assuming the principal amount of the outstanding bank borrowings remains approximately the same as of December 31, 2007, a 1% increase in each applicable interest rate would add approximately $112,000 to our interest expense in 2007. In addition, our $10.0 million loan with Patriarch Partners bears interest at LIBOR plus 2.75%, and assuming the principal amount remains the same, a 1% increase in the interest rate would not significantly change our interest expense in 2007. This loan will convert into class A common shares upon IPO. We have not used any derivative financial instruments to manage our interest risk exposure. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market interest rates.
Foreign currency risk
Substantially all of our revenues and most of our expenses are denominated in RMB. Our exposure to foreign exchange risk primarily relates to cash and cash equivalents denominated

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in U.S. dollars as a result of our past issuances of preferred shares through a private placement and proceeds from this offering. We do not believe that we currently have any significant direct foreign exchange risk and have not hedged exposures denominated in foreign currencies or any other derivative financial instruments. Although in general our exposure to foreign exchange risks should be limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between U.S. dollars and RMB because the value of our business is effectively denominated in RMB, while the ADSs will be traded in U.S. dollars.
The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of RMB into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the RMB to the U.S. dollar. Under the new policy, the RMB is permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. This change in policy has resulted in an approximately 5.7% appreciation of the RMB against the U.S. dollar by December 29, 2006. There remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant appreciation of the RMB against the U.S. dollar. To the extent that we need to convert U.S. dollars we receive from this offering into RMB for our operations, appreciation of the RMB against the U.S. dollar would have an adverse effect on the RMB amount we receive from the conversion. Conversely, if we decide to convert our RMB denominated cash amounts into U.S. dollars amounts for the purpose of making payments for dividends on our common shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the RMB would have a negative effect on the U.S. dollar amount available to us. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency exchange risk.
Recent accounting pronouncements
In May 2005, the Financial Accounting Standards Board, or FASB issued Statement of Financial Accounting Standard, or SFAS No. 154, “Accounting Changes and Error Corrections”, which replaces Accounting Principles Board Opinions No. 20 “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes in Interim Financial Statements— An Amendment of APB Opinion No. 28”. SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of this statement did not have a material effect on our financial position, results of operations and cash flows.
In February 2006, the FASB issued FASB No. 155, (“SFAS 155”), “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” This statement is effective for all financial instruments acquired, issued, or subject to a remeasurement (new basis) event occurring after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company will adopt SFAS 155 in the first quarter of 2007. We have not determined the impact, if any, of SFAS 155 on our financial position, results of operation and cash flow.

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In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”, or FIN 48, which clarifies the accounting for uncertainty in income tax positions in FASB Statement No. 109, “Accounting for Income Taxes”. FIN 48 prescribes 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. FIN 48 is effective for fiscal years beginning after December 15, 2006. We will adopt FIN 48 in the first quarter of 2007. We have not determined its impact, if any, of SFAS 48 on our financial position, results of operations and cash flows.
In September, 2006 the FASB issued FASB Statement No. 157, or SFAS 157, “Fair Value Measurement”. SFAS 157 addresses standardizing the measurement of fair value for companies which are required to use a fair value measure of recognition for recognition or disclosure purposes. The FASB defines fair value as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measure date”. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. We are currently evaluating the impact, if any, of SFAS 157 on our financial position, results of operations and cash flows.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements”, or SAB108. SAB108 provides interpretive guidance on how the effects of the carryover or reversal of prior year misstatements should be considered in quantifying a current year misstatement. The SEC staff believes that registrants should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in quantifying a misstatement that, when all relevant quantitative and qualitative factors are considered, is material. SAB108 is effective for fiscal years ending after November 15, 2006. The adoption of SAB108 did not have a material impact on our consolidated financial position, results of operations or cash flows.

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Business
Overview
We are a leading diversified media company in China. We have assembled and built a group of media assets and strategic partnerships that we believe will enable us to achieve best in class media and advertising services across various sectors of the media business in China.
We have developed a unique, integrated platform that includes the creation and production of high-quality content that is distributed across nationwide television and print media outlets and radio in Beijing and Shanghai, and where advertising sales are supported by our own advertising agency. These outlets reach an estimated 210 million potential television viewers, a potential listening audience of 33 million people, and the readers of leading magazines and newspapers. In addition, our market research business enables our advertisers to analyze, understand and better reach their targeted consumers.
Our content currently focuses on business and financial news as well as wealth management and affluent lifestyle programming. We focus on this programming because we believe it attracts the highest income audience in China. This audience is highly sought after by our target advertisers.
Our business operates across five groups:
•   Media production, which refers to our in-house production studios that create and produce a diverse array of high-quality programs, including business, entertainment, educational and animation shows;
 
•   Broadcasting, which refers to the distribution of our programming through Inner Mongolia Satellite Television; our production and syndication of the Fortune China series of financial programs, including Fortune Morning 7 a.m., a popular financial news program in China; and our production and distribution of bilingual content for China Radio International’s EasyFM stations in Beijing and Shanghai;
 
•   Print, which refers to our exclusive rights to sell advertising for and provide management and information consulting services to, Money Journal magazine and the Economic Observer newspaper;
 
•   Advertising, which refers to our advertising agency that creates and places advertising for television, print media and campus billboards; and
 
•   Research, which refers to our market research group that provides research services on products, advertisements and markets.
We generate revenue principally by selling advertising on broadcast and print distribution platforms; selling advertising space on newspaper and magazine pages; selling produced television programs; providing advertisement production services; and providing research services.
We were founded by Xinhua Finance Limited on November 7, 2005 as a holding company for its China media assets. We have grown significantly since our founding, primarily through the acquisition of assets and the development of distribution rights. We acquired several companies from our parent, Xinhua Finance Limited, and continue to make acquisitions.

