UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

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

OR

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

For the fiscal year ended: December 31, 2010

OR

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

OR

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

Date of event requiring this shell company report

For the transition period from                  to

Commission file number: 001-34132

CHINA MASS MEDIA CORP.

(Exact name of Registrant as specified in its charter)

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

6th Floor, Tower B, Corporate Square, 35 Finance Street

Xicheng District, Beijing 100033

People’s Republic of China

(Address of Principal Executive Offices)

Ms. Julie Zhili Sun, Chief Financial Officer

Tel: (8610) 8809-1099

Email: juliesun@chinammia.com

Fax: (8610) 8809-1088

6th Floor, Tower B, Corporate Square, 35 Finance Street

Xicheng District, Beijing 100033

People’s Republic of China

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of each class	Exchange on which registered
Ordinary shares, par value US$0.001 per share American depositary shares, each representing 30 ordinary shares	New York Stock Exchange* New York Stock Exchange

* Not for trading but only in connection with the listing on the New York Stock Exchange of the American depositary shares.

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

Act: None

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

Act: None

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

December 31, 2010:

788,332,360 ordinary shares, par value US$0.001 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.   Yes  ¨ No  x

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15)(d) of the Securities Exchange Act of 1934.   Yes  ¨ No  x

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes  ¨ No  x

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

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

Large Accelerated Filer ¨ Accelerated Filer ¨ Non-Accelerated Filer x

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

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

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

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨ No  x

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

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 13, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes  ¨ No  ¨

Table of Contents

Part I

		Page
INTRODUCTION		4
FORWARD-LOOKING STATEMENTS		4
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS	5
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	5
ITEM 3.	KEY INFORMATION	6
ITEM 4.	INFORMATION ON THE COMPANY	31
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	45
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	63
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	72
ITEM 8.	FINANCIAL INFORMATION	74
ITEM 9.	THE OFFER AND LISTING	75
ITEM 10.	ADDITIONAL INFORMATION	76
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	90
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	90
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	93
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	93
ITEM 15.	CONTROLS AND PROCEDURES	93
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	94
ITEM 16B.	CODE OF ETHICS	94
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	94
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	95
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	96
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	96
ITEM 16G.	CORPORATE GOVERNANCE	96
ITEM 17.	FINANCIAL STATEMENTS	96
ITEM 18.	FINANCIAL STATEMENTS	96
ITEM 19.	EXHIBITS	97

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INTRODUCTION

Unless otherwise indicated, references in this annual report to:

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

· “ADSs” are to our American depositary shares, each of which represents 30 ordinary shares;

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

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

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

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

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

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

This annual report on Form 20-F includes our audited consolidated statements of operations data for the years ended December 31, 2008, 2009 and 2010, and consolidated balance sheet data as of December 31, 2008, 2009 and 2010.

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

FORWARD-LOOKING STATEMENTS

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

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

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· our goals and strategies;

· our expectations regarding demand for our services;

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

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

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

· expected changes in CCTV’s advertising policies or practices;

· competition in the PRC advertising market;

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

· PRC governmental policies and regulations relating to the advertising market;

· the recent global financial crisis and economic downturn; and

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

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

PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

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ITEM 3. KEY INFORMATION

A.         Selected Financial Data

The following selected consolidated statements of operations data for the three years ended December 31, 2008, 2009 and 2010 and selected consolidated balance sheet data as of December 31, 2008, 2009 and 2010 have been derived from our audited consolidated financial statements included elsewhere in this annual report. The following selected combined statements of operations data for the years ended December 31, 2006 and 2007 and selected combined balance sheet data as of December 31, 2006 and 2007 have been derived from our audited combined financial statements not included in this annual report. These combined and consolidated financial data have been audited by PricewaterhouseCoopers Zhong Tian CPAs Limited Company, an independent registered public accounting firm.

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

The basic and diluted earnings per share data for all periods presented below have been adjusted for the one-for-ten stock dividend distribution.

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	Year Ended December 31,
	2006			2007			2008			2009			2010
	(RMB)			(RMB)			(RMB)			(RMB)			(RMB)			(US$)
	(In thousands, except for per share data)
Selected Combined/Consolidated Statement of Operations Data
Revenues:
Advertising agency services		245,200			202,637			334,053			397,279			222,298			33,682
Special events services		-			15,991			-			-			-			-
Production and sponsorship services		10,487			60,018			34,935			30,305			34,152			5,174
Total revenues		255,687			278,646			368,988			427,584			256,450			38,856
Less: business tax		(20,472	)		(23,110	)		(16,006	)		(16,022	)		(13,047	)		(1,977	)
Total net revenues		235,215			255,536			352,982			411,562			243,403			36,879
Operating costs and expenses:
Cost of revenues		(26,734	)		(30,148	)		(40,200	)		(40,239	)		(127,654	)		(19,341	)
Cost of revenues – media fees to a related party		-			-			(163,200	)		(230,000	)		-			-
Sales and marketing expenses		(7,038	)		(5,600	)		(8,204	)		(17,362	)		(16,994	)		(2,575	)
General and administrative expenses		(5,631	)		(8,505	)		(24,487	)		(33,194	)		(35,832	)		(5,429	)
Total operating costs and expenses		(39,403	)		(44,253	)		(236,091	)		(320,795	)		(180,480	)		(27,345	)
Operating income		195,812			211,283			116,891			90,767			62,923			9,534
Interest and investment income		3,434			10,774			15,103			9,494			5,257			796
Other income (expenses), net		(1,560	)		(3,128	)		(1,441	)		533			(6,765	)		(1,025	)
Income before tax		197,686			218,929			130,553			100,794			61,415			9,305
Income tax expense		(28,271	)		(10,619	)		(20,139	)		(14,328	)		(21,522	)		(3,261	)
Net income		169,415			208,310			110,414			86,466			39,893			6,044
Net income allocated to participating preferred shares		(29,682	)		(36,496	)		(9,752	)		-			-			-
Net income available to ordinary shareholders		139,733			171,814			100,662			86,466			39,893			6,044
Earnings per ordinary share, basic and diluted		0.31			0.38			0.17			0.11			0.05			0.01
Earnings per ADS, basic		9.24			11.36			5.12			3.29			1.52			0.23
Earnings per ADS, diluted		9.24			11.36			5.12			3.28			1.52			0.23
Dividends declared per share		0.32			0.40			0.19			-			-			-
Shares used in calculating earnings per ordinary share, basic		453,640			453,640			589,764			788,013			787,182			787,182
Shares used in calculating earnings per ordinary share, dilute		453,640			453,640			589,764			789,861			788,662			788,662
Shares used in calculating earnings per ADS, basic		15,121			15,121			19,659			26,267			26,239			26,239
Shares used in calculating earnings per ADS, diluted		15,121			15,121			19,659			26,329			26,289			26,289

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	As of December 31,
	2006		2007		2008		2009		2010
	(RMB)		(RMB)		(RMB)		(RMB)		(RMB)		(US$)
	(In thousands)
Selected Combined/Consolidated Balance Sheet Data
Cash and cash equivalents		510,915		138,262		566,889		508,778		544,428		82,489
Total current assets		547,443		385,450		1,150,558		657,652		753,106		114,107
Total non-current assets		26,546		18,092		57,261		55,464		58,603		8,879
Total assets		573,989		403,542		1,207,819		713,116		811,708		122,986
Total current liabilities		436,685		274,827		819,777		236,468		303,086		45,922
Total liabilities		436,685		274,827		819,777		236,468		303,086		45,922
Total shareholder’s equity		137,304		128,715		388,042		476,648		508,622		77,064
Total liabilities and shareholder’s equity		573,989		403,542		1,207,819		713,116		811,708		122,986

Exchange Rate Information

We publish our financial statements in Renminbi. This annual report contains translations of Renminbi amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from Renminbi to U.S. dollars were made at the noon buying rate as of December 30, 2010 as set forth in H.10 statistical release of the Federal Reserve Board, which was RMB6.6000 to US$1.00. No representation is made that the Renminbi amounts referred to in this annual report could have been or could be converted into U.S. dollars at any particular rate or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade. On June 24, 2011, the exchange rate as published by the Federal Reserve Board was RMB6.4737to US$1.00.

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

	Exchange Rate(1)
Period	Period End		Average (2)		High		Low
	(RMB per US$1.00)
2006		7.8041		7.9079		8.0702		7.8041
2007		7.2946		7.6072		7.8127		7.2946
2008		6.8225		6.9477		7.2946		6.7800
2009		6.8259		6.8307		6.8470		6.8176
2010		6.6000		6.7603		6.8330		6.6000
December		6.6000		6.6497		6.6745		6.6000
2011
January		6.6017		6.5964		6.6364		6.5809
February		6.5713		6.5761		6.5965		6.5520
March		6.5483		6.5645		6.5743		6.5483
April		6.4900		6.5267		6.5477		6.4900
May		6.4786		6.4957		6.5073		6.4786
June (through June 24, 2011)		6.4737		6.4757		6.483		6.4628

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

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

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B. Capitalization and Indebtedness

Not Applicable.

C. Reasons for the Offer and Use of Proceeds

Not Applicable.

D. Risk Factors

Risks Related to Our Business and Industry

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

CCTVisthemaintelevisionnetworkfrom which we currentlyobtainadvertisingtime.We place our advertising clients’ advertisements on CCTV, the largest television network in China, which offers 24 public channels in China and around the world. According to China Radio & TV Yearbook, CCTV had the largest market share in China in terms of total television advertising revenues. We believe CCTV is generally perceived as the most influential and reputable television medium by the public in China, due to its central government sponsorship, extensive network coverage and long broadcasting history in China. As such, advertisers often regard CCTV as the television advertising platform from which they can gain the maximum exposure and recognition for their products or services in China. We believe our access to a substantial number of advertising time slots on five channels of CCTV, particularly during certain popular television programs, enhances our service offerings. CCTV uses third-party advertising agencies, such as our company, to sell a significant portion of its advertising time slots to advertisers, while selling the remaining portion of its advertising time slots directly by itself or through auctions. Since 2009, CCTV has begun to sell more of its advertising time slots by itself or through auctions under a new initiative. For example, CCTV ceased to grant us the advertising right to the 2010 Chinese New Year Gala program, and instead it sold the advertising time slots for that program by itself, which had a material adverse effect on our results of operations in the first half of 2010. As CCTV continues the practice of selling its advertising time slots through auctions, we may lose the advertising time slots for other programs on CCTV that we currently have and we may face increased competition in obtaining the desired advertising time slots in auctions. As a result, we may lose our advertising clients and our business, which could materially and adversely affect our financial condition and results of operations.

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

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

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

We rely significantly on our rights to advertising time slots on a limited number of television programs, including Television Guides and the programs under our Daytime Advertising Package and the Periodic China News Package, all of which are broadcast on CCTV. We also obtained advertising rights to a number of additional programs on CCTV-E and CCTV-F, which became available to us in 2008. In addition, we successfully bid for the advertising rights to the Periodic China News Package on CCTV 4 in 2010 through auctions. Although we occasionally procure advertising time slots on other programs on CCTV, we substantially rely on the regular daily television programs we have obtained from CCTV to place advertisements for clients and generate revenues. We do not have control over the availability or scheduling of these programs. If any of such programs are rescheduled to times that are less attractive to our clients or if any of such programs are shortened or canceled by CCTV and we cannot obtain alternative media resources, we would face difficulty in marketing our services and our revenues may decline. For example, our contract with CCTV in respect of Guang Er Gao Zhi program will not be renewed after its expiry on June 30, 2011. This type of change to the advertising time slots currently available to us may cause a decrease in our revenues from advertising agency services in future periods.

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

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

CCTV-E and CCTV-F have a relatively short history and limited viewership in China, and the rating information for these two channels is not available. As a result, the utilization rate of the advertising time obtained by us in these two channels has been very low. We generated revenue of RMB nil, RMB5.7 million and RMB0.4 million from the advertising time on such two channels in 2008, 2009 and 2010, respectively. We cannot assure you that the popularity of these two channels will grow and the demand for advertising time for these two channels will increase in the future.

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

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

Due to its dominant market position, CCTV enjoys much greater bargaining power over price increases than we do and our ability to control such advertisement costs is limited. If CCTV substantially raises the prices charged to us for the advertising time slots available to us and we are unable to pass on such costs to our advertising clients, our revenues would decrease and our profitability may decline. For example, CCTV increased the media fees for Channel 4 programs by approximately 40.9% in 2009, which has negatively affected our operating income from these programs. As a further example, we renewed our agreement with CCTV on the advertising rights to the Periodic China News Package on CCTV Channel 4 in 2011 and if we cannot pass on the cost of the media fees to our customers, we will sustain a loss on that program. From time to time, we enter into contracts with CCTV and commit ourselves to a minimum amount of advertising revenues with respect to certain advertising time slots provided to us. Under all such contracts, we will be required to pay the agreed-upon minimum amounts to CCTV even if we do not successfully procure advertisers for the time slots. If we fail to procure sufficient advertising clients for the time slots provided to us or receive total amounts lower than what we had committed to deliver, we may be required to cover the difference ourselves. As a result, our financial condition and results of operations could be adversely affected.

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

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

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

The advertising industry is highly competitive and fragmented in China. As an increasing number of companies enter the industry, competition continues to intensify. Our direct competitors are other national or regional advertising or marketing services providers that offer television airtime to advertisers, primarily including SinoMedia Holding Limited, AVIC Culture Co., Ltd. and Charm Communication Corp. We compete with other television advertising agencies for the limited time slots available on CCTV or other television networks on the basis of sales and marketing capabilities, operating track record and service quality. In particular, some of our advertising clients are other advertising agencies who could become our competitors seeking the same limited media resources. Since 2009, CCTV has begun a new initiative to sell more of its advertising time slots either by itself or through auctions. As CCTV continues to sell its advertising time slots through auctions, we are facing more intense competition in obtaining desired advertising time slots from CCTV. We also compete with other television advertising agencies for advertisers’ spending on the basis of desirability of time slots offered, television network coverage, service quality, reputation, pricing and relationships with television networks.

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

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

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

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

We derive substantially all of our revenues from a single business, the provision of advertising services. Demand for our services and the resulting advertising spending by our clients are highly sensitive to changes in general economic conditions and other general trends, including changes in lifestyle patterns and consumers’ tastes and preferences. Recessionary economic cycles may adversely affect the businesses of our advertising clients, which can have the effect of reducing the volume of advertising time slots and other services advertisers purchase from us. For example, in the second half of 2008 and the first half of 2009, the global recession had negatively affected the business of many of our clients or potential clients in China, which significantly reduced the demand for our services in those periods. Additionally, advertisers could also decide to spend more of their advertising budget on non-television advertising media because of perceived changes in consumers’ lifestyles or their tastes and preferences. A general decrease in total advertising spending, or a decrease in the demand for our advertising services in particular, would materially and adversely affect our ability to generate revenues and have a significant negative effect on our financial condition and results of operations.

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

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

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

We recorded total revenues of RMB369.0 million, RMB427.6 million and RMB256.5 million for the years ended December 31, 2008, 2009 and 2010, respectively, and net income of RMB110.4 million in 2008, RMB86.5 million in 2009 and RMB39.9 million in 2010. The increase in revenues from 2008 to 2009 was mainly due to the increase in the selling price of media resources as a result of the increase in media cost of advertising time slots obtained from CCTV. The substantial decrease in revenues from 2009 to 2010 was mainly due to our company ceasing to be the exclusive advertising agent of the Chinese New Year Gala program of CCTV, reduction of investment in advertising time on CCTV-4 related programs, and decrease in sales of advertising time slots as a result of intense price competition. Our profitability was affected accordingly. Similarly, our revenues and net income could continue to fall in future periods due to competition and other factors.

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

Our business substantially depends on CCTV. Any significant decreases in our CCTV advertising time slot resources as a result of our failure to renew or extend our existing contracts with CCTV could materially and adversely affect the effectiveness and attractiveness of our advertising offerings.As our existing contracts expire, we may be unable to renew or extend the terms of contracts for desirable advertising time slots on desirable CCTV channels or at favorable price levels, if at all. For example, we may terminate our contract with CCTV for the advertising time on CCTV-E and CCTV-F, the Spanish and French channels, which became available to us in 2008. If we terminate our contract for CCTV-E and CCTV-F, our total advertising time for the second half of 2011 will significantly decrease. Moreover, starting from 2011, the media time slot we obtained from CCTV on CCTV-4 has been reduced from 90 seconds to 60 seconds. As a result, our financial condition and results of operations could be materially and adversely affected. Furthermore, we were unable to renew our contract with CCTV in respect of the Chinese New Year Gala program in 2009 because of a change of business strategy of CCTV. Our total revenues and net income in 2010 was adversely affected as a result. The Periodic China News Package on CCTV-4 will be made available at the non-prime time advertising auction event in 2012. There is no assurance that we can obtain the exclusive advertising rights of the Periodic China News Package in such auction event.

Moreover, we purposely reduced our investment in advertising time on CCTV-2 and CCTV-4 related programs in 2010 which led to decrease in revenues for the same year while the impact to net income was positive. Our contract with CCTV in respect of the Guang Er Gao Zhi program will also not be renewed after its expiry on June 30, 2011, as we understand that program is being cancelled. It is expected our financial results will be adversely affected as a result. For each of the years ended December 31, 2008, 2009 and 2010, revenues from our advertising production and sponsorship service in relation to the Guang Er Gao Zhi program and Chinese New Year Gala program, collectively, amounted to RMB71.4 million, RMB68.7 million and RMB12.2 million, respectively.

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

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

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

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

As of May 31, 2011, Mr. Shengcheng Wang, our chairman and chief executive officer, beneficially owned approximately 71.8% of our outstanding ordinary shares. Accordingly, he has significant influence in determining the outcome of any corporate transaction or other matters submitted to the shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. Mr. Wang also has the power to prevent or cause a change in control. In addition, without the consent of Mr. Wang, we could be prevented from entering into transactions that could be beneficial to us. Mr. Wang may cause us to take actions that are opposed by other shareholders as his interests may differ from those of other shareholders, including those who hold our ADSs.

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

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

We depend on our sales personnel to increase advertisers’ awareness, acceptance and utilization of our services, which are crucial to our revenues, business and growth. As of December 31, 2010, we had 52 employees directly engaged in sales. Consistent with the industry norm, we typically experience a high turnover rate among our sales personnel, and we cannot assure you that our current sales personnel will remain effective or loyal to us. We face intense competition for experienced sales personnel both from our direct competitors and other advertising and media companies. Furthermore, we will need to continue expanding our sales force if our business continues to grow. We may not be able to hire, retain, integrate or motivate an adequate number of qualified new sales personnel as we grow our business, which could disrupt our business and cause our revenues to materially decrease.

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

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

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

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

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

· raise sufficient capital to fund the acquisitions;

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

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

· derive the intended financial benefits from our acquisitions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Capital requirements are difficult to plan in this rapidly changing industry. We expect that our current cash and cash equivalents and cash flows from operations will be sufficient to meet our anticipated cash needs, prepayment of up to 30% of the media fee to CCTV under the auction arrangement, working capital and capital expenditures, for the foreseeable future. If, however, there are unforeseen changes in general business conditions or unexpected developments in our business or expansion, we may require additional cash resources.

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

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

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

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

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

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· PRC governmental policies relating to foreign exchange; and

· economic, political and other conditions in China.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On March 16, 2007, the PRC National People’s Congress enacted the Enterprise Income Tax Law, and on December 6, 2007, the PRC State Council issued the Implementation Regulations of the Enterprise Income Tax Law, both of which became effective on January 1, 2008. The Enterprise Income Tax Law and its Implementation Regulations, or the new EIT law, imposes a uniform tax rate of 25% on all PRC enterprises, including foreign-invested enterprises, and eliminates or modifies most of the tax exemptions, reductions and preferential treatments available under the previous tax laws and regulations. Under the new EIT law, enterprises that were established before March 16, 2007 and already enjoyed preferential tax treatments (i) in the case of preferential tax rates, continue to enjoy the tax rates which are being gradually increased to the new tax rates within five years from January 1, 2008 or (ii) in the case of preferential tax exemption or reduction for a specified term, continue to enjoy the preferential tax holiday until the expiration of such term. In accordance with a directive issued by the State Council in December 2007, the 15% preferential income tax we enjoyed prior to 2008 was increased to 18% in 2008, 20% in 2009, and 22% in 2010, and will be increased to 24% in 2011 and 25% in 2012. As a result of the discontinuation of the preferential tax treatment and the new EIT law, our effective tax rate could substantially increase from 4.9% in 2007 up to as much as 25% in the near future, which could have a significant adverse effect on our net income. For 2008, 2009 and 2010, our effective tax rate increased to 14.8%, 12.6% and 26.1%, respectively, mainly due to the expiration on January 1, 2008 of the income tax exemption that Universal had enjoyed in 2007 and the imposition of withholding tax on dividends payable by our PRC subsidiary in 2008 and 2009.

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

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

Under the new EIT law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise are subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The British Virgin Islands, where UIAL, our PRC subsidiary’s direct holding company, is incorporated, does not have such a tax treaty with the PRC. If UIAL is considered a non-resident enterprise, this new 10% withholding tax imposed on our dividend income received from our PRC subsidiary would reduce our net income and have an adverse effect on our operating results. We have accrued withholding tax of RMB5.4 million, RMB2.3 million and RMB1.9 million for the years ended December 31, 2008, 2009 and 2010, respectively.

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

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

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

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

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

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

Our management and independent registered public accounting firm have not identified any material weaknesses in our internal control over financial reporting for the year ended December 31, 2010. However, we cannot assure you that in the future our management or our independent registered public accounting firm will not identify material weaknesses during the Section 404 of the Sarbanes-Oxley Act audit process or for other reasons. In addition, because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. As a result, if we fail to maintain effective internal controls over financial reporting or should we be unable to prevent or detect material misstatements due to error or fraud on a timely basis, investors could lose confidence in the reliability of our financial statements, which in turn could harm our business, results of operations and negatively impact the market price of our ADSs, and harm our reputation. Furthermore, we have incurred and expected to continue to incur considerable costs and to use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act.

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

We adopted an equity incentive plan in July 2008 that permits the grant of incentive stock options, non-statutory stock options, restricted stock, stock appreciation rights, restricted stock units, performance units, performance shares, and other share-based awards to employees, directors and consultants of our company. In July 2010, we also conditionally adopted a 2010 share option scheme, which will become effective if and when our ordinary shares are listed on the Stock Exchange of Hong Kong Limited, or SEHK. If and when our 2010 share option scheme becomes effective, no further option will be granted under our 2008 equity incentive plan. We have granted to our employees options under the 2008 equity inventive plan and as of May 31, 2011, options to purchase 26,947,701 ordinary shares are outstanding. As a result of these option grants and potential future grants under the 2008 equity incentive plan or the 2010 share option scheme, we have incurred share-based compensation expenses and expect to incur such expenses in future periods. The amount of these expenses will be based on the fair value of the share-based awards. We have adopted ASC 718 and ASC 505-50 for the accounting treatment of our equity incentive plan. As a result, we are required to account for compensation costs for all stock options, including stock options granted to our directors and employees, using a fair-value based method and recognize expenses in our consolidated statement of income in accordance with the relevant rules under U.S. GAAP, which may have a material adverse effect on our net income. Moreover, the additional expenses associated with share-based compensation may reduce the attractiveness of such incentive plan to us. Employee stock options or other share- based compensation we may grant in the future may have a material adverse effect on our profitability.

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

Depending upon the value of our ordinary shares and ADSs and the nature of our assets and income over time, we could be classified as a passive foreign investment company, or PFIC, by the U.S. Internal Revenue Service, or IRS, for U.S. federal income tax purposes. Based on the composition of our income and valuation of our assets, we believe we were a PFIC during the taxable year ended December 31, 2010. In addition, we believe we are likely to a PFIC for the taxable year ending December 31, 2011, as PFIC status is tested after the close of each year and depends on our assets and income in such year.

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

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

Risks Related to Doing Business in China

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

On March 28, 2007, SAFE issued the Operating Procedures on Administration of Foreign Exchange regarding PRC Individuals’ Participation in Employee Share Ownership Plans and Employee Stock Option Plans of Overseas Listed Companies, or the Stock Option Rule. Under the Stock Option Rule, PRC citizens who are granted stock options by an overseas publicly listed company are required, through a PRC agent or PRC subsidiary of such overseas publicly listed company, to register with SAFE and complete certain other procedures. Our PRC Subsidiary and our PRC employees who have been granted stock options are subject to the Stock Option Rule. If we or our PRC employees fail to comply with such regulation, we or our employees may be subject to fines and legal sanctions. We are in the process of registering with SAFE. In the event that we fail to comply with the Stock Options Rule, we may be subject to a fine up to RMB300,000. See “Regulation—SAFE Regulations on Offshore Investment by PRC Residents and Employee Stock Options.”

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

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

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds of our initial public offering to make loans or additional capital contributions to our PRC operating subsidiary.

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

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

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

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

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

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

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

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

Our business could be materially and adversely affected by epidemics. For example, from December 2002 to June 2003, PRC and certain other countries experienced an outbreak of a new and highly contagious form of atypical pneumonia now known as severe acute respiratory syndrome, or SARS. During May and June of 2003, the PRC government closed many businesses in the PRC to prevent transmission of SARS. Since 2003, there have been reports of occurrences of avian flu in various parts of the PRC, including a number of confirmed human cases and deaths. In 2009, there was an outbreak of H1N1 influenza virus (also know as “swine flu”) in Mexico and that virus quickly spread to China and other countries in the world, resulting in a world wide epidemic. Any actual or threatened outbreak of epidemics in the PRC may, among other things, significantly disrupt our and our clients’ business operations and severely restrict the level of economic activities in affected areas, which will in turn reduce the demand for advertising services.

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

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

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Risks Related to Our Ordinary Shares and ADSs

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

The trading prices of our ADSs experienced, and may continue to experience, significant volatility. For the period from August 4, 2008 to May 31, 2011, the trading price of our ADSs on NYSE Arca and NYSE, as the case may be, has ranged from a low of US$1.13 per ADS to a high of US$6.85 per ADS. This may happen because of broad market and industry factors, like the performance and fluctuation of the market prices of other companies with business operations located mainly in the PRC that have listed their securities in the United States. A number of PRC companies have listed or are in the process of listing their securities on U.S. stock markets. The securities of some of these companies have experienced significant volatility, including price declines in connection with their initial public offerings. The trading performances of these PRC companies’ securities after their offerings may affect the attitudes of investors toward PRC companies listed in the United States in general and consequently may impact the trading performance of our ADSs, regardless of our actual operating performance.

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

· variations in our revenues, earnings and cash flow;

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

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

· changes in financial estimates by securities analysts;

· additions or departures of key personnel;

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

· potential litigation or regulatory investigations; and

· fluctuations in market prices for our services.

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

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

Sales of our ADSs or ordinary shares in the public market, or the perception that these sales could occur, could cause the market price of our ADSs to decline. As of May 31, 2011, we had 765,665,020 ordinary shares outstanding, including 215,665,020 ordinary shares represented by 7,188,834 ADSs, and 26,947,701 ordinary shares issuable upon the exercise of options.All ADSs are freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding will be available for sale and, in the case of the ordinary shares that certain option holders will receive when they exercise their share options, until the later of (i) the first anniversary of the grant date, and (ii) the expiration of any relevant lock-up periods, subject to volume and other restrictions that may be applicable under Rule 144 and Rule 701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.

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

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

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

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

The Cayman Islands courts are also unlikely:

· to recognize or enforce against us judgments of courts of the United States based on certain civil liability provisions of U.S. securities laws; and

· to impose liabilities against us, in original actions brought in the Cayman Islands, based on certain civil liability provisions of U.S. securities laws that are penal in nature.

There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the Cayman Islands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.

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

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

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

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

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

If our ordinary shares are listed on the SEHK, the price of our ADSs may not be the same as, and may be affected by, that of our ordinary shares on the SEHK.

We have applied to list our ordinary shares on the SEHK. If our application is approved, our ordinary shares will be listed on the SEHK. The NYSE and the SEHK have different trading hours, trading volume, trading and listing rules, liquidity and investor base (including different levels of retail and institutional participation). As a result, the price of our ADSs on the NYSE may not be the same as that of our ordinary shares on the SEHK (after taking into account the ADS-ordinary share ratio and currency differences) and any changes in the price and trading volume of our ordinary shares may affect that of our ADSs. The trading price of our ordinary shares is denominated in HK dollars while that of our ADSs is denominated in U.S. dollars and as a result, any change in the exchange rates between HK dollars and U.S. dollars could also affect the price of our ADSs. Furthermore, there is no direct trading or settlement between the NYSE and the SEHK and you are required to return our ADSs in exchange for our ordinary shares and go through certain other procedures if you want to trade on the SEHK. There is no assurance that such an exchange may be completed in a timely manner.

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

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

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

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

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

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

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

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

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

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

You may not be able to participate in rights offerings and may experience dilution of your holdings.

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

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

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

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ITEM 4.           INFORMATION ON THE COMPANY

A.       History and Development of the Company

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

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

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

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

In January 2009, UIAL established a subsidiary, Mass Universal Film Production (Hong Kong) Limited, formerly known as Greatwall Film Production (Hong Kong) Limited, in Hong Kong for the purpose of securing potential television program production related business opportunities outside China. As of May 31, 2011, Mass Universal Film Production (Hong Kong) Limited has not engaged in any business operations and may seek potential business opportunity in the future.

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

In August 2009, we transferred the listing of our ADSs from NYSE Arca to NYSE.

In May 2010, we applied to list our ordinary shares on the SEHK. Our listing application is currently under review by the SEHK. There can be no assurance that we will be able to achieve a successful listing on the SEHK.

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The following diagram illustrates our current corporate structure:

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

Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is www.chinammia.com.The informationcontainedon our websitedoes not constitutea part of thisannual report.Our agent for service of process in the United States is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011.

B.        Business Overview

Overview

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

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We believe we are one of the leading independent advertising companies that have obtained high quality advertising time slots from CCTV. We obtained advertising rights to an average of 313 minutes per day in 2008, 532 minutes per day in 2009 and 482 minutes per day in 2010 for regular daily programs on CCTV Channel 1, 2, 4, E and F.

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

We are also a leading producer of public service announcements and commercial television advertisements in China. Our production team has extensive experience in content creation and production and designed and produced over 40public service announcements and commercial television advertisements in 2010.

Our achievements have been widely recognized by CCTV, industry organizations and government agencies. We have received numerous awards from the China Advertising Association as well as national and local governmental authorities. In 2010, Chapter Ink, a commercial advertisement for CCTV designed and produced by us, won the “Gold World Medal” at the New York Festivals® International Television and Film Awards.

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

Our Services

We offer a full range of integrated television advertising services, including advertising agency services and production and sponsorship services. We believe our extensive experience in media planning, packaging and sales, our access to certain high quality advertising time slots on CCTV, and our ability to provide advertising services on an integrated basis that tailor to advertisers’ needs differentiate us from most other television advertising companies operating in China.

Our Advertising Agency Services

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

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

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

In October 2010, we entered into an agency agreement with Goto Media, which owns outdoor advertising space in major high-speed railway stations in China, to act as its national advertising agency for a term of three years expiring on December 31, 2013. As of May 31, 2011, the network provided by Goto Media consisted of 71 grand LED screens and 1,000 advertising light boxes in 16 high-speed railway stations across China. Under the contract, we act as an agent to procure advertisements for Goto Media’s advertising space and we receive a percentage of advertisers’ payment to Goto Media as our commission. We have already formed a dedicated sales team of six staff to focus on the sales and marketing of this new outdoor product. Up to May 31, 2011, revenue from sales of outdoor media amounted to approximately RMB382,000. We believe this new line of business will continue to be an additional source of our revenues and profits in the future.