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Our strengths
We believe we have the following competitive strengths:
High-quality content
We produce high-quality content using a commercial, ratings-driven approach, targeted at the affluent segment of the Chinese population. We believe we have a competitive advantage in producing high-quality popular content due to our control of our media production studios, our strategic partnerships with some well-known financial publications in China and our strategy of hiring talented and experienced production personnel and writers. Our management, which is experienced in international media operations, infuses international standards into our locally produced content.
We believe much of our content is among the best in its class, including the content generated for Money Journal, our Fortune China television programs and the content of the Economic Observer. By controlling our production studios and hiring talented staff, we believe our television production studios are advanced by both Chinese standards and international standards. In addition, our focus on understanding our audiences through research enhances our ability to develop innovative and original programming geared to produce high ratings.
Reach and breadth of our established distribution channels
Our distribution channels are based on agreements with distributors, most of which are long-term in nature and give us the exclusive rights to sell advertising. We provide advertisers with an integrated platform to reach their target audience, including through:
•   cable and satellite television broadcasting on Inner Mongolia Satellite Television, to an estimated audience of 210 million potential television viewers in key Chinese urban areas including Beijing, Shanghai and Guangzhou;
 
•   our Fortune China programs broadcast on Inner Mongolia Satellite Television and Hunan Satellite Television, which is a leading satellite television channel in China;
 
•   radio broadcasting via China Radio International to Beijing and Shanghai, with a combined potential radio audience of 33 million people; and
 
•   the pages of Money Journal, Beijing Review, and the Economic Observer, which have a current circulation of 112,000, 50,000, and 145,000, respectively.
We also provide advertising content for Beijing Television Station and other television stations, in several newspapers, and on billboards on some university campuses in Shanghai.

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Ability to produce and sell advertising across multiple media
We believe our services allow advertisers to more cost-effectively reach desirable consumers across multiple media platforms.
•   Our channels, as described above, span television, radio, newspapers, magazines and billboards.
 
•   Our in-house advertising group creates advertising campaigns having a unified message across all media platforms.
 
•   Our market research group objectively analyzes the effectiveness of the advertising message.
Our services attract a large base of leading international advertisers such as HSBC, Audi and Nokia, as well as large domestic companies and financial institutions such as Bank of China, China Mobile and Lenovo. Control of our production, advertising and market research gives us sophisticated analytical tools, which we believe will continue to give us a competitive advantage as the advertising market develops over the next few years.
Ability to distribute content across multiple media
We gain competitive advantage from sharing content among our subsidiaries, including affiliated entities, and with our parent company, Xinhua Finance Limited. Currently, our parent provides content to Fortune China, the Economic Observer, Money Journal and Beijing Review. The ability to use the same content across multiple media platforms tends to lower costs. Leveraging on our integrated platform for content is a key strength of our business model, and is central to our ability to provide both high-quality entertainment and information to our audiences and sophisticated advertising services to our advertiser customers.
Strong and experienced management team
Our management team is one of our strongest assets. Our management team has a mix of Chinese cultural experience and international media operational skills, and brings international standards to our content offerings. Ms. Fredy Bush, our Chief Executive Officer and the Chairman of our Board, has 20 years of experience building businesses in Asia. In 2006, Ms. Bush received CNBC’s Asia Entrepreneur of the Year Award. Ms. Bush, together with our management team, focuses on innovative business and strategic initiatives and the execution of our business model. In addition, we employ experienced and capable managers to run our business groups and operations.
Experience in identifying, executing and integrating acquisitions
Our management has significant experience in identifying, executing and integrating acquisitions in China. Our management identified the acquisitions that currently comprise our business operations based on their experience and understanding of the regulatory environment in China. To date, we have successfully acquired and integrated a number of new businesses and integrated them into our operations with minimal disruption. This strength has enabled us to successfully assemble our integrated platform.

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Our strategy
We intend to become the leading diversified media company targeting the rapidly growing affluent segment of the Chinese population. We intend to achieve this objective by implementing the following:
Expand our broad distribution channels
We plan to expand our distribution assets and strategic partnerships in both traditional and new media in order to offer our advertisers complementary and reinforcing methods of reaching targeted consumers. We may expand our business into the Internet as well as other forms of new media such as broadband wireless broadcasting and Internet television. With new forms of distribution integrated into our existing platform, we believe we will be able to extend our brands, distribute our content more effectively to our target audience, increase our scale and enhance our market position.
Continue to develop high-quality content
We are committed to producing high-quality programming based on our commercial, ratings-driven approach, targeting the affluent segment of the Chinese population. Accordingly, we intend to increase our investment in programming, attract more talent, increase production capacity and enter into more international partnerships.
Leverage our integrated platform to increase operational and cross-selling synergies
We plan to maximize opportunities for our business to increase both revenue and cost synergies. We intend to increase cross-selling by developing additional flexible, bundled advertising packages that allow advertisers to reach consumers by complementary and reinforcing media. At the same time, we intend to further leverage the existing elements of our integrated media platform to enhance the platform’s attractiveness to advertisers. Advertisers can launch a coordinated campaign across multiple media while enjoying cost savings from our bundling and volume discounts. Finally, we plan to promote content sharing across our internal capabilities and with our parent.
Build our brands for both consumers and advertisers
We plan to continue to promote our brands to both consumers and advertisers. For consumers, we intend to brand the platforms we use, the offerings of our strategic partners, and specific programs. We believe our high-quality content will attract more affluent consumers, as well as increase the loyalty of our target audience. For instance, we believe viewers who regularly watch one Fortune China show will watch others in the same series.
For our advertisers, we plan to continue to promote our brand so that domestic and international advertisers will recognize the name “Xinhua Finance Media” as synonymous with an integrated platform that reaches the affluent Chinese demographic. Enhancing our brand name should enhance market awareness of our services, which should allow us to strengthen and broaden our customer base and increase our advertising revenues.

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Pursue strategic relationships and acquisitions
We plan to pursue strategic relationships and acquisitions that fit with our current core competencies and brands. We believe that growth through acquisition is particularly attractive given the fragmentation in China’s media industry. We plan to continue our track record of successfully identifying, executing and integrating acquisitions to build scale and enter into complementary businesses and new media platforms. We plan to evaluate strategic acquisition opportunities that we believe will further enhance our leadership position while also providing an attractive return on investment. When evaluating potential acquisition targets, we will consider factors such as market position, growth and earnings prospects and ease of integration.
Our products and services
Media production
We produce television programs and offer broadcast design services through our media production group.
Television production
Our television production operations create and distribute television programs, including drama series. Our production studios in Beijing and Shanghai are able to manage the entire production process. Television production involves writing scripts, casting, creating sets, securing venues, filming and post-production. Post-production refers to all stages of production that occur after the actual filming of a program and includes editing and remixing original recordings for both video and sound, and adding sound and visual effects. For our drama series production, we cooperate with third parties who hold drama series production licenses, to produce our drama series.
For drama series, we often produce a pilot episode at our own expense. We then show the pilot to television stations, and if a television station wishes to purchase the series, it enters into a contract with us, typically to produce 20 episodes. Sometimes we produce an entire series at our own expense before seeking a station to purchase the rights to broadcast it. We have produced drama series such as Floating Dust, a series about hardships in life, and Marriage Vacation, a drama series about a modern family.
We develop animation concepts and produce three-dimensional animation for advertisements, education and public instructions, engage in post-production for television commercials and create special visual effects for television commercials and films. We have created approximately 100 episodes of animation for China Central Television, including animation that won an award from the China Television Artist Association Cartoon Industry Committee for the best short animation introducing a program. We also create animated public service advertisements for various government agencies.
Broadcast design services
Our broadcast design services consist of providing brand management services for television channels. We reposition television channels, which refers to the process of developing the branding and image of the television channel. To support repositioning, we develop content,

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graphics and advertisements, including “bumpers”. Bumpers are short broadcasts of a few seconds between programming and advertisements that identify and self-advertise the channel. We also develop other graphics and advertising for the channel, some of which are displayed through other channels or print media to promote the channel. We have repositioned many of the China Central Television channels. We have won several awards from Travel Satellite Television for producing the best branding and image products in categories such as bumpers, program trailers and slogans.
Broadcasting
Television
We have a strategic partnership with Shanghai Camera Media Investment Ltd., or Shanghai Camera. Shanghai Camera has the exclusive rights to sell advertising for Inner Mongolia Satellite Television and provides most of its content. We provide consulting and advisory services to Shanghai Camera, including the production or sourcing of the content and sourcing of advertisements. For more information on these arrangements, see “Arrangements with partners and suppliers— Agreements regarding Shanghai Camera”.
Inner Mongolia Satellite Television is the satellite channel of Inner Mongolia Autonomous Region, one of 31 national satellite television channels in China operated by regional authorities. Shanghai Camera’s programming is distributed by Inner Mongolia Satellite Television to cities where it has landing rights.
We produce or source diversified content for Shanghai Camera that is broadcast on Inner Mongolia Satellite Television. This content includes Warrior and Access Hollywood: China, which we recently began to produce with our partner Small World Television. In addition, Inner Mongolia Satellite Television broadcasts financial programming from our Fortune China production studios. The local news and the My Blue Home series of programs, which are documentaries set in Inner Mongolia, are produced by Inner Mongolia Television.

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Inner Mongolia Satellite Television reaches 103 cities in 29 of 31 provinces across China, including Beijing, Shanghai and Guangzhou. Inner Mongolia Satellite Television reaches an estimated 210 million potential television viewers according to Inner Mongolia Television. The geographic reach of Inner Mongolia Satellite Television is depicted below, with additional information given in the following table.
Selected cities reached by Inner Mongolia Satellite Television
(GRAPH)
         
 
    Estimated number of
    potential television viewers reached by
City, province or autonomous region   Inner Mongolia Satellite Television(1)
 
Beijing(2)
    15,000,000  
Shanghai(2)
    16,000,000  
Tianjin(2)
    9,645,000  
Chongqing(2)
    4,615,000  
Hebei
    3,645,000  
Shaanxi
    7,624,000  
Jilin
    7,031,000  
Heilongjiang
    3,564,000  
Liaoning
    13,077,000  
Gansu
    3,884,000  
Ningxia
    1,200,000  
Shanxi
    6,319,000  
Zhejiang
    6,466,000  
Anhui
    4,214,000  
Guangdong
    13,537,000  
Shandong
    8,455,000  
Henan
    6,344,000  
Hubei
    8,941,000  
Jiangsu
    4,563,000  

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    Estimated number of
    potential television viewers reached by
City, province or autonomous region   Inner Mongolia Satellite Television(1)
 
Hunan
    8,952,000  
Guangxi
    6,269,000  
Jiangxi
    3,084,000  
Fujian
    1,000,000  
Tibet
    1,154,000  
Yunnan
    5,660,000  
Guizhou
    4,689,000  
Sichuan
    2,430,000  
Hainan
    1,500,000  
Inner Mongolia
    24,000,000  
Macau
    308,000  
       
Total
    209,976,320  
 
(1)  Source: Inner Mongolia Television Station. The numbers set forth are based on estimates by Inner Mongolia Television Station that include areas where it has secured landing rights by contract as well as other areas where Inner Mongolia Satellite Television is broadcast. The viewership is estimated by multiplying the number of households in each cable system where Inner Mongolia Satellite Television is carried by the estimated average number of persons per household.
 
(2)  Provincial-level cities.
Fortune China programs
We produce (in our studios in Beijing, Shanghai and Shenzhen) and syndicate the Fortune China series of financial television programs. We produce nine different programs under the Fortune China name. One is broadcast by Hunan Satellite Television and two are syndicated to local television stations. Six are broadcast on Inner Mongolia Satellite Television.
We produce Fortune Morning 7 a.m., a popular financial information television program in China. The half-hour program covers topics such as investments, Chinese economic data and personal finance. This program is broadcast on Hunan Satellite Television. For more information on the contract with Hunan Television Station, see “Arrangements with partners and suppliers— Agreements related to Hunan Satellite Television”.
Some of our Fortune China programs are syndicated to provincial and city channels in China. Under our syndication relationships, we typically provide the program to our syndication partner and pay them an annual fee. In return we earn revenues by selling two minutes of advertising time for every 30 minutes of programming. We also sell sponsorship, which allows the sponsor the right to promote its products, services or expertise during the program. This is typically done by explicit naming of the program sponsor, and sometimes we receive sponsorship in another media platform in lieu of receiving a fee. In addition, we produce programs for third parties, typically providing studios, equipment, personnel and sometimes satellite transmission.
The syndicated programs are as follows:
•   New Fortune Weekly is a comprehensive financial program, reviewing and analyzing popular topics relating to the Chinese economy. The 90-minute program airs on weekends, typically Saturday nights.