Our Production and Sponsorship Services

Our ability to provide “one-stop shop” services by rendering a full range of services, including designing, producing and packaging television advertisements to our clients distinguishes us from other advertising agencies that compete with us. In many cases, we provide production and sponsorship services as a part of the integrated advertising services package we offer to our advertising clients. We produced over 40public service announcements and commercial television advertisements in 2010.

We provide production services directly at the request of our clients, including both corporations and government agencies or non-governmental organizations, who either aim to promote their corporate brand names, products and services through commercial advertisements or intend to raise social consciousness or improve their company image through public service announcement. In addition, we provide sponsorship services in connection with the production of Guang Er Gao Zhi (广而告之), a 30-second daily program on CCTV Channels 1 and 2 that broadcasts exclusively the public service announcements we produce. Substantially all of our public service announcement production is for the “Guang Er Gao Zhi” program under our contract with CCTV. The production of this program is entirely funded by us and we typically solicit sponsors for the public service announcements we already produce in exchange for a sponsorship fee. After such sponsor presents relevant legal documents required by CCTV for the release of the announcement, such as the business licenses of the sponsor, we will show the sponsor’s name at the end of the announcement broadcast on the program reinstate the previous disclosure. We do not display the names of entities unless they pay for the sponsorship services. In 2010, we released 21 public service announcements for the “Guang Er Gao Zhi” program, and solicited 13 sponsors for the public service announcements. We produced and released public service announcements on this program regardless of whether these announcements were sponsored or not, although historically the sponsorship fees we received exceed the production costs incurred by us each year. CCTV neither reimburses us for any production cost nor share any sponsorship fee received by us. The Guang Er Gao Zhi program will be cancelled due to program changes after June 30, 2011. Our contract with CCTV in respect of Guang Er Gao Zhi will not be renewed after its expiry on June 30, 2011.

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

Our Media Resources

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

The following table sets forth the regular daily television programs for which we have obtained from CCTV the exclusive rights to market the advertising time slots or, in the case of Guang Er Gao Zhi, to produce the program:

Program	CCTV channel		2010 ratings(1)(2)		Advertising time per day			Broadcast frequency per day(3)				Total advertising time per day(4)				Contract Term
								Weekday		Weekend		Weekday		Weekend
					(minutes)			(times)		(times)		(minutes)		(minutes)
Daytime Advertising Package		1, 2		4.29		3			10		10		30		30	1 year expiring on December 31, 2011
Television Guide		1, 2		5.92		0.5			9		9		4.5		4.5	as above
Guang Er Gao Zhi (广而告之)		1, 2		0.98		0.5	(5)		4		4		-		2	3 years expiring on June 30, 2011
Periodic China News Package(6)		4		0.91		1.5			10		7		15		10.5	1 year expiring on December 31, 2011
CCTV-E and CCTV-F(7)		E, F		-		-			-		-		432		432	5 years expiring on June 30, 2013

(1) Cumulative ratings at selected broadcasting times of the programs, including reruns that we calculated based on the data from Infosys TV, a television program rating analyzing system developed by TNS Group and operated in China by CSM Media Research Co., Ltd. A television program rating is an audience measurement that refers to the percentage of the number of viewers watching a program within a specific duration of time out of the total number of viewers. The rating information is not available for CCTV channels that are only broadcast overseas, such as the CCTV-E and CCTV-F.

(2) The rating covers 19 provinces and cities, including Anhui, Beijing, Gansu, Guangdong, Guangxi, Guizhou, Hebei, Henan, Heilongjiang, Jilin, Jiangxi, Liaoning, Inner Mongolia, Shanxi, Shaanxi, Shanghai, Tianjin, Yunnan, Chongqing.

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

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

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

(6) We obtained the advertising time in relation to the Periodic China News Package in 2010 at the Non-Prime Time Advertising Auction Event of CCTV. Prior to 2010, we acted as the exclusive advertising agent of this program under the framework agreement with FTP.

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

Daytime AdvertisingPackage and TelevisionGuides. The Daytime Advertising Package is a package of advertisements that are broadcast at least ten times per day on CCTV Channels 1 and Channel 2throughout daytime hours between various television programs. Television Guides is a program that provides viewers with information about the schedules of various television programs, which is broadcast nine times per day on CCTV Channels 1 throughout the day. Many of such time slots are less desirable on a stand-alone basis. But based on our market analysis, we bundle these various segments of advertising time slots during certain of CCTV’s daytime programs, and sell them as packages with higher cumulative ratings and more frequent broadcasts at lower prices, and therefore create effective and cost-efficient solutions for our targeted advertising clients.

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Each of our current contracts with CCTV for the Daytime Advertising Package and Television Guides will expire on December 31, 2011. The original contracts with CCTV for those two programs had a term of three years expiring on June 30, 2011 and such contracts were extended to December 31, 2011 at the end of 2010.Under these contracts, we have obtained the exclusive right to act as an agent to market such available advertising time slots and procure advertisements for CCTV and are required to pay the advertising revenues to CCTV at the agreed prices. We generally charge our clients a premium over our agreed price with CCTV, which premium constitutes a majority portion of our revenues from these contracts. Each of these contracts provides that any party can terminate the contract with 90 days’ notice. We have a right of first refusal to renew these contracts under specified terms, on the condition that we deliver a notice to CCTV three months prior to the end of the contractual term.

Periodic China News Package. The Periodic China News Package is a package of advertisements that are broadcast at least ten times per weekday and seven times per weekend on periodic China News programs on CCTV Channel 4. We obtained the advertising time slots for the Periodic China News Package in a non-prime time advertising auction event conducted by CCTV in 2009 and renewed the one-year contract at the end of 2010. Our current contract with CCTV for Periodic China News Package has a term of one year expiring on December 31, 2011. Under the contract, we are required to pay CCTV a fixed amount of media fee of RMB77.4 million which is payable in 12 equal installments. In addition, we are required to make a deposit with CCTV amounting to 10% of the annual media fee, which is deductible from the last installment. We retain the premium over the media fee as profit. We have a right of first refusal to renew this contract for another year under specified terms.

CCTV-E and CCTV-F Programs. In July 2008, we entered into an agreement to obtain the exclusive rights to sell all of the advertising time slots on CCTV’s Spanish Channel and French Channel for a term of five years. Broadcast 24 hours a day to 36 countries, CCTV’s Spanish and French Channels provide news, entertainment, tourism information, language learning and sports programs and introduce the Chinese culture to Spanish- and French- speaking viewers around the world. We assist CCTV in promoting these channels in Spanish- and French- speaking countries, in program production and packaging, and in procuring advertisements.

Guang Er Gao Zhi (广而告之). Under relevant Chinese laws and regulations, both central and regional television stations are required to broadcast a minimum amount of public service announcements between their television programs. We entered into a contract with CCTV for the production of “Guang Er Gao Zhi,” meaning “to spread the message far and wide,” a 30-second daily public service announcement program. This program includes 30-second public service announcements that are typically broadcast twice a day on CCTV Channel 1 and Channel 2, respectively. The production of this program is entirely funded by us. We usually engage a corporation or a governmental agency to be the sponsor and its name will be displayed at the end of the public service announcement in exchange for a sponsorship fee. We also display our corporate name on each of the public service announcements broadcast in this television program. The Guang Er Gao Zhi program will be cancelled due to program change after June 30, 2011. Our contract with CCTV in respect of the Guang Er Gao Zhi program will not be renewed after its expiry on June 30, 2011 and our business will be negatively affected as a result. For the years ended December 31, 2008, 2009 and 2010, revenues from production and sponsorship services in relation to the Guang Er Gao Zhi program amounted to RMB17.2 million, RMB8.5 million and RMB12.2 million, respectively.

In addition, in 2009 we also obtained the advertising rights to certain other programs on CCTV including Chinese New Year Gala, First News, Chinese World, China News, Viewer’s Guide and Asia Today. We did not obtain the advertising rights to these programs for 2010 because CCTV took the initiatives to sell the advertising time slots for these programs in 2010 directly by itself or through auctions. We also did not obtain any advertising time under our framework agreement with FTP. For a description of this framework agreement, see “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Transactions with FTP.” In November 2009, the programs to which FTP used to have advertising rights were made available at the non-prime time advertising auction event held by CCTV and we won the bidding for one of such programs, the Periodic China News Package, directly from CCTV.

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Since 2009, CCTV has increased the use of auction in selling its prime time as well as non-prime time media resources. When participating in these auctions and making procurement decisions, we continue to implement our policy of prudently evaluating the value of available television programs, their costs and historical and potential sales volumes, among other factors. We believe we will be able to maintain a stable supply of high quality advertising time slots from CCTV through auctions.

Our Clients

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

The following table sets forth the breakdown of revenue contributions in 2010 by the industries in which our clients operate:

Industry	Percentage of Total Revenues in 2010
Food and beverages		29.07	%
Household products, electronic appliances and home decorations		19.45	%
Pharmaceuticals		18.01	%
Tourism		11.30	%
Telecommunications and information technology		7.85	%
Automotive		7.35	%
Fashion		1.71	%
Finance and services		1.11	%
Others		4.15	%
Total		100.0	%

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

Client Concentration

None of our customers accounted for more than 10% of our total revenues in the years ended December 31, 2008, 2009 and 2010 because we recorded our advertising revenues from CCTV Channel 4 programs on a gross basis, which increased our revenue basis. See Note 3(b) to our consolidated financial statements included elsewhere in this annual report. Although our revenues from these clients generally constitute a substantial part of our total revenues, we believe our business is not dependent on any individual advertising client.

Pricing

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

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

Sales and Marketing

As of December 31, 2010, we employed 52sales representatives devoted to the sale and marketing of our services, whose compensation is based, to a large extent, on the sales revenues they achieve for our company. More than 50% of our sales representatives have more than five years experience in the advertising industry. We have dedicated sales teams focusing on the sales of advertising time slots we have obtained from CCTV to advertising agency companies or directly to our corporate clients. We also actively seek advertising time slots from other third party agencies if our clients’ goals can be better served by having their television advertisements broadcast at time slots other than those we have obtained from CCTV. Our Shenzhen office is responsible for the advertising sales in five provinces in southern China. We also have dedicated personnel responsible for the sales of our public service announcements. We believe that our extensive experience in media planning, packaging and sales, our access to desirable advertising time slots and our leading production capabilities have attracted a broad base of advertising clients and facilitated our sales efforts. We also have client service teams within our sales department to serve our important clients.

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

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

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

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

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

Information Technology

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

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Service Quality Control

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

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

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

Competition

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

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

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

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Insurance

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

Intellectual Property

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

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

Regulation

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

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

Regulation of Advertising Services

Business License for Advertising Companies

The principal regulations governing advertising businesses in China include:

· The Advertising Law (1994);

· The Advertising Administrative Regulations (1987); and

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

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

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Advertising Content

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

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

Television Advertising

The principal regulations governing television advertising in China include:

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

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

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

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Limitations on Foreign Ownership in the Advertising Industry

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

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

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

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

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

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

Regulations on Trademarks

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

Regulations on Foreign Currency Exchange

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

Regulations on Dividend Distributions

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

C.           Organizational Structure

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

D.           Property, Plant and Equipment

Our corporate headquarters are located in approximately 1,564 square meters of office space in Beijing, which we rented from related parties under two leases before November 2008. In November 2008, we purchased such properties from the related parties at their fair market value as determined by an independent property valuation company. In addition, our Shenzhen office rents approximately 53 square meters of office space in Shenzhen, and its lease expires in December 2011. We believe that our existing facilities are adequate and suitable to meet our present needs and that additional space can be obtained on commercially reasonable terms to meet our future requirements.

ITEM 4A        UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 5.          OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our audited consolidated financial statements and related notes for the years ended December 31, 2008, 2009 and 2010, included elsewhere in this annual report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. This discussion contains forward-looking statements that involve risks and uncertainties. We caution you that our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information provided in “Item 3. Key Information—D. Risk Factors.”

A.        Operating Results

Overview

We believe we are a leading independent television advertising company in China. We provide a full range of integrated television advertising services, including advertising agency services and production and sponsorship services. We believe our extensive experience in media planning, packaging and sales, our access to certain high quality advertising time slots on CCTV, China’s largest television network, and our ability to provide advertising services on an integrated basis that are tailored to advertisers’ needs differentiate us from most other television advertising companies operating in China.

We derive a substantial majority of our revenues from our advertising agency services, in which we mainly procure advertisers for the time slots we have obtained on the national channels of CCTV. Our advertisers purchase these services either directly from us or through advertising agencies. In the years ended December 31, 2008, 2009 and 2010, we derived 90.5%, 92.9% and 86.7%, respectively, of our total revenues from advertising agency services. Substantially all of our revenues from advertising agency services are derived from the advertising time slots on CCTV. We obtained advertising rights to an average of approximately 313 minutes per day in 2008, 532 minutes per day in 2009 and 482 minutes in 2010 for regular daily programs on CCTV Channels 1, 2, 4, E and F. In 2009, CCTV adopted a practice to sell through auctions the advertising time slots for certain of its programs on CCTV Channel 2 and 4 that were secured by us previously. We participated in the auction and obtained the advertising time slots for the Periodic China News Package on CCTV Channel 4. As a result, our aggregate advertising time obtained from CCTV has dropped to an average of 482 minutes per day in 2010 for regular daily programs on CCTV Channel 1, 2, 4, E, F. In addition, CCTV took an initiative to sell the advertising time slots for the Chinese New Year Gala program by itself in 2010 and 2011 and as a result, we did not obtain such advertising time slots.

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We also derive revenues from producing public service announcements and commercial television advertisements for advertisers, and soliciting sponsors for the public service announcements we produce and arranging for such announcements, as well as announcements supplied by certain of our clients, to be broadcast on CCTV. In 2010, we produced over 40 public service announcements and commercial advertisements.

We also derived a small portion of revenues from our special events services that we provided in prior years to assist CCTV in the sales and marketing of advertising time slots during major sporting events that are broadcast on CCTV’s Channels 1 and 2. However, our service contract with CCTV was not renewed for 2010. No revenues from special events services were recorded for the years ended December 31, 2008, 2009, and 2010.

Factors Affecting Our Financial Performance and Results of Operations

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

· overall demand for our services;

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

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

· pricing of our services; and

· seasonality.

Overall Demand for Our Services

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

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

Ability to Obtain High Quality Advertising Time Slots on Favorable Terms

We depend on the high quality advertising time slots we obtain from CCTV for our advertising agency services. Substantially all of our revenues for our advertising agency services are derived from the advertising time slots we obtain from CCTV. Our ability to continue to obtain our existing advertising time slots and to add additional high quality advertising time slots will have a significant effect on our results of operations. In the two years ended December 31, 2009, we indirectly acquired certain advertising time on CCTV-2 and CCTV-4 through FTP. We incurred losses of RMB13.6 million and RMB65.7 million in 2008 and 2009, respectively, for advertising time slots on CCTV-4 related programs. In 2010, we reduced our investment on CCTV-4 related programs to one product, Periodic China News Package, which became a profit contributor in 2010.

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

In addition, our contract with CCTV in respect of the Guang Er Gao Zhi program will not be renewed after its expiry on June 30, 2011 due to the cancellation of this program by CCTV, which will have a negative effect on the revenues from our sponsorship services. Sales of outdoor media started to contribute to our revenues and net profit in 2011. As such, the mix of our media resources portfolio varies from year to year, which affects our results of operations.

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

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

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

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

Pricing of Our Services and Media Fee Payment Terms

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

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In addition, changes in the payment terms for our media fee payable to CCTV have a significant impact on our cash flow. For example, we obtained the advertising rights to the Periodic China News Package on CCTV Channel 4 in 2010. Under the auction arrangements, we are required to make a deposit in advance with CCTV amounting to 30% of the media fee with the remaining media fee payable in 12 monthly installments through 2010. We renewed our contract for 2011 and the advance deposit payment was reduced to 10% of the media fee. We expect that such payment terms will have an impact upon our cash flow.

Seasonality

Aside from fluctuations in the level of advertising spending resulting from changes in the overall economic and market conditions in China, our revenues are affected by seasonal fluctuations in consumer spending that also affect the level of advertising spending in China. Historically our total revenues were typically higher in the first quarter than in other quarters of the year because the Chinese New Year Gala program, which generates significant revenues for us, falls in that period each year. However, in 2010 CCTV sold the advertising time slots for the 2010 Chinese New Year Gala program by itself. As a result, our results of operations for the first quarter of 2010 decreased significantly compared to the first quarter in 2009.