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•   Fortune People is a popular financial talk show in China, hosting guests such as economists, business executives, finance professionals and academics. The 30-minute program airs at different times during weekends, typically Sunday nights.
Inner Mongolia Satellite Television commenced broadcasting four new Fortune China programs in August 2006, bringing Fortune China programs to all places where Inner Mongolia Satellite Television has landing rights. These programs are Fortune Unlimited, which focuses on financial and investment related news, including financial events and influential business people, Fortune China Weekly, which analyzes important economic events of the week, Fortune Celebrity, which interviews guests in the financial arena, and Fortune Morning, which is a financial news program. In October and November 2006 we began airing two other Fortune China programs on Inner Mongolia Satellite Television. Our Fortune China studios also recently began to produce other diversified content for broadcast on Inner Mongolia Satellite Television with our partner Small World Television such as Access Hollywood: China and Warrior.
The new programs on Inner Mongolia Satellite Television are one example of how we leverage our Fortune China operations’ synergies with our other activities. Our Fortune China operations also utilize the Xinhua FTSE indices produced by our affiliate, Xinhua FTSE Index Co., Ltd., bring experts from our parent onto Fortune China programs and broadcast the Xinhua Finance newswire on the bottom of the screen on some Fortune China programs.
We also organize financial and economic-themed events through our television broadcasting operations. The events are attended by financial professionals, affluent persons and academia. We endeavor to find a corporate sponsor to cover the cost of these events, and use these events to promote our services and branding. Our Fortune China operations cooperate with our print group and our radio operations to produce joint events, forums and meetings.
Radio
We have a strategic partnership with China Radio International’s exclusive advertising agent, under which we have the exclusive rights to sell advertising for and the right to provide content to China Radio International’s EasyFM 91.5 of Beijing and EasyFM 87.9 of Shanghai. The exclusive rights to sell advertising also extend to program sponsorship. For more information on this partnership arrangement with China Radio International, see “Arrangements with partners and suppliers— Agreements regarding our radio broadcasting business”.
China Radio International owns the EasyFM radio network, which broadcasts in Chinese and English. The EasyFM stations in Beijing and Shanghai reach the populations of these cities, a potential audience of 33 million people. For more information on China Radio International, see “Industry— Media distribution platforms— Broadcast”.
We intend to only provide non-news content under this partnership. We maintain radio studios in Shanghai and Beijing that are responsible for advertisement and program production. We provide content at intervals during the day, ranging from one minute to two hours in length. The content we provide to these stations includes short English language broadcasts, forums on educational institutions, personal interviews, lifestyle programs and short talk shows. We produce some of the content we provide, while the remainder is sourced externally. Our radio programs are produced and broadcast in Chinese and English and are intended to appeal to Chinese people who have bilingual capability, an attractive affluent demographic segment.

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According to a survey conducted by ChinaHR.com, the average wages of Chinese employees with advanced and intermediate levels of English are 72.5% and 24.3% higher than those with basic levels of English, respectively.
We leverage synergies of our radio operations with our other operating groups, and with our parent, Xinhua Finance Limited. For instance, our radio operations provide our parent’s market updates to EasyFM twice daily, adapting information provided by our parent’s financial news operations for radio broadcast. Our radio operations also use content provided by Money Journal magazine to produce a financial radio program for broadcast on Shanghai’s EasyFM station.
Print
Newspaper
For our strategic partner the Economic Observer, we have the exclusive rights to sell advertising and we provide consulting services with respect to the newspaper.
We sell advertising for the Economic Observer through our own sales force as well as through third party advertising agents. One of our affiliated entities is the exclusive advertising agent for the Beijing, Shanghai and Tianjin real estate pages of the Economic Observer.
The Economic Observer is a leading financial newspaper in China. According to Huicong Research, the Economic Observer had 16.7% of the advertising market share by revenues for financial newspapers in China for the first six months of 2006. In addition, the Economic Observer has an online version. The Economic Observer is published weekly and has a circulation of 145,000. Over 90% of this circulation is in Beijing, Shanghai, Guangzhou and Shenzhen. The Economic Observer has approximately 118 journalists in China based in several major cities.
The majority of the content of the Economic Observer is produced by its own staff. Some of its content also comes from other organizations, including newswires. Certain index-related content and topical reports are sourced from our parent, Xinhua Finance Limited.
The Economic Observer’s content includes national and regional news and analysis, as well as news and analysis related to economic matters, capital markets, real estate and personal finance. It also contains the special “Observer” section, which covers diverse areas such as technology, history and lifestyle. The Economic Observer regularly publishes special inserts such as the monthly real estate section.
The Economic Observer is increasing its focus on international news and bringing international standards to its reporting by sourcing content such as our parent’s index values and ratings reports.
Magazines
We have the exclusive rights to sell advertising for and provide management and information consulting services, including with respect to distribution, to Money Journal. Money Journal is a wealth and financial magazine, with a paid subscription rate at 46% as of November 2006, one of the highest among national personal finance magazines in China. We have writers and other content producers who create content for Money Journal.

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Money Journal is a monthly financial magazine providing wealth management and investment information for the China market. Money Journal has an online version. It covers a range of topics from entrepreneurship and personal finance to content on affluent lifestyles. Money Journal contains a section of content that is provided under an agreement with Dow Jones, which is described in “Arrangements with partners and suppliers”. The circulation of Money Journal was 112,000 per month for November 2006 according to an audit conducted by BPA Worldwide.
We have the exclusive rights to sell advertising for the financial pages of the Beijing Review for which we provide content. The Beijing Review is an English weekly news magazine in China with a circulation of 50,000.
As a complementary service to the sale of advertising, we provide marketing services, including organizing events for financial institutions. The events may include investment seminars or other forums on financial topics. When we organize events, we manage the entire process including the advertising or notices, the venues, the speakers, and any cross-media content. Money Journal offers the Affluent Integrated Marketing Solutions, in which we
•   target the affluent by partnering with educational institutions and other financial media to carry out events;
 