In addition, we provided services to CCTV on an ad hoc basis in the sales and marketing of the advertising time slots for 2008 Beijing Olympic Games. We have not recognized any revenues from special event services to CCTV in connection with the 2008 Beijing Olympic Games, which amounted to RMB14.6 million, as we have not received payments for such services. We understand that CCTV’s Advertising Department submitted a report to CCTV’s senior management for approving this payment in June 2009 in accordance with CCTV’s internal procedures and the senior management is still in the process of approving the payment. Although we continue to work with CCTV to resolve the issue and still anticipate receiving the payment in the future, we have determined that the timing and likelihood of the final settlement from CCTV for such services remain uncertain and therefore reversed the recognition of this revenue in the third quarter of 2010. Due to the seasonal fluctuations in advertising spending, the ad hoc basis of special event services and other factors, our quarterly results of operations may fluctuate significantly from period to period.

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

Revenues

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

	Year Ended December 31,
	2008						2009						2010
	Amount			% of Total Revenues			Amount			% of Total Revenues			Amount						% of Total Revenues
	(RMB)						(RMB)						(RMB)			(US$)
	(In thousands, except percentages)
Revenues:
Advertising agency services		334,053			90.5	%		397,279			92.9	%		222,298			33,682			86.7	%
Production and sponsorship services		34,935			9.5	%		30,305			7.1	%		34,152			5,174			13.3	%
Total revenues		368,988			100	%		427,584			100	%		256,450			38,856			100	%
Less: business tax		(16,006	)		(4.3	)%		(16,022	)		(3.7	)%		(13,047	)		(1,977	)		(5.1	)%
Total net revenues		352,982			95.7	%		411,562			96.3	%		243,403			36,879			94.9	%

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We derive revenues from the following sources:

Advertising agency services

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

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

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

Production and sponsorship services

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

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

Operating Costs and Expenses

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

	Year Ended December 31,
	2008					2009					2010
	Amount		% of Net Revenues			Amount		% of Net Revenues			Amount				% of Net Revenues
	(RMB)					(RMB)					(RMB)		(US$)
	(In thousands, except percentages)
Cost of revenues		203,400		57.6	%		270,239		65.7	%		127,654		19,341		52.4	%
Sales and marketing expenses		8,204		2.3	%		17,362		4.2	%		16,994		2,575		7.0	%
General and administrative expenses		24,487		6.9	%		33,194		8.1	%		35,832		5,429		14.7	%
Total operating costs and expenses		236,091		66.8	%		320,795		78.0	%		180,480		27,345		74.1	%

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Cost of Revenues

Our cost of revenues consisted primarily of the costs that we incurred to produce our public service announcements and commercial advertisements and production and promotional costs related to the Chinese New Year Gala program, including wages of production personnel, costs and depreciation of the production equipment, office rental expenses directly related to our production services, wages of media research and relationship personnel and costs associated with the monitoring, assessment and evaluation of the advertisements. Our cost of revenues also includes the media fees we paid for securing the advertising time slots on CCTV-4 programs. Our cost of revenues was RMB127.7 million in 2010, a decrease of 52.8% as compared to RMB270.2 million in 2009. The decrease was attributable to the fact that we no longer incurred production costs for the Chinese New Year Gala program in 2010 and a decline in media fees for CCTV-4 media resources to RMB96.5 million as we reduced our investment in CCTV-4 media resources from six programs to one program in 2010. We only retained time slots for the Periodic China News Package on CCTV-4 in 2010.

Sales and Marketing Expenses

Our sales and marketing expenses consist primarily of salaries and benefits for our sales and marketing personnel, office rental expenses directly related to our sales and marketing activities, traveling expenses incurred by our sales personnel and promotional and entertainment expenses. Our sales personnel receive performance-based compensation and we market our services primarily through the efforts of our sales and marketing personnel. Our sales and marketing expenses decreased in 2010 primarily due to a decrease in sales commission in 2010, which was partly offset by an increase in staff costs and travel expenses as we expanded our sales team and strengthened sales efforts.

General and Administrative Expenses

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

Share-Based Compensation Expenses

We adopted an equity incentive plan in July 2008, pursuant to which we may issue up to 50,000,000 ordinary shares upon exercise of awards granted under the plan. On July 1, 2008, options to purchase 42,891,000 ordinary shares were granted under this plan at an exercise price of US$0.685 per ordinary share. On February 21, 2009, our board of directors resolved to offer to the grantees of our stock options the opportunity to modify the terms of their existing options through (i) resetting the exercise price of each option to US$0.0726 per ordinary share, which equals one-thirtieth (owing to the 30 to 1 ordinary share to ADS ratio) of the average closing trading price per ADS of our company as reported on NYSE Arca in the last 60 days immediately prior to February 13, 2009; and (ii) reducing the number of each award of options by 50%. No other changes were made to the terms and conditions of the stock options. All grantees of our stock options accepted this offer. As of May 31, 2011, options to purchase 26,947,701 ordinary shares were outstanding, at an exercise price of US$0.066 or 0.078 per ordinary share.

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We have adopted Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 718 and ASC 505-50 for the accounting treatment of our stock option plan and we will record compensation expenses based on the fair value of the award. See “—Critical Accounting Policies—Share-Based Compensation” and “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers.” We expect to amortize the total amount of share-based compensation expenses over the vesting period of four years commencing July 2008 on a straight line basis over the requisite service period for each separately vesting portion of the awards. We incurred RMB1,478,226 (US$223,974) in share-based compensation expenses in 2010.

Taxation

Taxation in the Cayman Islands and the British Virgin Islands

Neither the Cayman Islands nor the British Virgin Islands currently levies taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to our company levied by the government of the Cayman Islands or by the government of the British Virgin Islands, except for stamp duties that may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. Neither the Cayman Islands nor the British Virgin Islands is a party to any double taxation treaties that are applicable to any payments made to or by the Company. There are no exchange control regulations or currency restrictions in the Cayman Islands or the British Virgin Islands.

PRC Enterprise Income Tax

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

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

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

We intend to permanently reinvest part of the earnings made by our PRC subsidiary. Starting from January 1, 2008, we accrued 10% withholding tax on those earnings from our PRC subsidiary that we have no intention to permanently reinvest, which represents 30% of the earnings made by our PRC subsidiary.

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

Our effective tax rate was 14.8% in 2008, 12.6% in 2009 and 26.1% in 2010. Our effective tax rate increased in 2010 as a result of the expiration on December 31, 2009 of Universal’s income tax exemption status.

PRC Business Tax and Related Surcharges

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

Critical Accounting Policies

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

· our critical accounting policies discussed below;

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

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

· the risks and uncertainties described under “Risk Factors.”

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

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Revenue Recognition

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

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

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

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

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

In order to obtain exclusive access to the advertising time slots on certain CCTV Channel 4, CCTV-E and CCTV-F programs, starting from 2008, we purchase the advertising time slots on certain CCTV Channel 4, CCTV-E and CCTV-F programs with a fixed media cost and attempt to sell these advertising time slots to our clients. We believe we bear the majority of the risks and rewards under such arrangements. Therefore, revenues are recognized at gross billings to our clients in accordance with the guidance in ASC 605-45 on the dates of broadcast of the advertisements. Cost for purchasing the advertising time slots from the media supplier is recorded as our cost of revenues on a straight-line basis. If we had recorded all revenues from advertising agency services on a gross basis, total revenues and cost of revenues would have been higher. However, operating income would remain unchanged for the periods presented.

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

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Income Tax

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

Under the new EIT law adopted by the Chinese National People’s Congress in March 2007, effective from January 1, 2008, dividends from earnings made after January 1, 2008, interest, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise are subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The British Virgin Islands, where UIAL is incorporated, does not have such a tax treaty with the PRC. This new 10% withholding tax imposed on the dividend income received from our PRC subsidiary will reduce our net income in accordance with ASC 740-30. It is our intention to permanently reinvest part of the earnings made by our PRC foreign-invested enterprise. Starting from January 1, 2008, we have accrued the 10% withholding tax on those earnings from China operations that we have no intention to permanently reinvest. As we only distribute up to 30% of our PRC subsidiary’s annual income as dividends, our actual withholding tax rate is approximately 3%.

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

Share-Based Compensation

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

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

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

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Results of Operations

The following tables present our summary consolidated statements of operations for each of the years ended December 31, 2008, 2009 and 2010. Our historical results presented below are not necessarily indicative of the results for any future periods.

	Year Ended December 31,
	2008			2009			2010
	(RMB)			(RMB)			(RMB)			(US$)
	(In thousands)
Revenues:
Advertising agency services		334,053			397,279			222,298			33,682
Production and sponsorship services		34,935			30,305			34,152			5,174
Total revenues		368,988			427,584			256,450			38,856
Less: business tax		(16,006	)		(16,022	)		(13,047	)		(1,977	)
Total net revenues		352,982			411,562			243,403			36,879
Operating costs and expenses:
Cost of revenues		(40,200	)		(40,239	)		(127,654	)		(19,341	)
Cost of revenues – media fees to a related party		(163,200	)		(230,000	)		-			-
Sales and marketing expenses		(8,204	)		(17,362	)		(16,993	)		(2,575	)
General and administrative expenses		(24,487	)		(33,194	)		(35,832	)		(5,429	)
Total operating costs and expenses		(236,091	)		(320,795	)		(180,480	)		(27,345	)
Operating income		116,891			90,767			62,923			9,534
Interest and investment income		15,103			9,494			5,257			796
Other expenses, net		(1,441	)		533			(6,765	)		(1,025	)
Income before tax		130,553			100,794			61,415			9,305
Income tax expense		(20,139	)		(14,328	)		(21,522	)		(3,261	)
Net income		110,414			86,466			39,893			6,044

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

	Year Ended December 31,
	2008		2009		2010
Number of programs secured during the period		40		41		35
Total advertising time obtained (seconds)(1)		6,818,220		11,660,760		10,515,960
Total advertising time sold (seconds)		1,022,861		2,127,473		578,275

(1) Represents the total amount of advertising time during regular television programs secured from CCTV.

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

Revenues

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

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

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

Net Revenues

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

Gross Margin

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

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Operating Costs and Expenses

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

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

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

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

Operating Income

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

Interest and Investment Income

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

Income Tax Expenses

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

Net Income

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

Year ended December 31, 2009 compared to year ended December 31, 2008

Revenues

Our total revenues increased by 15.9% to RMB427.6 million in the year ended December 31, 2009 from RMB369.0 million in the year ended December 31, 2008. This increase was attributable to the increase in revenues from our advertising agency services, partially offset by the decrease in revenues from our production and sponsorship services during the year.

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Revenues from our advertising agency services increased by 18.9% to RMB397.3 million in the year ended December 31, 2009 from RMB334.1 million in the year ended December 31, 2008. This increase was primarily attributable to an increase in the selling price of advertising time slots sold by us in the year ended December 31, 2009 compared to the year ended December 31, 2008. Our overall sales of advertising time slots were higher in 2009 compared to 2008, primarily because (i) the demand for our services was higher in 2009 when China’s economy began to recover from the financial crisis and (ii) we expanded our sales force starting from the second quarter of 2009, which helped us develop and strengthen the relationship with our direct clients and take advantage of the economic recovery in 2009. Revenues from the Daytime Advertising Package and Television Guides amounted to RMB158.8 million in 2009, representing an increase of 37.1% compared with that of RMB115.8 million in 2008. Revenues from First News and CCTV-4 related news programs were RMB337.1 million, representing an increase of 20.4% year over year. Revenues from the CCTV Chinese New Year Gala program amounted to RMB60.2 million in 2009, representing an increase of 11.1% compared to the previous last year. Revenues from CCTV-E and CCTV-F increased to RMB5.7 million from nil in 2008.

Revenues from our production and sponsorship services decreased by 13.3% to RMB30.3 million in 2009 from RMB34.9 million in 2008. The decrease was primarily due to the fact that our clients reduced their sponsorship for the public service announcements due to fewer national events in 2009.

We did not recognize any revenues from special event services in 2008 or 2009. While we provided special event services to CCTV in connection with the 2008 Beijing Olympic Games, the timing and likelihood of the final settlement from CCTV for such services remain uncertain as of the date of this annual report and therefore we have not recorded revenues relating to such services in 2008, 2009 or 2010.

Net Revenues

Our net revenues increased by 16.6% to RMB411.6 million in 2009 from RMB353.0 million in 2008. This was mainly due to the increase in revenues from advertising agency services.

Operating Costs and Expenses

Our operating costs and expenses increased by 35.9% to RMB320.8 million in 2009 from RMB236.1 million in 2008.

Cost of revenues. Our cost of revenues increased by 32.9% to RMB270.2 million in 2009 from RMB203.4 million in 2008. This increase was primarily due to a 40.9% increase of the media fee for CCTV Channel 4 programs to RMB230.0 million in 2009 from RMB163.2 million in 2008. In 2008, we obtained the advertising rights to certain programs on CCTV Channel 4 for which we were committed to pay a fixed amount of media fees. We recorded such media fees as the cost of revenues on a straight-line basis and recorded the revenues from the advertising on such CCTV Channel 4 programs on a gross basis. As a result, the media fee costs for CCTV Channel 4 accounted for a substantial majority of our cost of revenues in 2008 and 2009. We sustained a loss on our advertising rights to CCTV Channel 4 programs in 2008 and 2009.

Salesand marketingexpenses. Our sales and marketing expenses increased by 111.6% to RMB17.4 million in 2009 from RMB8.2 million in 2008. This increase was primarily due to the increase in an amount of RMB7.6 million in the compensation related to our increased sales efforts, including (i) the payment of sales commissions and bonuses of RMB2.0 million in connection with the 2009 Chinese New Year Gala and (ii) an increase in an amount of 5.6 million in the compensation to our sales personnel as we recruited more senior sales executives, doubled the size of our sales force and increased the sales commissions in 2009. The increase, to a lesser extent, was due to (i) an increase in an amount of RMB1.1 million in depreciation as we purchased an office premises in late 2008 and (ii) an increase in an amount of RMB2.1 million in other expenses that principally include travel expenses, office costs and welfare and social security insurance expenses due to our increased efforts to develop and maintain direct customers and our doubled sales force.

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Generaland administrativeexpenses. Our general and administrative expenses increased by 35.6% to RMB33.2 million in 2009 from RMB24.5 million in 2008. This increase was primarily due to (i) an increase in an amount of RMB7.9 million in accounting and auditing, legal and consulting expenses, principally in connection with our compliance with U.S. securities laws as a public company and a litigation against Hasee Computer Co., Ltd. for unpaid advertising fee and (ii) an increase in an amount of RMB1.6 million in the compensation to our directors, management and employees. The increase was partially offset by a decrease in an amount of RMB2.1 million in our provision for accounts receivable recognized in general and administrative expenses as we recovered certain provision from a customer in 2009.

Operating Income

As a result of the foregoing, our operating income decreased by 22.3% to RMB90.8 million in 2009 from RMB116.9 million in 2008. Our operating margin was 22.1% and 33.1% in 2009 and 2008, respectively.

Interest and Investment Income

Our interest and investment income decreased by 37.1% to RMB9.5 million in 2009 from RMB15.1 million in 2008. This decrease was attributable to a decrease in an amount of RMB1.8 million in the interest income generated from our deposit with banks and a decrease in an amount of RMB3.8 million in the interest and investment income generated from the reduced aggregate principal amount of short-term investment products that we held in this period.

Income Tax Expenses

Our income tax expenses decreased by 28.9% to RMB14.3 million in 2009 from RMB20.1 million in 2008. This decrease was mainly due to the decrease of our taxable income in this period.

Net Income

As a result of the foregoing, our net income decreased by 21.7% to RMB86.5 million in 2009 from RMB110.4 million in 2008. Our net margin was 21.0% and 31.3% in 2009 and 2008, respectively.