•   send sponsored gifts to readers of Money Journal; and
 
•   organize presentations and product exhibitions.
We also organize the Million Dollar Investors’ Club, which is composed of readers of Money Journal.
We leverage synergies our magazine operations have with our other operating groups, and with our parent, Xinhua Finance Limited. For example, our marketing services are carried out through a joint venture between one of our subsidiaries in our magazine operations and Economic Observer Advertising. Also, Money Journal sources some content from our parent.
Advertising
We create and place advertising for television, radio, print media and campus billboards. We purchase the rights to be the advertising agent for certain television shows broadcast by Beijing Television Station and other television stations, and in the Beijing, Shanghai and Tianjin real estate pages of the Economic Observer, as well as other newspapers.
On Beijing Television Station, we are the exclusive advertising agent for Top Music, an entertainment show focusing on music and music news, and Star Press, a show in which a panel of journalists interviews guests in the format of a press conference. We also act as advertising agent for programs aired on other television stations. For more information on these arrangements, see “Arrangements with partners and suppliers— Agreements by our advertising group securing agency”. We also place advertisements on approximately 200 billboards on university campuses in Shanghai. In addition, we serve as a non-exclusive advertising agent for other newspapers, such as Beijing Evening News and Beijing Youth Daily.
Our advertising group creates much of the advertising it places, including planning, design and production. Production work for print media includes creating advertising copy, design and layout, and coordination of printing or placement on billboards. Production work for television

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advertisements includes writing storyboards, set design for the advertisements, filming and post-production editing.
Our advertising group also engages in events organizing. From March to October 2006, we organized a promotional event based in Beijing.
In addition, our advertising group is leveraging on our magazine group’s network of advertisers to find new customers to use its advertising creation and placement services.
Research
We conduct market research for our own use and for our international and Chinese-based customers. We also partner with international research companies to participate in global research projects. We study market characteristics, consumer preferences and opinions with respect to advertising and media content, and business and technology issues as needed for each project. We use various analytical tools to conduct this research, including both quantitative and qualitative tools.
Our research services are a key part of our integrated platform. Our research services provide the feedback necessary to help advertisers understand their consumers better and assist our production, print and broadcasting groups to produce and select content that will be popular with our target demographic. For example, we are using focus groups to study the pilot programs of our drama series in preparation for broadcast on Inner Mongolia Satellite Television. We also use focus groups to improve the quality and demographic aim of various advertising campaigns.
Each research project begins with a project planning phase which tailors the project to meet the needs of the customer or in-house group. We then gather, compile and analyze the data. Finally, we issue a report to the customer or in-house group stating the results of the project. We have various analytical methods to provide our services, such as in-depth individual interviews or focus group interviews. We also have quantitative methods, such as computer assisted telephone interviews, door-to-door surveys and product placement tests.
We have research offices in Shanghai, Beijing and Guangzhou. We also maintain partnerships with research companies in over 200 cities in China in locations outside Beijing, Shanghai and Guangzhou. We also gather data from across China using our computer assisted telephone interviewing system.
Our customers
Our products and services attract a variety of international and domestic customers. The data we give for our customers below includes data from our subsidiaries for the full periods given regardless of the date we acquired them.
Media production
The high-quality of our media production group’s products has attracted many customers. For the year ended December 31, 2006, approximately 122 customers had used our television production, animation, and broadcast design, including leading international customers such as Small World Television LLC and Legend Entertainment Inc. and domestic customers such as Che

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Jia Media, China Central Television, Kuai Le Purchasing Company, Travel Satellite Television and Hunan Television.
Small World Television LLC, Dong Yang Zhong Tian Dragon, West Xinjiang Culture Co., Ltd., Jiangsu Zhong Tian Dragon and Che Jia Media, which were the top five customers of our media production group in 2006, accounted for 26.3%, 6.6%, 4.0%, 3.8% and 3.5% of our media production revenues for 2006, respectively. The customer relationship with Small World Television LLC was transferred to our broadcasting group in the second half of 2006. Our media production group’s television production, animation, and broadcast design operations contributed 63.8%, 10.2% and 26.0%, respectively, of our media production group’s revenues for 2006.
Our top ten media production customers accounted for 57.9% of our media production revenues in 2006.
Broadcasting and print
The quality and coverage of our integrated platform have attracted a broad range of customers. For the year ended December 31, 2006, approximately 198 and 250 customers had used the services of our broadcasting and print groups, respectively, for advertising and sponsorship, including international advertisers such as Mindshare Media and domestic advertisers such as Shanghai Jin Kong Investment, Beijing Sheng Shi Hui Huang Advertisement and Beijing Hua Shang Media. Beijing Sheng Shi Hui Huang Advertisement, Beijing Hua Shang Media, Shanghai Si Yuan Jing Hong Advertising, Beijing An Bi Xin Home Shopping Network, and Beijing Jin Nuo Bo Er Advertising, which were the top five customers of our broadcasting group in 2006, accounted for 12.0%, 9.0%, 6.4%, 6.3% and 5.4% of our broadcasting group’s revenues for 2006, respectively. Step City Investment Ltd., Shanghai Jin Kong Investment, Mindshare Media, Wit Good Investments and Sheng Shi Chang Cheng International Advertising, which were the top five customers of our print group in 2006, accounted for 10.0%, 9.4%, 7.9%, 5.3% and 4.6% of our print groups’ revenues for 2006, respectively.
Advertisers purchase advertising time or sponsorship on Inner Mongolia Satellite Television’s, EasyFM’s and Fortune China’s programs and on Money Journal’s and the Economic Observer’s print pages either directly from us or through advertising agencies that purchase these services on behalf of their domestic and international customers. In 2006, direct sales to advertisers accounted for 25.3% and 10.3% of the revenues of our broadcasting and print groups, respectively.
Our top ten broadcasting customers accounted for 50.6% of our broadcasting group’s revenues in 2006. Our top ten print customers accounted for 54.5% of our print group’s revenues in 2006.
Advertising
The quality and placement access of our advertising group has attracted a broad range of international and domestic customers. For the year ended December 31, 2006 approximately 524 customers, not including customers of the promotional event we organized in Beijing from March to October 2006, had used the advertising services of our advertising group, including international customers such as Mindshare Media, Carat Media and City Chain Company Ltd. and domestic customers such as Shanghai Yang Zhi Culture Broadcasting Co., Ltd., Beijing Jin