B.        Liquidity and Capital Resources

Liquidity

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

	Year Ended December 31,
	2008			2009			2010
	(RMB)			(RMB)			(RMB)			(US$)
	(In thousands)
Net cash (used in)/ provided by operating activities		451,738			(349,550	)		161,863			24,525
Net cash provided by/ (used in) investing activities		(262,494	)		403,152			(109,056	)		(16,524	)
Net cash (used in)/ provided by financing activities		240,823			(111,335	)		(9,529	)		(1,444	)
Effect of foreign currency exchange		(1,440	)		(378	)		(7,628	)		(1,156	)
Cash and cash equivalents at beginning of year		138,262			566,889			508,778			77,088
Cash and cash equivalents at end of year		566,889			508,778			544,428			82,489
Net (decrease)/ increase in cash and cash equivalents		428,627			(58,111	)		35,650			5,401

Cash flow from operating activities

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

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

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

Net cash provided by operating activities for the year ended December 31, 2008 was RMB451.7 million, which was derived from net income of RMB110.4 million, as adjusted primarily by adding back an increase of RMB211.5 million in accounts payable, an increase of RMB169.2 million in amount due to related parties, an increase of RMB9.0 million in accrued expenses and other current liabilities, a decrease of RMB24.5 million in customer advances, an increase of RMB14.0 million in prepaid expenses and other current assets and an increase of RMB9.1 million in accounts receivable. The increase in accounts payable reflected the increase of our unpaid advertising fees to CCTV. The increase in amount due to related parties resulted mainly from our transactions with FTP regarding the newly added television programs. The significant increase of accrued expenses and other current liabilities reflected the increase in customer security deposits as the number of its customers significantly increased in 2008 and the increase in accruals for professional services fees and dividend withholding tax. The decrease in customer advances was mainly due to the absence of a customer’s one-off transaction to place prime time advertisement on CCTV in 2008, which occurred in 2007. The significant increase in prepaid expenses and other current assets reflected the increase of the deposits we made to CCTV in connection with our more active participation in the CCTV’s prime time advertising auction and bidding events, as well as the increase in deferred business tax arising from our unpaid media fees. The increase in accounts receivable resulted from our increased uncollected fees from a small number of advertising clients.

Cash flow from investing activities

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

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

Net cash used in investing activities was RMB262.5 million in the year ended December 31, 2008. We used RMB280.0 million in purchasing short-term investment funds offered by domestic banks and received RMB9.2 million of proceeds from such investment. We purchased short-term investment funds to derive a higher return on our cash balance than we had previously earned from bank deposits. Short-term funds are offered by domestic banks that in turn invest in government bonds, central bank bills, corporate bonds or commercial paper. We also received RMB15.0 million of proceeds from disposing of the long- term investments that we had held on behalf of UIAL’s shareholder and his immediate family, which we repaid to the shareholder’s immediate family.

Cash flow from financing activities

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

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

Our net cash provided by financing activities was RMB240.8 million in the year ended December 31, 2008, primarily consisting of RMB287.7 million of proceeds we received from the issuance of ordinary shares in our initial public offering, which were primarily offset by RMB29.2 million in dividends paid to our shareholders and RMB15.0 million in repayment of the proceeds from disposing of the long-term investments that we had held on behalf of UIAL’s shareholder and his immediate family.

Capital Resources and Capital Expenditures

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

Our capital expenditures, consisting of purchase of property and equipment, were RMB55.9 million, RMB1.3 million and RMB6.5 million (US$0.98 million) for the years ended December 31, 2008, 2009 and 2010, respectively. The capital expenditures in 2008 were mainly made to purchase our office premises that we previously leased. The capital expenditures in 2009 and 2010 were mainly for the purchase of fixed assets. We expect to incur capital expenditures of up to RMB20.0 million in 2011, which will be used primarily to television program and TV series production.

We believe that our current cash and cash equivalents, which include the net proceeds from our initial public offering in August 2008, and anticipated cash flow from operations in the near future, will be sufficient to meet our expected cash requirements, including for working capital and capital expenditure purposes, for at least the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. In addition, we have become a public company and will incur a significantly higher level of legal, accounting and other expenses than we did as a private company and we may need to obtain additional capital resources to cover these costs. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities, debt securities or borrow from lending institutions. We cannot assure you that financing will be available in the amounts we need or on terms acceptable to us, if at all. The sale of additional equity securities, including convertible debt securities, would dilute our shareholders. The incurrence of debt would divert cash for working capital and capital expenditures to service debt obligations and could result in operating and financial covenants that restrict our operations and our ability to pay dividends to our shareholders. If we are unable to obtain additional equity or debt financing as required, our business operations and prospects may suffer.

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C.        Research and Development

 Not applicable.

D.        Trend Information

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

E.        Off-Balance Sheet Arrangements

As of December 31, 2010, we did not have any off-balance sheet commitments or arrangements. We do not anticipate entering into any such commitments or arrangements in the foreseeable future.

F.        Tabular Disclosure of Contractual Obligations

Operating lease commitments

We entered into certain leasing arrangements relating to the lease of our office premises. Rental expense under operating leases for the years ended December 31, 2008, 2009 and 2010 were RMB3.6 million, RMB0.1 million and RMB0.8 million, respectively.

As at December 31, 2010, we had commitments under non-cancellable operating leases to make minimum payments as follows:

Within 1 year	RMB211,023
After 1 year but within 5 years	RMB189,544
After 5 years	-
Total	RMB400,567

Operating fixed or guaranteed payment contracts

We expect to continue to enter into contracts in the future for advertising time slots for programs on CCTV-4, for which CCTV typically requires the payment of a fixed amount of media fees. For 2011, we have obtained the advertising time slots for the Periodic China News Package on CCTV-4. Under the new contract, we are required to pay CCTV approximately RMB73.5 million for such time slots. As at December 31, 2010, we had paid RMB7.4 million to CCTV as security deposits and advances.

On June 20, 2008, Universal entered into a five-year contract to secure the exclusive advertising rights to CCTV’s Spanish and French Channels, under which Universal is committed to pay media fees of RMB1.0 million in the second year and RMB2.0 million in the third year of the contract. The media fees for the remaining term will be determined by CCTV and Universal in the future.

Capital and other commitments

We did not have any significant capital and other commitments as of December 31, 2010.

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ITEM 6.        DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.           Directors and Senior Management

Directors and Executive Officers

The following table sets forth information regarding our directors and executive officers as of May 31, 2011.

Name	Age	Position / Title
Shengcheng Wang	57	Chairman and Chief Executive Officer
Julie Zhili Sun	43	Director and Chief Financial Officer
Haiyan Xing	39	Director and Executive General Manager
Liping He	52	Independent Director
Jianmin Qu	63	Independent Director
Xingzhao Liu	48	Independent Director
Yong Chen	54	Independent Director
Zhenheng Huo	47	Vice President
Shuo Cheng	33	Vice President
Xingyu Zhang	43	Vice President
Weitao Xu	36	Vice President
Guanning Liang	31	Financial Controller

Directors

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

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

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

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

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

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

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

Executive Officers

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

Mr.Shuo Cheng is our vice president in charge of sales and marketing. Mr. Cheng joined us in 2003 as a media resource manager and was promoted to deputy general manager in 2006. Between 2002 to 2003, Mr. Cheng worked as a media resource manager at Mass Communications International Advertising Co., Ltd. He was a sales representative at DHL Sinotrans International Air Courier Ltd. from 2000 to 2001. Mr. Cheng received his bachelor’s degree in Economics from Renmin University in China.

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

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

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

B.        Compensation of Directors and Executive Officers

Compensation of Directors and Executive Officers

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In the year ended December 31, 2010, we paid aggregate cash compensation of RMB10.3 million (US$1.6 million) to our directors and executive officers, respectively. For options granted to our officers and directors, see “—2008 Equity Incentive Plan.”

2008 Equity Incentive Plan

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

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

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

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

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

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

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

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

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

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

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

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

The annual increase in the number of ordinary shares available for issuance was 14,327,500 shares in 2010 and 15,766,647 shares in 2011. As of the date of this annual report, an aggregate of 65,863,426 shares are available for future issuance under our 2008 equity incentive plan.

We will not grant any further options under the 2008 equity incentive plan if and when our ordinary shares are listed on SEHK and our 2010 share option scheme becomes effective. See “— 2010 Share Option Scheme.”

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

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Name	Ordinary Shares Underlying Outstanding Options		Ordinary Shares Exercisable*		Exercise Price (US$/Share)		Grant Date	Expiration Date
Shengcheng Wang		7,310,210		3,872,022		0.066	July 1, 2008	July 1, 2018
		6,710,663		-		0.078	April 1,2011	July 1,2018
Julie Zhili Sun		3,655,104		1,936,011		0.066	July 1, 2008	July 1, 2018
		3,356,730				0.078	April 1,2011	July 1,2018
Haiyan Xing		609,184		322,669		0.066	July 1, 2008	July 1, 2018
		559,459				0.078	April 1,2011	July 1,2018
Shuo Cheng		487,348		258,135		0.066	July 1, 2008	July 1, 2018
Xinyu Zhang		609,184		322,669		0.066	July 1, 2008	July 1, 2018
Weitao Xu		116,963		61,952		0.066	July 1, 2008	July 1, 2018
Guanning Liang		1,395,000		-		0.078	April 1,2011	July 1, 2018
Other employees and consultant as a group		2,137,856		1,153,212		0.066	July 1, 2008	July 1, 2018
Total		26,947,701		7,926,670		0.066	July 1, 2008	July 1, 2018

* A portion of the options granted under our 2008 equity incentive plan only vests subject to our company’s performance. Therefore, the number of share options exercisable by each listed person in the above table is based on our current estimate of the company’s performance for the one-year vesting period ending July 1, 2011. The actual number of share options that can be vested on July 1, 2011 may be different from our estimate.

2010 Share Option Scheme

In July 2010, our shareholders’ meeting adopted a 2010 share option scheme, which will only become effective if and when our ordinary shares are listed on the SEHK. Once our 2010 share option scheme is effective, no further option will be granted under our 2008 equity incentive plan. The 2010 share option scheme will be valid for a term of ten years from the date of its effectiveness.

Our 2010 share option scheme will be subject to the administration of our board of directors, and the decision of the board will be final and binding on all parties. The board has the right to (i) interpret and construe the provisions of the scheme, (ii) determine who will be offered options under the scheme, and the number of shares and subscription price of the options, (iii) make such appropriate and equitable adjustments to the terms of options granted under the scheme as it deems necessary, and (iv) make such other decisions or determinations as it deems appropriate in relation to the grant of options and/or the administration of the scheme. The board’s interpretation must comply with the listing rules of the SEHK.

The subscription price of the options to be granted under the scheme shall be such price determined by the board at its absolute discretion and notified to the scheme participant in the offer but shall be no less than the highest of (i) the closing price of the shares as stated in the daily quotation sheets issued by the SEHK on the grant date; (ii) the average closing price of the shares as stated in the daily quotation sheets issued by the SEHK for the five business days immediately preceding the grant date; and (iii) the nominal value of a share on the date of the grant.

The total number of shares that can be issued upon exercise of all options to be granted under the 2010 share option scheme and other share option plans of our company shall not exceed 10% of the outstanding shares on the date of adopting the share option scheme. We may renew this limit at any time subject to prior shareholders’ approval. However, the limit as renewed shall not exceed 10% of the outstanding shares as of the date of the aforesaid shareholders’ approval.

Share Repurchase Program

On September 30, 2010, we announced that the board of directors had approved a share repurchase program, under which we may repurchase up to US$6.0 million worth of our issued and outstanding ADSs. Any repurchase will be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades, pursuant to a 10b5-1 plan or otherwise in compliance with applicable laws. The timing and extent of any repurchases are dependent upon market conditions, the trading price of ADSs and other factors, and are subject to the restrictions relating to volume, price and timing under applicable laws, including Rule 10b-18 under the United States Securities Exchange Act of 1934, as amended. As of May 31, 2011, we had repurchased 943,200 ADSs (representing 28,296,000 ordinary shares), of which 798,600 ADSs (representing 23,958,000 ordinary shares) have been cancelled and the remaining shares are to be cancelled as soon as practicable.

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C.        Board Practices

Duties of Directors

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

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

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

· declaring dividends and distributions;

· appointing officers and determining the term of office of officers;

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

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

Terms of Directors and Executive Officers

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

Committees of the Board of Directors

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

Audit Committee

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

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

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

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

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

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

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

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

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

· reporting regularly to our board of directors.

Compensation Committee

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

· approving and overseeing the compensation package for our executive officers;

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

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

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

Corporate Governance and Nominating Committee

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

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

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

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

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

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

Terms of Directors and Executive Officers

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

Employment Agreements

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

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

D.        Employees

As of December 31, 2008, 2009 and 2010, we had 130, 143 and 126 full-time employees, respectively. The following table sets forth the number of our staff by area of business as of December 31, 2010:

	Number of employees		Percentage
Sales, marketing and customer services		52		41.3	%
Production		30		23.8	%
Strategy, media relationship and market research		13		10.3	%
Management and administration		31		24.6	%
Total number of employees		126		100.0	%

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We offer our employees competitive compensation packages and various training programs, which are intended to attract and retain qualified personnel. As required by PRC regulations, we participate in various employee benefit plans that are organized by municipal and provincial governments, including housing, pension, medical and unemployment benefit plans. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Members of the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing at the member’s retirement date. The total amount of contributions we made to employee benefit plans for the years ended December 31, 2008, 2009 and 2010 was RMB1.4 million, RMB2.0 million and RMB2.3 million (US$0.35 million), respectively.

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

E.       Share Ownership

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

The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13(d)(3) of the Exchange Act, of our ordinary shares, as of May 31, 2011, by:

· each of our directors and executive officers; and

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

	Shares Beneficially Owned(1)
	Number	%
Directors and Executive Officers:
Shengcheng Wang(2)	564,020,873	71.2
Julie Zhili Sun	*	*
Haiyan Xing	*	*
Liping He	—	—
Jianmin Qu	—	—
Xingzhao Liu	—	—
Yong Chen	—	—
Shuo Cheng	*	*
Weitao Xu	*	*
Xinyu Zhang	*	*
Zhenheng Huo	—	—
Guanning Liang	*	*
All Directors and Executive Officers as a group	576,947,701	72.8
Principal Shareholders:
Shengcheng Wang(2)	564,020,873	71.2

* Upon exercise of all share options exercisable within 60 days of May 31, 2011, would beneficially own less than 1% of our ordinary shares.

(1) Percentage of beneficial ownership of each listed person is based on 765,665,020 ordinary shares outstanding as of May 31, 2011 as well as the estimated number of ordinary shares underlying share options exercisable by such person within 60 days of May 31, 2011. A portion of the options granted under our 2008 equity incentive plan only vests subject to our company’s performance. Therefore, the number of share options exercisable by each listed person in the above table is based on our current estimate of the company’s performance for the one-year vesting period ending July 1, 2011. The actual number of share options that can be vested on July 1, 2011 may be different from our estimate. See “Item 6. Directors, Senior Management and Employees—B. Compensation of Directors and Executive Officers—2008 Equity Incentive Plan.”

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(2) Consists of (a) 14,020,873 ordinary shares that are issuable upon the exercise of options by Mr. Shengcheng Wang within 60 days of May 31, 2011; (b) 440,000,000 ordinary shares owned by Happy Indian Ocean Limited and (c) 110,000,000 ordinary shares owned by Arctic Spring Limited. Happy Indian Ocean Limited is the record holder of 440,000,000 ordinary shares. Arctic Spring Limited is the record holder of 110,000,000 ordinary shares. Mr. Shengcheng Wang has the right to vote in respect of the 440,000,000 ordinary shares owned by Happy Indian Ocean Limited by virtue of a voting trust agreement among Mr. Shengcheng Wang, Happy Indian Ocean Limited and China Mass Media Corp. Mr. Shengcheng Wang also has the right to vote in respect of the 110,000,000 ordinary shares owned by Arctic Spring Limited by virtue of a voting trust agreement among Mr. Shengcheng Wang, Arctic Spring Limited and China Mass Media Corp. Mr. Shengcheng Wang has no direct or indirect equity interests in either Happy Indian Ocean Limited or Arctic Spring Limited. Both Happy Indian Ocean Limited and Arctic Spring Limited are part of an estate and asset preservation structure that was established for the ultimate benefit, and to advance the interests, of Mr. Wang and his family. Mr. Shengcheng Wang may be deemed to be the beneficial owner of the ordinary shares owned by Happy Indian Ocean Limited and Arctic Spring Limited under the U.S. securities law.

ITEM 7.        MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A. MajorShareholders

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

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

B. RelatedPartyTransactions

Transactions with FTP

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

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

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

In January 2008, we entered into a lease agreement with FTP for part of its office space at a rent of approximately RMB1.9 million per year, for a term of ten years. In December 2008, we purchased all such office space from FTP at its fair market value as determined by an independent real estate valuation company in the amount of RMB52.6 million. In January 2009, we entered into a lease agreement with a term of one year with FTP pursuant to which FTP leased from us part of our office space at a rent of RMB493.4 thousand. In January 2010, the lease agreement is automatically renewed for an indefinite term unless and until terminated by either party to the lease agreement.

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We also entered into an asset leasing agreement with FTP relating to the lease by FTP to us of certain fixed assets of FTP. The lease was for a period from December 1, 2007 to December 31, 2010, which would be automatically extended if no objection is raised by either party. The net book value of the subject assets was RMB350,477 as of December 31, 2010. The aggregate rent was RMB103,000 for the three years ended December 31, 2010. There was no indication of terminating the agreement at the end of 2010 and thus it has been extended automatically.

Transactions with Mr. Zhiyi Wang

In January 2008, we entered into a lease with Mr. Zhiyi Wang, the father of our chairman and chief executive officer, with respect to an office space for a term of ten years at a rent of approximately RMB1.9 million per year. In December 2008, we purchased such properties from Mr. Zhiyi Wang at their fair market value as determined by an independent real estate valuation company.

Under a custody arrangement, UIAL had held personal cash and investment funds on behalf of the shareholder of UIAL and his immediate family, in its own bank account. In February 2008, such arrangement was terminated and the account balance of approximately RMB15.0 million was transferred back to the shareholder and his immediate family.

Asset Transfer Agreement between Mass Media and Universal

Under an asset transfer agreement between Mass Media and Universal, dated December 29, 2007, Mass Media transferred to Universal certain of its assets relating to the television advertising business for RMB21.6 million, including fixed assets and copyrights to over 100 public service announcements Mass Media has produced. Mass Media also agreed to transfer the relevant trademarks used in the business to Universal when the Trademark Bureau approves the trademark applications. The remaining assets and liabilities of Mass Media, including liabilities owed to CCTV in an amount of RMB368.2 million relating to advertising revenues generated for CCTV and the cash needed to settle those liabilities in an amount of RMB370.8 million as of December 31, 2007, were retained by Mass Media. Effective from December 31, 2007, Mass Media is no longer part of our company and is not involved in our continued business operations.

In the year ended December 31, 2008, we provided advertising agency services to Mass Media’s clients under the three remaining contracts of Mass Media that had not been transferred to us, for which we charged a fee of RMB2.0 million.

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

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

Private Placements

All share and per share information in this section gives effect to the 1,000-for-one share split of our ordinary shares and series A preferred shares effected in the form of a grant of bonus shares on July 17, 2008.

In November 2007, we issued 1,000 ordinary shares to Mr. Shengcheng Wang, at par value US$0.001 per share. On March 6, 2008, we issued 99,000 ordinary shares at US$0.001 per share to Wide Atlantic Limited, a company controlled by Mr. Shengcheng Wang. On March 10, 2008, through a series of transactions, Happy Indian Ocean Limited and Arctic Spring Limited became the holders of 80,000 and 20,000 of our ordinary shares, respectively.

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In June 2008, we issued 329,840,000 ordinary shares and 70,080,000 series A preferred shares to Happy Indian Ocean Limited, and 82,460,000 ordinary shares and 17,520,000 series A preferred shares to Arctic Spring Limited, at par value of US$0.001 per share, for the purpose of facilitating the sale by these two entities of their holdings in our company to certain third parties. Subsequently Happy Indian Ocean Limited and Arctic Spring Limited sold all of their series A preferred shares to Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, True Wise Investments Limited and Ever Kingdom Limited for an aggregate consideration of US$60.0 million. The holders of the series A preferred shares were granted certain preferential rights by the existing shareholders with no recourse back to us, including put option rights and anti-dilution rights, but such rights were to terminate, and the Series A preferred shares were to automatically convert into ordinary shares at a conversion rate of one preferred share to one ordinary share, upon the completion of a qualified public offering. A qualified public offering means, among other things, a public offering that is conducted at an offering price per share that values our company at a total post-money market capitalization of no less than US$450 million and results in minimum gross proceeds to our company of US$45 million (before deduction of underwriting discounts and registration expenses).

Since our initial public offering did not qualify as a qualified public offering (as defined above), on July 23, 2008, Happy Indian Ocean Limited and Arctic Spring Limited entered into an agreement to repurchase, at the original purchase price plus one month of interest at an annual rate of 8.0%, all of the series A preferred shares they previously sold to Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, True Wise Investments and Ever Kingdom Limited on June 24, 2008. This share repurchase was closed shortly prior to the closing of our initial public offering. In addition, Happy Indian Ocean Limited and Arctic Spring Limited converted all of the outstanding series A preferred shares into ordinary shares at a one-to one conversion ratio immediately prior to the completion of our initial public offering. The investor rights agreement entered into among us and our shareholders on June 24, 2008 was terminated upon the completion of our initial public offering.

C.       Interests of Experts and Counsel

Not applicable.

ITEM 8.        FINANCIAL INFORMATION

A.       Consolidated Statements and Other Financial Information

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

Legal and Administrative Proceedings

From time to time, we may be involved in legal proceedings, both as plaintiff and as defendant, arising in the ordinary course of our business. We do not expect any of these claims or actions, individually or in the aggregate, to have a material adverse effect on our business, results of operations or financial condition.

On February 25, 2010, Yu Jia, a former employee of Universal, filed an application to Beijing Xicheng District Labor Arbitration Committee (“Xicheng Arbitration Committee”) against Universal, alleging that she was unfairly dismissed from the post of media purchase director of Universal on January 29, 2010 and claiming: (1) salary differences for the two-month period between December 2009 and January 2010 in the amount of RMB48,526.68 plus relevant compensation of 25% of such amount, and (2) reinstatement to her original duty from that date. On January 20, 2011, Xicheng Arbitration Committee ruled in favor of Yu on both claims and Universal Beijing shall pay Yu RMB281,532.23 in total. On January 31, 2011, Universal Beijing Branch filed a lawsuit to Beijing Xicheng District Court against the arbitration ruling made by Xicheng Arbitration Committee and the case is currently pending on court ruling.

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In March 2010, Universal filed an action against Beijing Shidai Charm Advertising Company Limited, or Beijing Shidai Charm, for outstanding advertising fees in an amount of RMB3.6 million and related interest of approximately RMB0.5 million in connection with certain advertising time slots we sold to Beijing Shidai Charm on the 2008 Chinese New Year Gala program on CCTV. The trial court and the appeal court held in favor of Universal. In May 2010, Beijing Yida Charm Advertising Co., Ltd., or Beijing Yida Charm, an affiliate of Beijing Shidai Charm, filed an action against Universal, alleging that Universal failed to pay them certain promotion and advertising services fee in an amount of RMB3.6 million, and won the case at both trial and appeal levels. In June 2011, Universal entered into a tripartite settlement agreement with Beijing Shidai Charm and Beijing Yida Charm under which all three parties agreed to waive all rights and obligations under the aforementioned agreements and the court decisions, and no party shall pursue any further claims against any other parties.

Except as disclosed in this annual report, we are not currently a party to any material legal proceeding. To our knowledge, there are no material legal proceedings threatened against us.

Dividend Policy

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

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

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

B.       Significant Changes

In the first quarter of 2011, our total net revenues were RMB50.9 million, a decrease of 9.1% from the first quarter of 2010 and a decrease of 32.8% from the fourth quarter of 2010; our operating income was RMB13.1 million, a decrease of 5.7% from the first quarter of 2010 and a decrease of 53.7% from the fourth quarter of 2010; and our net income was RMB8.3 million, a decrease of 17.9% from the first quarter of 2010 and a decrease of 56.3% from the fourth quarter of 2010. In the same period, the net cash inflows from operating activities were RMB34.8 million, a decrease of 13.7% from net cash inflows from operating activities of RMB40.3 million in the first quarter of 2010 and an increase of 34.2% from the fourth quarter of 2010.

The decrease in our net revenues, operating income and net income in the first quarter of 2011 from one year earlier was primarily due to the decrease in our average sales price as a result of the intense price competition in the advertising market, and our revenues from advertising agency services declined despite the increase in our utilization rate. The squential decrease was primarily because the fourth quarter is the traditional peak season for our business.

ITEM 9.        THE OFFER AND LISTING

A.       Offering and Listing Details.

Our ADSs, each representing 30 of our ordinary shares, have been listed on NYSE Arca since August 4, 2008 under the symbol “CMM.”

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On August 25, 2009, we transferred the listing of our ADSs from NYSE Arca to NYSE.

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

	Share Price
	High		Low
Annually
2008 (From August 4, 2008)		6.50		1.41
2009		6.85		1.40
2010		3.55		1.13
Quarterly
First Quarter 2009		2.93		1.40
Second Quarter 2009		6.85		1.78
Third Quarter 2009		6.00		3.20
Fourth Quarter 2009		4.71		2.40
First Quarter 2010		3.80		2.63
Second Quarter 2010		3.08		1.13
Third Quarter 2010		3.02		1.64
Fourth Quarter 2010		3.55		2.30
First Quarter 2011		3.28		2.24
Monthly
December 2010		3.55		1.69
January 2011		3.28		2.24
February 2011		2.71		2.38
March 2011		2.67		2.33
April 2011		2.34		1.76
May 2011		1.87		1.40
June 2011 (through June 24)	1.46		1.22

B.       Plan of Distribution

Not applicable.

C.       Markets

Our ADSs, each representing thirty of our ordinary shares, have been listed on NYSE Arca since August 4, 2008 through August 24, 2009 under the symbol “CMM.” On August 25, 2009, we transferred the listing of our ADSs from NYSE Arca to NYSE and our ADSs have been listed on NYSE since then under the same symbol.

D.       Selling Shareholders

Not applicable.

E.       Dilution

Not applicable.

F.       Expenses of the Issue

Not applicable.

ITEM 10.       ADDITIONAL INFORMATION

A.       Share Capital

Not applicable.

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B.       Memorandum and Articles of Association

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

Our shareholders conditionally adopted our fifth amended and restated memorandum and articles of association on July 19, 2010, which will become effective upon the listing of our ordinary shares on SEHK. We are a Cayman Islands exempted company with limited liability and our affairs are governed by our memorandum and articles of association, as amended and restated from time to time, and the Companies Law (2011 Revision) of the Cayman Islands, which is referred to as the Companies Law below. Some material provisions of our fifth amended and restated memorandum and articles of association and of the Company Law are summarized as below.

Ordinary Shares

General

All of our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares.

Dividends

The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law. Under our fifth amended and restated memorandum and articles of association, all dividends unclaimed for one year after having been declared may be invested or otherwise made use of by our board of directors for our exclusive benefit until claimed, and we will not be deemed a trustee in respect of such dividend or be required to account for any money earned. All dividends unclaimed for six years after having been declared may be forfeited by our board of directors and will revert to us and after such forfeiture no shareholder or other person shall have any right to or claim in respect of such dividends.

Voting Rights

On a poll, each ordinary share is entitled to one vote on all matters upon which the ordinary shares are entitled to vote. At any general meeting a resolution put to the vote of the meeting shall be decided on a poll. A quorum required for a meeting of shareholders consists of at least two shareholders present in person or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders’ meetings may be convened by our board of directors on its own initiative or upon a request to the directors by at least two shareholders of our company deposited at the principal office of our company in Hong Kong, or shareholders holding in the aggregate not less than one-tenth of the paid up capital of our company, or a recognized clearing house or its nominee which is a shareholder. Advance notice of at least 21 calendar days is required for the convening of our annual general shareholders’ meeting and any other general shareholders’ meeting calling for the passing of a special resolution. Any other extraordinary general meeting shall be called by not less than 14 calendar days’ notice.

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An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than a three-fourths majority of the votes cast attaching to the ordinary shares cast in a general meeting. A special resolution will be required for important matters such as a change of name or making changes to our fifth amended and restated memorandum and articles of association.

Transfer of Ordinary Shares

Subject to the restrictions of our fifth amended and restated memorandum of articles of association, as applicable, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.

Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up, or which is issued under an employee share incentive scheme and upon which a transfer restriction subsists, or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:

· the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer;

· the instrument of transfer is in respect of only one class of shares;

· the instrument of transfer is properly stamped, if required;

· in the case of a transfer to joint holders, the number of joint holders to whom the shares are to be transferred does not exceed four;

· any fee related to the transfer has been paid to us;

· the shares concerned are free of any lien in favor of us; and

· the transfer to be registered is not to an infant or a person suffering from mental disorder

If our directors refuse to register a transfer they shall, within two months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.

The registration of transfers may be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 calendar days in any year.

Liquidation

On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of ordinary shares), assets available for distribution among the holders of ordinary shares shall be distributed among our shareholders in proportion to the capital paid up at the commencement of the winding up on the shares held by them respectively. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.

Calls on Ordinary Shares and Forfeiture of Ordinary Shares

Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their ordinary shares in a notice served to such shareholders at least 14 calendar days prior to the specified time of payment. The ordinary shares that have been called upon and remain unpaid are subject to forfeiture.

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Redemption of Ordinary Shares

Subject to the provisions of the Companies Law and the Memorandum and Articles of Association of the company, we may issue shares on terms that are subject to redemption, at our option or at the option of the holders, on such terms and in such manner as may be determined by special resolution.

Variations of Rights of Shares

If at any time our share capital is divided into different classes of shares, all or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied either with the consent in writing of the holders of three-fourths of the issued shares of that class or by a special resolution passed at a general meeting of the holders of the shares of that class. The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu with such existing class of shares.

General Meetings of Shareholders

The directors may, and shall on the requisition of shareholders holding at least one-tenth of the paid up capital of us carrying voting rights at general meetings, proceed to convene a general meeting of shareholders. If the directors do not within 21 calendar days from the deposit of the requisition duly proceed to convene a general meeting, which will be held within a further period of 21 calendar days, the requisitioning shareholders, or any of them holding more than 50% of the total voting rights of all of the requisitioning shareholders, may themselves convene a general meeting. Any such general meeting must be convened within three months from the date of deposit of the requisition. .

Inspection of Books and Records

Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”

Changes in Capital

We may from time to time by ordinary resolution:

· increase the share capital by such sum, to be divided into shares of such classes and amount, as the resolution shall prescribe;

· consolidate and divide all or any of our share capital into shares of a larger amount than our existing shares;

· sub-divide our existing shares, or any of them, into shares of a smaller amount; or

· cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled;

We may by special resolution reduce our share capital and any capital redemption reserve in any manner authorized by the Companies Law.

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Exempted Company

We are an exempted company with limited liability under the Companies Law of the Cayman Islands. The Companies Law in the Cayman Islands distinguishes between ordinary resident companies and exempted companies. Any company that is registered in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be registered as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except for the exemptions and privileges listed below:

· an exempted company does not have to file an annual return of its shareholders with the Registrar of Companies;

· an exempted company’s register of members is not open to inspection;

· an exempted company does not have to hold an annual general meeting;

· an exempted company may issue no par value, negotiable or bearer shares;

· an exempted company may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance);

· an exempted company may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands;

· an exempted company may register as a limited duration company; and

· an exempted company may register as a segregated portfolio company.

“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company.

Corporate Law

The Companies Law is modeled after that of English law but does not follow many recent English law statutory enactments. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant provisions of the Companies Law applicable to us as compared with the laws applicable to companies incorporated in the State of Delaware.