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Yue Property and Beijing Gao Xing Yi Lu Culture Development. City Chain Company Limited, Carat Media, Mindshare Media, Beijing Jin Yue and Shi Li Media, which were the top five customers of our advertising group in 2006, accounted for 7.3%, 4.3%, 2.9%, 2.4% and 2.2% of our advertising group’s revenues in 2006, respectively. In addition, the promotional event that we organized in Beijing from March to October 2006 accounted for 7.3% of our advertising group’s revenues in 2006.
Customers purchase advertising placements and advertising creation services either directly from us or through their advertising agents which purchase these services on behalf of their domestic and international customers. In 2006, direct sales to advertisers accounted for 56.8% of our advertising group’s revenues.
Our top ten customers accounted for 28.9% of our advertising group’s revenues in 2006. No single customer accounted for more than 10% of our advertising group’s revenues in 2006.
Research
The quality of our research group has attracted a broad range of international and domestic customers. For the year ended December 31, 2006, approximately 116 customers had used our research services, including leading international brand name customers such as Market Insights Group Ltd., Wrigley and Wal-Mart and leading domestic brand name customers such as Pepsi (China), Baisheng and Inner Mongolia Milk Industry Group. Wal-Mart, Pepsi (China), Inner Mongolia Milk Industry Group, Market Insights Group and Wrigley, which were the top five customers of our research group in 2006, accounted for 11.9%, 9.3%, 5.0%, 4.5% and 3.5% of our research group’s revenues for 2006, respectively.
Customers purchase research services either directly from us or through research firms which purchase these services on behalf of their international customers. In 2006, direct sales to customers accounted for approximately 66.8% of our research group’s revenues.
Our top ten research customers accounted for 47.1% of our research group’s revenues in 2006.
Distribution
Inner Mongolia Satellite Television’s programs are broadcast via satellite to cities where they have landing rights. A typical landing rights contract may have a term of one year. Some other cities where no landing rights are established by contract also carry Inner Mongolia Satellite Television.
Our Fortune China studios are interconnected by a leased optical fiber network. Programming content is sent via optical fiber cables to Changsha from the studios. From Changsha, Fortune Morning 7 a.m. is transmitted to Hunan Satellite Television Station, which carries the program via satellite across China. Similarly, the programs aired on Inner Mongolia Satellite Television are transmitted from Changsha to the headquarters of Inner Mongolia Television Station via optical fiber. The remaining programs are routed from Changsha to the Shanghai studio. From there, these programs are transmitted by satellite to be distributed across China to all the channels carrying them. For Fortune Morning 7 a.m., we use the services of China Cable Network for optical fiber connection.
For our Fortune China programming that is syndicated for broadcast by local stations, we contract China Cable Television to carry our programs from our Shanghai studio to its earth

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station by optical fiber, where the program is transmitted to satellite. We contract with the local stations as well. The syndication relationships we have are typically on the basis that we provide the program to our syndication partner with an annual fee, and in return we earn revenues by placing two minutes of advertising for every 30 minutes of programming. Typically, the contract is for a term of one to two years.
As part of the management consulting services to Money Journal and the Economic Observer, we advise on their engagement of distributors. Guangzhou Jingyu Culture Development Co., Ltd., or Guangzhou Jingyu, provides management consulting and information provision services on distribution in China for the magazine. The Economic Observer has relationships with 90 distribution agencies in China to distribute it. We do not receive any proceeds from subscriptions and sales of the Economic Observer.
Our sales and marketing
Our sales and marketing team comprises 172 employees across our operational groups. The sales and marketing team allocated to each group focuses on the specific products of that group and the needs of customers of that group, while being held together through common strategies and broader service to our company as a whole. We strengthen relationships with advertisers by cross-selling our integrated platforms to our existing advertisers, offering attractive and flexible packages to suit their needs. We promote our brand to advertisers as synonymous with the affluent demographic. We use the ratings of our programs, the circulation numbers of the magazine and newspaper and the research conducted by our research group to evidence our ability to reach this demographic effectively.
Competition
Each of our businesses is subject to significant competition, much of it from state-owned competitors. We believe we distinguish ourselves from our competitors by being the only company that can provide a full range of production services, including animation, broadcast design and post-production for television commercials, while having a partnership with a research group and distribution channels through various types of media outlets.
Media production
We compete against a strong field of competitors in media production, including large state-owned production companies. There are approximately 1,160 licensed television production companies in China and approximately 700 companies producing drama series.
Broadcasting
We and our strategic partners face many competitors in the Chinese broadcast market. Within each province or city, there are up to 16 China Central Television satellite channels and up to 30 regional satellite channels, which compete with Inner Mongolia Satellite Television. There may also be local cable channels and local terrestrial channels.
The major competitors of our Fortune China operations are China Central Television Channel 2, a satellite television channel covering many cities throughout China, and Fortune One, a financial news program broadcast primarily in Shanghai.

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The radio markets in Beijing and Shanghai are very competitive. EasyFM has only a small share of the Beijing and Shanghai radio markets, respectively.
Print
The Economic Observer, a weekly newspaper, faces competition from several financial newspapers in China, including 21st Century, which prints three times a week, CBN, which prints daily and China Business.
Money Journal competes against several financial magazines, both international and domestic, such as Caijing Magazine, Harvard Business Review, and the Chinese versions of Business Week, Fortune and Forbes.
Advertising
Our primary competition in advertising comes from the American Association of Advertising Agencies, or 4A, advertising companies, which are the dominant international advertising companies. Although we have relationships with them in which they act as advertising agents, at the same time the 4A companies have much of the market share both globally and in China and are our competitors.
Research
There are approximately 2,000 research companies in China, but many of these are capable only of data gathering. International firms also make up a large portion of the research market in China.
Intellectual property
Some of our groups have developed strong brand awareness for their products and services. We also benefit from strong brand awareness relating to our parent, Xinhua Finance Limited. Accordingly, we consider our trademarks, copyrights and similar intellectual property critical to our success and rely on trademark and copyright laws, as well as licensing and confidentiality agreements, to protect our intellectual property rights. The intellectual property rights, including copyrights, trademarks and Internet domains held by us and our strategic partners are described in “Regulation— Regulations on intellectual property protection”.
Xinhua Financial Network Limited, or Xinhua Financial Network, the predecessor and now subsidiary of our parent, Xinhua Finance Limited, and China Economic Information Service entered into a Content License Agreement Supplement to the Exclusive Broadcasting Agreement dated December 15, 2001, pursuant to which China Economic Information Service granted to Xinhua Financial Network and its affiliates an exclusive license (worldwide excluding China) to be the only party other than China Economic Information Service to distribute its real time newsfeeds and a non-exclusive license (in China) to distribute its real time newsfeeds, as well as the right to use the word “Xinhua” as the first name by Xinhua Financial Network and its affiliates worldwide. The agreement is effective for 20 years from May 18, 2000 and renewable for an additional term of ten years at Xinhua Financial Network’s option on terms to be agreed between the parties. We have in turn entered into an agreement with Xinhua Financial Network to use the word “Xinhua”. Although our parent or Xinhua Financial Network has registered the trademark for the logo containing “Xinhua Finance” and the name

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“Xinhua” in the U.S., Hong Kong, Japan and South Korea and our parent has applied for registration of the logo in the PRC, it is not clear whether the registration will be accepted in the PRC or whether we or our parent or affiliates could continue to use the name “Xinhua” if the agreement were to terminate. See “Risk factors— Risks related to our business”.
Employees
As of December 31, 2006, we had 623 full-time employees, including 582 located in the PRC and 41 in Hong Kong. Our employees are not covered by any collective bargaining agreement. We consider our relations with our employees to be good. A functional breakdown of our employees is set out in the following table:
                                                 
 
    Advertising    
    Media   and    
Function   Headquarters   Broadcasting   Print   production   research   Total
 
Administration
    8       12       10       9       30       69  
Analyst
                    1                       1  
Design
            10       10       45       27       92  
Content production
            59       21               1       81  
Finance
    15       11       12       6       22       66  
General management
    3       9       5               12       29  
Information technology
            13       5       1       11       30  
Research
                                    75       75  
Sales and marketing
    1       34       57       5       83       180  
     
Total
    27       148       121       66       261       623  
 
From time to time, we also employ part-time employees and independent contractors. We plan to hire additional employees as we expand.
As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and provincial governments, including pension, work-related injury benefits, maternity insurance, 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 in 2005 was $26,980 and in 2006 was $214,129. Our employees in Hong Kong are covered by the Mandatory Provident Fund Scheme. The contribution of our company for the eligible employees is based on 5% of the applicable payroll costs, and contributions are matched by the employees. We contributed $3,780 under this scheme in 2005 and $41,427 in 2006.

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Facilities
Our principal executive offices are located on premises comprising approximately 11,728 square feet in Shanghai, China. We have offices and facilities located in Beijing, Shanghai, Guangzhou, Hong Kong and Shenzhen. All of our offices and other facilities are leased. The following table presents our facilities, the expiration year of the lease and the approximate size.
                     
 
    Expiration of   Approximate
Facility location   Use of facility   lease   square feet
 
Room 3905-09, Tower One, Grand Gateway, 1 Hongqiao Lu, Shanghai(1)
 
Headquarters
    2007       11,728  
Floor 22, D Wing, World Trade Center, City Center, Beijing
 
Beijing Headquarters
    2010       12,244  
Room 2102, Floor 21, D Wing, World Trade Center, City Center, Beijing
 
Office for Advertising
    2009       9,219  
Room 408, 55 Dong’an Menda Street, Dongcheng District, Beijing(2)
 
Office for magazine
    2007       2,246  
Room 410, 55 Dong’an Menda Street, Dongcheng District, Beijing(2)
 
Office for magazine
    2007       3,455  
Room 712, Jindu Plaza, 277 Wuxing Road, Xuhui District, Shanghai(3)
 
Office for magazine
    2007       1,851  
Room 718, Jindu Plaza, 277 Wuxing Road, Xuhui District, Shanghai(3)
 
Office for magazine
    2007       1,851  
21/F On Hong Commercial Bldg, 145 Hennessy Road, Wanchai, Hong Kong
 
Office for advertising
    2008       2,044  
1705-1707 Tower A, Fudun Center, 58 Dongsanhuan South Road, Chaoyang District, Beijing
 
Office for advertising
    2007       4,284  
1702-1703 Tower A, Fudun Center, 58 Dongsanhuan South Road, Chaoyang District, Beijing
 
Office for advertising
    2008       1,561  
2709 Tower A, Phoenix City, A5 Shuguang Xili, Chaoyang District, Beijing
 
Office for advertising
    2007       2,400  
Room 11, Floor 12, Shenzhen Kerry Center, Renmin South Road, Luohu District, Shenzhen
 
Office for advertising
    2007       958  
Room 12, Floor 12, Shenzhen Kerry Center, Renmin South Road, Luohu District, Shenzhen
 
Office for advertising
    2007       475  
24th Floor, No. 366, Zhaojiabang Road, Xuhui District, Shanghai
 
Office for advertising
    2007       2,879  
Room 2202, No. 365 Tianhe Road, Tianhe District, Guangzhou
 
Office for advertising
    2007       1,277  
8th Floor, Unit 1, Building 1, Linghang International Center, Guangqumen Nanxiaojie, Chongwenmen District, Beijing
 
Office for advertising
    2007       8,957  

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    Expiration of   Approximate
Facility location   Use of facility   lease   square feet
 
Floor 12, Xincheng Tower, No. 167 Jiangning Road, Shanghai
 
Office for research
    2008       7,220  
No. 1, 16th Floor, Union Tower, No. 20 Chaowai Avenue, Chaoyang District, Beijing
 
Office for research
    2008       3,186  
Room 903 and 905, Tower A, Guangzhou Medical Academic Exchange Center, No. 195 Dong Feng Xi Road, Yuexiu District, Guangzhou
 
Office for research
    2006       2,700  
West Part, Floor 1, Tower B, 12 Fu Xing Road, Hai Dian District Beijing
 
Office for production
    2009       6,308  
No. 2 Jiuxianqiao Road, Chaoyang District, Beijing
 
Office for production
    2011       6,921  
No. 2 Jiuxianqiao Road, Chaoyang District, Beijing
 
Office for production
    2010       4,521  
Room 1507, Tower E1, Oriental Square, No. 1, Dong Chang’an Street, Dongcheng District, Beijing
 
Office for radio
    2007       3,421  
28th Floor, No. 118, Qinghai Road, Jingan District, Shanghai
 
Office for radio
    2007       3,314  
First and Second Floors of No. 2 Building, 46 Taiping Road, Haiding District, Beijing
 
Office and studio for
    2008       16,634  
     
television
               
1st Floor, 5th Courtyard, 46 Taiping Road, Haiding District, Beijing
 
Office for television
    2010       2,152  
Unit 1301, No. 1088 Pudong South Road, Shanghai
 
Office for television
    2007       1,470  
No. 6 Building, 46 Taiping Road, Haidian District, Beijing
 
Office for television
    2008       3,767  
Room 1301, 1088 Pudong South Road, Pudong East District, Shanghai
 
Studio for television
    2007       1,470  
Room 222B, Wanyuan Building, 22 Hongli West Road, Futian District, Shenzhen
 
Studio for television
    2008       560  
Room 05B, 18th Floor South Tower, No. 437, Dong Feng Road and Xiao Bei Road Northeast Corner, Yuexiu District, Guangzhou
 
Office for magazine
    2009       2,583  
 
(1)  These facilities are subleased from our parent, Xinhua Finance Limited.
 