Mergers and Similar Arrangements

Under Part XVI of the Companies Law, one or more Cayman Islands companies and one or more non-Cayman Islands companies can now merge or consolidate, provided that the surviving or consolidated company is a Cayman Islands company.

As soon as a merger or consolidation becomes effective, among other things, the rights, the property of every description including choses in action, and the business, undertaking, goodwill, benefits, immunities and privileges of each of the constituent companies, shall immediately vest in the surviving or consolidated company.

The Registrar of Companies of the Cayman Islands will strike off the register a constituent company that is not the surviving company in a merger or a constituent company that participates in a consolidation.

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In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three- fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that:

· the statutory provisions as to the due majority vote have been met;

· the shareholders have been fairly represented at the meeting in question;

· the arrangement is such that a businessman would reasonably approve; and

· the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a takeover offer is made and accepted by holders of 90% of the shares within four months, the offeror may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

If the arrangement and reconstruction is thus approved, the dissenting shareholder would have no rights comparable to appraisal rights, which would ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholders’ Suits

We are not aware of any class action or derivative action having been brought in a Cayman Islands court. In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, there are exceptions to the foregoing principle, including when:

· a company acts or proposes to act illegally or ultra vires;

· the act complained of, although not ultra vires, could only be effected duly if authorized by more than a simple majority vote that has not been obtained; and

· those who control the company are perpetrating a “fraud on the minority.”

Indemnification of Directors and Executive Officers and Limitation of Liability

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. Our fifth amended and restated memorandum and articles of association permit indemnification of officers and directors for all losses or liabilities incurred in their capacities in defending any proceedings, whether civil or criminal, in which judgment is given in his favour, or in which he is acquitted . This standard of conduct is generally the same as permitted under the Delaware General Corporation Law for a Delaware corporation.

Anti-takeover Provisions in the Fifth Amended and Restated Memorandum and Articles of Association

Some provisions of our fifth amended and restated memorandum and articles of association may discourage, delay or prevent a change in control of our company or management that shareholders may consider favorable, including provisions that authorize our board of directors to issue preference shares in one or more series and to designate the price, rights, preferences, privileges and restrictions of such preference shares subject to provisions of the fifth amended and restated memorandum and articles of association.

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However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our fifth amended and restated memorandum and articles of association, as amended and restated from time to time, for what they believe in good faith to be in the best interests of our company.

Directors’ Fiduciary Duties

Under Delaware corporate law, a director of a Delaware corporation has a fiduciary duty to the corporation and its shareholders. This duty has two components: the duty of care and the duty of loyalty. The duty of care requires that a director act in good faith, with the care that an ordinarily prudent person would exercise under similar circumstances. Under this duty, a director must inform himself of, and disclose to shareholders, all material information reasonably available regarding a significant transaction. The duty of loyalty requires that a director act in a manner he or she reasonably believes to be in the best interests of the corporation. He or she must not use his or her corporate position for personal gain or advantage. This duty prohibits self-dealing by a director and mandates that the best interest of the corporation and its shareholders take precedence over any interest possessed by a director, officer or controlling shareholder and not shared by the shareholders generally. In general, actions of a director are presumed to have been made on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the corporation. However, this presumption may be rebutted by evidence of a breach of one of the fiduciary duties. Should such evidence be presented concerning a transaction by a director, a director must prove the procedural fairness of the transaction, and that the transaction was of fair value to the corporation.

As a matter of Cayman Islands law, a director of a Cayman Islands company is in the position of a fiduciary with respect to the company and therefore owes the following duties to the company—a duty to act bona fide in the best interests of the company: a duty not to make a profit based on his or her position as director (unless the company permits him to do so) and a duty not to put himself in a position where the interests of the company conflict with his or her personal interest or his or her duty to a third party. A director of a Cayman Islands company owes to the company a duty to act with skill and care. It was previously considered that a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience. However, English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands.

Shareholder Proposals

Under the Delaware General Corporation Law, a shareholder has the right to put any proposal before the annual meeting of shareholders, provided it complies with the notice provisions in the governing documents. A special meeting may be called by the board of directors or any other person authorized to do so in the governing documents, but shareholders may be precluded from calling special meetings.

Cayman Islands law and our fifth amended and restated articles of association allow our shareholders holding not less than one-tenth of the paid up capital of the company to requisition a shareholders’ meeting. As an exempted Cayman Islands company, we are not obliged by law to call shareholders’ annual general meetings. However, our fifth amended and restated memorandum and articles of association require us to hold a shareholders’ general meeting in each year.

Cumulative Voting

Under the Delaware General Corporation Law, cumulative voting for elections of directors is not permitted unless the corporation’s certificate of incorporation specifically provides for it. Cumulative voting potentially facilitates the representation of minority shareholders on a board of directors since it permits the minority shareholder to cast all the votes to which the shareholder is entitled on a single director, which increases the shareholder’s voting power with respect to electing such director. As permitted under Cayman Islands law, our fifth amended and restated articles of association do not provide for cumulative voting. As a result, our shareholders are not afforded any fewer protections or rights on this issue than shareholders of a Delaware corporation.

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Removal of Directors

Under the Delaware General Corporation Law, a director of a corporation with a classified board may be removed only for cause with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. Under our fifth amended and restated articles of association, directors may be removed by ordinary resolution.

Transactions with Interested Shareholders

The Delaware General Corporation Law contains a business combination statute applicable to Delaware corporations whereby, unless the corporation has specifically elected not to be governed by such statute by amendment to its certificate of incorporation, it is prohibited from engaging in certain business combinations with an “interested shareholder” for three years following the date that such person becomes an interested shareholder. An interested shareholder generally is a person or a group who or which owns or owned 15% or more of the target’s outstanding voting stock within the past three years. This has the effect of limiting the ability of a potential acquirer to make a two-tiered bid for the target in which all shareholders would not be treated equally. The statute does not apply if, among other things, prior to the date on which such shareholder becomes an interested shareholder, the board of directors approves either the business combination or the transaction which resulted in the person becoming an interested shareholder. This encourages any potential acquirer of a Delaware corporation to negotiate the terms of any acquisition transaction with the target’s board of directors.

Cayman Islands law has no comparable statute. As a result, we cannot avail ourselves of the types of protections afforded by the Delaware business combination statute. However, although Cayman Islands law does not regulate transactions between a company and its significant shareholders, it does provide that such transactions must be entered into bona fide in the best interests of the company and not with the effect of constituting a fraud on the minority shareholders.

Dissolution; Winding up

Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board. Under the Companies Law of the Cayman Islands and our fifth amended and restated articles of association, our company may be dissolved, liquidated or wound up voluntarily by a special resolution or by ordinary resolution if it is unable to pay its debts when they fall due.

Variation of Rights of Shares

Under the Delaware General Corporation Law, a corporation may vary the rights of a class of shares with the approval of a majority of the outstanding shares of such class, unless the certificate of incorporation provides otherwise. Under Cayman Islands law and our fifth amended and restated articles of association, if our share capital is divided into more than one class of shares, we may vary the rights attached to any class only with the consent in writing of the holders of 75% in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.

Amendment of Governing Documents

Under the Delaware General Corporation Law, a corporation’s governing documents may be amended with the approval of a majority of the outstanding shares entitled to vote, unless the certificate of incorporation provides otherwise. As permitted by Cayman Islands law, our fifth amended and restated memorandum and articles of association may be amended by special resolution.

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Rights of Non-resident or Foreign Shareholders

There are no limitations imposed by our fifth amended and restated memorandum and articles of association on the rights of non-resident or foreign shareholders to hold or exercise voting rights on our shares. In addition, there are no provisions in our fifth amended and restated memorandum and articles of association governing the ownership threshold above which shareholder ownership must be disclosed.

Directors’ Power to Issue Shares

Our fifth amended and restated memorandum and articles of association authorizes our board of directors to issue any share with or attached preferred, deferred, qualified or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise, and to such persons at such time and for such consideration as the board of directors may determine. Subject to the Companies Law and to any special rights conferred on any shareholders or attaching to any class of shares, any share may, with the sanction of a special resolution, be issued on terms that it is, or at the option of the company or the holder thereof, liable to be redeemed.

The issuance of preferred shares may be used as an anti-takeover device without further action on the part of the shareholders. Issuance of preferred shares may dilute the voting power of holders of ordinary shares.

C.       Material Contracts

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

D.       Exchange Controls

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

E.        Taxation for Our ADS Holders

Cayman Islands Taxation

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

PRC Taxation

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

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U.S. Federal Income Taxation

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

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

· banks;

· certain financial institutions;

· insurance companies;

· regulated investment companies;

· real estate investment trusts;

· broker dealers;

· U.S. expatriates;

· traders that elect to mark-to-market;

· tax-exempt entities;

· persons liable for alternative minimum tax;

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

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

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

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

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

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

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

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

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

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

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

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

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

With respect to non-corporate U.S. Holders including individual U.S. Holders, for taxable years beginning before January 1, 2013, dividends may be taxed at the lower applicable capital gains rate, and thus may constitute “qualified dividend income,” provided that (1) either (a) the ADSs or ordinary shares are readily tradable on an established securities market in the United States, or (b) we are eligible for the benefits of a qualifying income tax treaty with the United States that includes an exchange of information program (2) we are not PFIC (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. Under IRS authority, ordinary shares, or ADSs representing such shares, are considered for the purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on NYSE, as our ADSs are. If we are treated as a “resident enterprise” for PRC tax purposes, you may be eligible for the benefits of the income tax treaty between the United States and the PRC. You should consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or ordinary shares.

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

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

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

Taxation of Disposition of ADSs or Ordinary Shares

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

PFIC

We believe that we were a PFIC for the taxable year ending December 31, 2010 and it is possible that we may be a PFIC for the current taxable year. Our status for the current taxable year will be based in part on the average value of our assets as determined based on the price of the ADSs and our ordinary shares. Our actual PFIC status for the current taxable year ending December 31, 2011 will not be determinable until the close of the current taxable year ending December 31, 2011. A non-U.S. corporation is considered to be a PFIC for any taxable year if either:

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

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

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

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

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

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

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

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

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

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

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

The mark-to-market election is available only for “marketable stock,” which is stock that is regularly traded in other than de minimis quantities on at least 15 days during each calendar quarter on a qualified exchange, including NYSE, or other market, as defined in applicable U.S. Treasury regulations. We expect that the ADSs will be listed and regularly traded on NYSE and, consequently, if you are a holder of ADSs the mark-to-market election would be available to you were we to be or become a PFIC. Because a mark-to-market election cannot be made for equity interests in lower-tier PFICs that we own, a U.S. Holder may continue to be subject to the PFIC rules with respect to its indirect interest in any investments held by us that are treated as equity interest in a PFIC for U.S. federal income tax purposes. You may make a timely mark-to-market election with respect to our ADSs by filing IRS Form 8621 with your original or amended U.S. federal income tax return for the first taxable year in which we are a PFIC and you hold ADSs by the due date of the return (including extensions). U.S. Holders of ADSs or ordinary shares should consult their tax advisors as to the availability and desirability of a mark-to-market election, as well as the impact of such election on interests in any lower-tier PFICs.

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

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

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

Information Reporting and Backup Withholding

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

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

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

F.        Dividends and Paying Agents

Not applicable.

G.       Statement by Experts

Not applicable.

H.       Documents on Display

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

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

I.        Subsidiary Information

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

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ITEM 11.              QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

Foreign Exchange Risk

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

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

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

ITEM 12.             DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Fees paid by our ADS holders

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

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

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

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

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

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

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

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

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

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Fees and Payments from the Depositary to Us

From January 1, 2010 to December 31, 2010, we received from the depositary a reimbursement of US$34,229.92, for our expenses incurred in connection with the maintenance of the ADS program. In addition, the depositary has agreed to reimburse us annually for our expenses incurred in connection with the maintenance of the ADSs program in the future. The amount of such reimbursements is subject to certain limits.

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PART II

ITEM 13.             DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

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

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

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

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

As of May 31, 2011, we spent an aggregate of US$0.9 million of the net proceeds to expand our advertising production capability and US$2.2 million on working capital and other general corporate purposes.

None of the net proceeds from our initial public offering were paid directly or indirectly to directors or officers of our company or their associates, persons owning 10% or more of our equity securities or our affiliates.

ITEM 15.             CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Management’s Annual Report on Internal Control Over Financial Reporting

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

93

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

Our company’s management, including our chief executive officer and our chief financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2010 using criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our company’s management, including our chief executive officer and our chief financial officer, concluded that our internal control over financial reporting was effective as of December 31, 2010.

Our independent registered public accounting firm, PricewaterhouseCoopers Zhong Tian CPAs Limited Company, has audited the effectiveness of internal control over financial reporting as of December 31, 2010, as stated on page F-2 of the Report of Independent Registered Public Accounting Firm.

Changes in Internal Controls

There were no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended) during the year ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

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

ITEM 16B. CODE OF ETHICS

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

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

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

	Year Ended December 31,
	2009		2010
	(RMB)		(RMB)		(US$)
Audit fees(1)		7,969,828		7,500,000		1,136,364
Audit-related fees(2)		–		3,600,000		545,455
Tax fees(3)		–		–		–
All other fees(4)		–		–		–

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

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

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

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

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

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

Not applicable.

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

Period	Total Number of ADSs Purchased (1)		Average Price Paid Per ADS		ADSs Purchase as Part of Publicly Announced Plans or Programs(1)		Approximate Dollar Value of ADSs that May Yet Be Purchased Under the Programs
November 1 through November 30, 2010		106,700		2.49		265,910		5,734,090
December 1 through December 31, 2010		355,300		3.30		1,172,948		4,561,142
January 1 through January 31, 2011		115,100		3.03		349,187		4,211,955
February 1 through February 28, 2011		122,500		2.55		312,473		3,899,482
March 1 through March 31, 2011		99,000		2.55		252,157		3,647,325
April 1 through April 30, 2011		74,400		2.13		158,453		3,488,872
May 1 through May 31, 2011		70,200		1.77		124,094		3,364,778
Total		943,200		2.79		2,635,222		3,364,778

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

(2)  Our ADS to ordinary share ratio is one ADS for 30 ordinary share.

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G. CORPORATE GOVERNANCE

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

PART III

ITEM 17. FINANCIAL STATEMENTS

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

ITEM 18. FINANCIAL STATEMENTS

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

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ITEM 19. EXHIBITS

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

Number	Descriptionof Document
1.1*	Third Amended and Restated Memorandum and Articles of Association of China Mass Media Corp.
1.2**	Fifth Amended and Restated Memorandum and Articles of Association of China Mass Media Corp.
1.3	Fourth Amended and Restated Memorandum and Articles of Association of China Mass Media Corp.
2.1*	Specimen Certificate for Ordinary Shares
2.2*	Form of Deposit Agreement, including form of American Depositary Receipts
2.3*	Investor Rights Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited, Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, True Wise Investments Limited and Ever Kingdom Limited
4.1*	Form of 2008 Share Incentive Plan
4.2*	Termination Agreement dated July 23, 2008, among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited, Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, True Wise Investments Limited and Ever Kingdom Limited
4.3*	English Translation of Non-Competition Agreement dated January 31, 2008, among Mr. Shengcheng Wang, Ms. Kun Zhang, Mr. Zhiyi Wang, Ms. Wenkai Zhang and Mass Media & Universal International Advertising Co., Ltd.
4.4*	Form of Employment Agreement
4.5*	English Translation of Equity Transfer Agreement between Universal International Advertising Limited and Shenzhen Guang Er Gao Zhi Co., Ltd.
4.6*	English Translation of Framework Agreement dated December 20, 2007 between Mass Media & Universal International Advertising Co., Ltd. and Beijing Guang Er Gao Zhi Film and Television Production Company Ltd.
4.7*	English Translation of Advertising Agency Agreement dated January 22, 2008 between Mass Media & Universal International Advertising Co., Ltd. and Beijing Guang Er Gao Zhi Film and Television Production Company Ltd.
4.8*	English Translation of Advertising Agency Agreement on 2008 Chinese New Year Gala Program dated December 6, 2007 between Mass Media & Universal International Advertising Co., Ltd. and CCTV
4.9*	English Translation of Advertising Agency Agreement on Special Events dated December 12, 2007 between Mass Media & Universal International Advertising Co., Ltd. and CCTV
4.10*	English Translation of Form of Media Resource Purchase Agreement between Mass Media & Universal International Advertising Co., Ltd. and CCTV
4.11*	English Translation of Form of Advertising Agency Agreement between Mass Media & Universal International Advertising Co., Ltd. and advertising clients
4.12*	English Translation of Lease Agreement dated December 30, 2007 between Mass Media & Universal International Advertising Co., Ltd. and Beijing Guang Er Gao Zhi Film and Television Production Company Ltd.