(2)  Leases expire on March 31, 2007. We do not intend to renew.
 
(3)  Leases expire on February 28, 2007. We do not intend to renew.

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Legal proceedings
We are currently not a party to any material legal proceeding. From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business. Although we cannot predict with certainty the results of such litigation, we believe that the final outcome of pending litigation will not have a material adverse effect on our business and results of operations. Regardless of the outcome, however, any litigation can result in substantial costs and diversion of management resources and attention.

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Industry
Media industry in China
Since 1949, the PRC media industry has been largely owned and controlled by the state. In recent years, economic and legislative reforms have produced significant change across the media industry in China. The strong and sustained growth of China’s economy has led to substantial development of China’s media industry. The government has reduced subsidies for state-owned media companies, causing the industry to become more commercially oriented. At the same time, deregulation permitting private entities to participate in some sectors of the industry has attracted new investment.
The scope and scale of China’s media industry
In 2004, China’s media industry included 314 television stations and 282 radio stations, according to the National Bureau of Statistics, and 2,199 newspaper publications and 9,074 magazines, according to the China Print Industry Research Report (2006) by Beijing Huiren Zhongtian Economic Development Co., Ltd. China has the largest population in the world, estimated by the Population Division of the United Nations to have reached 1.3 billion in 2005. More than 97.0% of all households owned at least one television set, according to 2005 estimates by CSM Media Research. Television signals reached approximately 95.8% of the population by the end of 2005, according to the China Radio and Television Yearbook (2006). China’s radio signals reached 93.6% of the population in 2005, according to the China Radio Rating Yearbook (2005).
We believe the growth of the Chinese media industry is primarily supported by the following drivers:
•   High and sustained levels of economic and consumption growth. According to the World Bank, China’s nominal gross domestic product, or GDP, grew from RMB 9.9 trillion ($1.3 trillion) in 2000 to RMB 18.3 trillion ($2.3 trillion) in 2005, the fourth largest in the world, at a compound annual growth rate of 13.0% over the period, faster than the world average of 6.9%. This rapid economic growth led to a significant increase in consumer spending, which grew from RMB 3.4 trillion ($0.4 trillion) in 2000 to RMB 6.7 trillion ($0.9 trillion) in 2005, at a compound annual growth rate of 14.5%.
 
•   Rapid urbanization. The Chinese population, economy and consumer consumption are increasingly concentrated in urban areas. The urban population as a percentage of total population increased from 36.2% in 2000 to 41.8% in 2004, according to the National Bureau of Statistics. Urban areas are much wealthier than rural areas. According to the National Bureau of Statistics for August 2006, monthly disposable income per capita in the two largest urban markets, Beijing and Shanghai, was RMB 1,583 ($203) and RMB 1,648 ($211), respectively, compared to the national average of RMB 918 ($118). Consumer consumption, as a result, is increasingly concentrating in urban areas. According to the National Bureau of Statistics, in the first half of 2006, 67.5% of retail sales for consumer goods occurred in urban areas, which grew by 14.0% year-on-year from 2005, while the retail sales in the rural areas grew only 11.7%.
 
•   Relatively early stage of media industry development. China’s media industry is still in its early stages of deregulation and remains subject to significant government control. For

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details, see “Regulation”. We believe that deregulation will gradually allow more investment into many sectors of the media industry, including content production and advertising. As the industry continues to develop, we expect that deregulation and investment from the private sector will further support growth of the media industry.

The Chinese media industry broadly includes the following three markets:
•   Media distribution: Media distribution platforms include, among others, television stations and networks, radio stations, publishers of books, magazines and newspapers and Internet website operators;
 
•   Content production: Content production companies collect, purchase or produce content to be placed on media platforms; and
 
•   Advertising services: Advertising services companies include those that provide services such as creating advertising campaigns and placing advertising in various media, as well as those that provide a range of other functions such as advising on brands, consulting and market research.
Some industry participants play multiple roles, while some specialize in a specific market. Our diversified media model operates across all three categories.
Media distribution platforms
Media distributors either produce or purchase content, and distribute the content to consumers in the form of a product, such as television programs, radio programs or newspaper articles.
Media distributors sell advertising space on their platforms, such as newspaper space or television time slots, to companies seeking to place advertisements and reach consumers. Media distributors may partner with companies to outsource their advertising operations where these advertising business partners pay a fee and sometimes provide certain services including the sourcing and provision of content to the media distributors and share the advertising revenue with the media distributor to a certain degree. The advertising business partners then sell their advertising space with their media distributors to advertisers. In doing so, they engage an advertising agency, on an exclusive or non-exclusive basis.
Broadcast. According to the National Bureau of Statistics and China Media Yearbook and Directory (2005), at the end of 2004, China had 314 television stations, which broadcast 11.0 million hours of television programs during the year over 2,058 channels. Channels with national reach include:
•   16 channels operated by China Central Television, according to its website;
 
•   national satellite channels operated by provinces, autonomous regions or directly administered municipalities, which must negotiate with regional television authorities for landing rights, permission to broadcast over those regions’ television channels (as there are 31 provinces, autonomous regions and directly administered municipalities in China, there are 31 such channels); and
 
•   5 channels operated by China Educational Television, according to its website.

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Other than these key players, there are also:
•   local terrestrial television broadcasting channels, which are distributed by the one or two television stations run by each province, autonomous region, directly administered municipality, and major city