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4.13*	English Translation of Lease Agreement dated December 30, 2007 between Mass Media & Universal International Advertising Co., Ltd. and Zhiyi Wang
4.14*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Winner Wide Limited
4.15*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and CTF Capital Ltd.
4.16*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Goldcorn Development Limited
4.17*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Jumbo Right Holdings Limited
4.18*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and True Wise Investments Limited
4.19*	Investment Agreement dated June 24, 2008 among China Mass Media International Advertising Corp., Happy Indian Ocean Limited, Arctic Spring Limited and Ever Kingdom Limited
4.20*	Share Purchase Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited, Winner Wide Limited, CTF Capital Ltd., Goldcorn Development Limited, Jumbo Right Holdings Limited, China Mass Media International Advertising Corp. and Shengcheng Wang
4.21*	Share Purchase Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited, True Wise Investments Limited, China Mass Media International Advertising Corp. and Shengcheng Wang
4.22*	Share Purchase Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited, Ever Kingdom Limited, China Mass Media International Advertising Corp. and Shengcheng Wang
4.23*	Preferred Share Conversion Agreement dated July 23, 2008 among Happy Indian Ocean Limited, Arctic Spring Limited and China Mass Media International Advertising Corp.
4.24**	Form of 2010 Share Option Scheme
8.1	List of Subsidiaries of China Mass Media Corp.
11.1*	Code of Business Conduct and Ethics of China Mass Media Corp.
12.1	CEO Certification pursuant to Rule 13a-14(a)
12.2	CFO Certification pursuant to Rule 13a-14(a)
13.1	CEO Certification pursuant to Rule 13a-14(b)
13.2	CFO Certification pursuant to Rule 13a-14(b)
15.1	Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company

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

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

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SIGNATURE

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

China Mass Media Corp.

/s/         Shengcheng Wang

Name:  Shengcheng Wang

Title:    Chairman and Chief Executive Officer

Date: June 29, 2011

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CHINA MASS MEDIA CORP.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

F-1

Report of Independent Registered Public Accounting Firm

Tothe Board of Directors and Shareholders of China Mass Media Corp.:

   In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, consolidated statements of shareholders’ equity and consolidated statements of cash flows present fairly, in all material respects, the financial position of China Mass Media Corp. and its subsidiaries at December 31, 2010, 2009 and 2008 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  The Company's management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 15 of the accompanying Form 20-F.  Our responsibility is to express opinions on these financial statements and on the Company's internal control over financial reporting based on our audits (which were integrated audits in 2010 and 2009).  We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects.  Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.  Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.  Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

   A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

   Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers Zhong Tian CPAs Limited Company

Beijing, the People’s Republic of China

June 29, 2011

F-2

CONSOLIDATED BALANCE SHEETS

		December 31,
	Notes	2008		2009		2010			2010
		RMB		RMB		RMB			US$
									See Note 2 (v)
Assets
Current assets:
Cash and cash equivalents	2(c), 15		566,889,261		508,778,014		544,427,828			82,489,065
Restricted cash	2(d)		—		—		10,000,000			1,515,151
Short-term investments	2(e), 4, 15		500,000,000		80,000,000		150,000,000			22,727,273
Notes receivable			—		1,937,450		5,892,690			892,832
Accounts receivable, net	2(f), 3(c), 5		14,367,193		375,568		991,024			150,155
Prepaid expenses and other current assets	6		68,301,523		66,560,752		41,794,343			6,332,476
Deposit paid to a related party	18		1,000,000		—		—			—
Total current assets			1,150,557,977		657,651,784		753,105,885			114,106,952
Property and equipment, net	2(g), 7		57,261,208		55,464,401		58,602,500			8,879,167
Total assets			1,207,819,185		713,116,185		811,708,385			122,986,119
Liabilities and shareholder’s equity
Current liabilities:
Accounts payable			330,085,426		50,446,460		156,494,604			23,711,304
Customer advances	2(j)		75,422,483		20,657,147		39,311,493			5,956,287
Dividend payable			96,335,115		—		—			—
Accrued expenses and other current liabilities	8		13,765,090		17,776,049		24,804,884			3,758,316
Taxes payable	9(a)		51,958,677		20,519,899		29,238,039			4,430,006
Amount due to related parties	18		252,209,794		127,068,624		53,237,048			8,066,219
Total current liabilities			819,776,585		236,468,179		303,086,068			45,922,132
Total liabilities			819,776,585		236,468,179		303,086,068			45,922,132
Commitments and contingencies	17		—		—		—			—
Shareholder’s equity:
Ordinary shares (US$0.001 par value; 900,000,000 shares authorized as of December 31, 2008; 3,000,000,000 shares authorized as of December 31, 2009 and 2010; 716,375,000 issued and outstanding as of December 31, 2008 and 2009; 788,332,360 issued and outstanding as of December 31, 2010	11		4,893,500		4,893,500		5,381,321			815,352
Additional paid-in capital			330,214,330		332,354,066		361,736,018			54,808,488
Repurchased Shares to be cancelled, at cost (nil as of December 31, 2008 and 2009; 13,860,000 shares as of December 31, 2010)	11		—		—		(9,529,124	)		(1,443,807	)
Statutory reserves	13(b)		25,000,000		25,000,000		25,000,000			3,787,879
Retained earnings			27,934,770		114,400,440		126,034,102			19,096,076
Total shareholder’s equity			388,042,600		476,648,006		508,622,317			77,063,988
Total liabilities and shareholder’s equity			1,207,819,185		713,116,185		811,708,385			122,986,119

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

F-3

CONSOLIDATED STATEMENTS OF OPERATIONS

		Year ended December 31,
	Notes	2008			2009			2010			2010
		RMB			RMB			RMB			US$
											See Note 2(v)
Revenues:	2(i)
Advertising agency services			334,052,626			397,279,413			222,298,472			33,681,587
Advertisement production and sponsorship services			34,934,895			30,304,634			34,151,752			5,174,508
Total revenues			368,987,521			427,584,047			256,450,224			38,856,095
Less: business tax			(16,005,683	)		(16,021,579	)		(13,046,869	)		(1,976,798	)
Total net revenues			352,981,838			411,562,468			243,403,355			36,879,297
Operating costs and expenses:
Cost of revenues			(40,199,803	)		(40,239,024	)		(127,654,373	)		(19,341,572	)
Cost of revenues — media fees to a related party	18(b)		(163,200,000	)		(230,000,000	)		—			—
Sales and marketing expenses			(8,204,365	)		(17,362,444	)		(16,993,454	)		(2,574,766	)
General and administrative expenses			(24,486,814	)		(33,193,760	)		(35,832,156	)		(5,429,115	)
Total operating costs and expenses			(236,090,982	)		(320,795,228	)		(180,479,983	)		(27,345,453	)
Operating income			116,890,856			90,767,240			62,923,372			9,533,844
Interest and investment income	16		15,102,846			9,494,036			5,257,307			796,562
Other (expense) / income, net			(1,441,420	)		532,325			(6,765,851	)		(1,025,129	)
Income before tax			130,552,282			100,793,601			61,414,828			9,305,277
Income tax expense	9(b)		(20,138,650	)		(14,327,931	)		(21,522,126	)		(3,260,928	)
Net income			110,413,632			86,465,670			39,892,702			6,044,349
Attributable to :
Equity holders of the Company			110,413,632			86,465,670			39,892,702			6,044,349
Net income allocated to participating preferred shares			(9,751,329	)		—			—			—
Net income available to ordinary shareholders			100,662,303			86,465,670			39,892,702			6,044,349
Earnings per ordinary share, basic and diluted	10		0.17			0.11			0.05			0.01
Earnings per ADS, basic	10		5.12			3.29			1.52			0.23
Earnings per ADS, diluted	10		5.12			3.28			1.52			0.23
Shares used in calculating earnings per ordinary share, basic	10		589,764,324			788,012,500			787,181,901			787,181,901
Shares used in calculating earnings per ordinary share, diluted	10		589,764,324			789,860,806			788,662,085			788,662,085
Shares used in calculating earnings per ADS, basic	10		19,658,811			26,267,083			26,239,397			26,239,397
Shares used in calculating earnings per ADS, diluted	10		19,658,811			26,328,694			26,288,736			26,288,736

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

F-4

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

														Repurchased
					Series A									Shares to be
					Convertible						Additional			Cancelled,										Total
	Share Capital				Preferred Shares						Paid-in			at Cost					Statutory		Retained			Shareholder’s
	Shares		Amount		Shares			Amount			Capital			Shares		Amount			Reserve		Earnings			Equity
			RMB					RMB			RMB					RMB			RMB		RMB			RMB
Balance at January 1, 2008		412,400,000		2,812,149		87,600,000			597,343			46,700,503			—		—			18,450,237		60,154,571			128,714,803
Deemed distribution in connection with the Reorganization (Note 1(b))		—		—		—			—			(4,446,259	)		—		—			—		(10,553,741	)		(15,000,000	)
Conversion of preferred shares (Note 11)		87,600,000		597,343		(87,600,000	)		(597,343	)		—			—		—			—		—			—
Issuance of ordinary shares upon initial public offering (Note 1(a))		216,375,000		1,484,008		—			—			311,349,019			—		—			—		—			312,833,027
Issuance cost (Note 1(a))		—		—		—			—			(25,088,362	)		—		—			—		—			(25,088,362	)
Share-based compensation (Note 14)		—		—		—			—			1,699,429			—		—			—		—			1,699,429
Net income		—		—		—			—			—			—		—			—		110,413,632			110,413,632
Appropriation of earnings to statutory reserve (Note 13(b))		—		—		—			—			—			—		—			6,549,763		(6,549,763	)		—
Dividends declared (Note 12)		—		—		—			—			—			—		—			—		(125,529,929	)		(125,529,929	)
Balance at December 31, 2008		716,375,000		4,893,500		—			—			330,214,330			—		—			25,000,000		27,934,770			388,042,600
Share-based compensation (Note 14)		—		—		—			—			2,139,736			—		—			—		—			2,139,736
Net income		—		—		—			—			—			—		—			—		86,465,670			86,465,670
Balance at December 31, 2009		716,375,000		4,893,500		—			—			332,354,066			—		—			25,000,000		114,400,440			476,648,006
Stock dividends (Note 11)		71,637,500		485,702		—			—			27,773,338			—		—			—		(28,259,040	)		—
Share-based compensation (Note 14)		—		—		—			—			1,478,226			—		—			—		—			1,478,226
Ordinary shares issued upon exercise of employee stock options (Note 14)		319,860		2,119		—			—			130,388			—		—			—		—			132,507
Repurchase of ordinary shares to be cancelled (Note 11)		—		—		—			—			—			13,860,000		(9,529,124	)		—		—			(9,529,124	)
Net income		—		—		—			—			—			—		—			—		39,892,702			39,892,702
Balance at December 31, 2010		788,332,360		5,381,321		—			—			361,736,018			13,860,000		(9,529,124	)		25,000,000		126,034,102			508,622,317

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

F-5

CONSOLIDATED STATEMENTS OF CASH FLOWS

		Year ended December 31,
	Notes	2008			2009			2010			2010
		RMB			RMB			RMB			US$
											See Note 2 (v)
Cash flows from operating activities:
Net income			110,413,632			86,465,670			39,892,702			6,044,349
Adjustments to reconcile net income to net cash provided by / (used in) operating activities:
Depreciation expense			1,045,357			3,074,157			3,324,151			503,659
Interest income			(9,772,000	)		(5,994,921	)		(3,819,737	)		(578,748	)
Exchange loss			1,440,592			363,439			7,628,472			1,155,829
Share-based compensation			1,699,429			2,139,736			1,478,226			223,974
Gain on disposals of property and equipment			—			—			(281,912	)		(42,714	)
Changes in assets and liabilities:
Notes receivable			—			(1,937,450	)		(3,955,240	)		(599,279	)
Accounts receivable			(9,067,862	)		13,991,625			(615,456	)		(93,251	)
Prepaid expense and other current assets			(13,963,074	)		(29,448,793	)		30,701,202			4,651,697
Amount due from a related party			(1,000,000	)		1,000,000			—			—
Accounts payable			211,538,660			(279,638,966	)		106,048,144			16,067,901
Customer advances			(24,463,189	)		(54,765,336	)		18,654,346			2,826,416
Accrued expenses and other current liabilities			9,010,938			4,010,959			7,028,835			1,064,975
Taxes payable			5,693,062			(857,216	)		3,279,672			496,920
Amount due to related parties			169,162,446			(87,952,669	)		(47,500,000	)		(7,196,970	)
Net cash provided by / (used in) operating activities			451,737,991			(349,549,765	)		161,863,405			24,524,758
Cash flows from investing activities:
Net proceeds from (purchase of) / redemption short-term investments with terms of three months or less			(280,000,000	)		420,000,000			(70,000,000	)		(10,606,061	)
Proceed from sale of long-term investments held on behalf of shareholder			15,037,390			—			—			—
Purchase of property and equipment			(6,685,021	)		(23,451,242	)		(32,807,388	)		(4,970,816	)
Proceed from disposal of property and equipment			—			—			301,300			45,652
Increase in restricted cash			—			—			(10,000,000	)		(1,515,152	)
Gain on sale of investment			9,153,918			6,602,921			3,450,093			522,741
Net cash (used in) / provided by investing activities			(262,493,713	)		403,151,679			(109,055,995	)		(16,523,636	)
Cash flows from financing activities:
Net proceeds from issuance of ordinary shares upon IPO			287,744,663			—			—			—
Decrease of investment held on behalf of shareholder	18(b)		(15,043,236	)		—			—			—
Cash distributed in connection with the Reorganization	1(b)		—			(15,000,000	)		—			—
Cash payment for fixed assets transferred in connection with the Reorganization			(2,683,208	)		—			—			—
Dividends distributed	12		(29,194,814	)		(96,335,115	)		—			—
Repurchase of ordinary shares to be cancelled			—			—			(9,529,124	)		(1,443,807	)
Net cash (used in) / provided by financing activities			240,823,405			(111,335,115	)		(9,529,124	)		(1,443,807	)
Effect of exchange rate changes on cash and cash  equivalents			(1,440,592	)		(378,046	)		(7,628,472	)		(1,155,829	)
Net increase / (decrease) in cash and cash equivalents			428,627,091			(58,111,247	)		35,649,814			5,401,487
Cash and cash equivalents at beginning of the year			138,262,170			566,889,261			508,778,014			77,087,578
Cash and cash equivalents at end of the year			566,889,261			508,778,014			544,427,828			82,489,065
Supplemental disclosures of cash flow and non-cash information:
Cash paid for income taxes			8,669,897			16,201,167			14,272,177			2,162,451
Dividend declared but not paid	12		96,335,115			—			—			—
Purchase of property and equipment included in amounts due to related parties			51,000,000			—			—			—
Conversion of Series A convertible prefer shares into ordinary shares			597,343			—			—			—
Stock dividend distribution			—			—			28,259,040			4,281,673

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

F-6

NOTES TO THE FINANCIAL INFORMATION

1 Organization, principle activities and reorganization

(a) Organization and principle activities

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

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

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

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

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

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

(b) Reorganization

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

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

F-7

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

2 Summary of Significant Accounting Policies

(a) Basis of preparation and consolidation

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

The consolidated financial information of the Group has been prepared in accordance with the accounting principles generally accepted in the United States of America (“US GAAP”).

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

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

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

(b) Use of estimates

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

(c) Cash and cash equivalents

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

(d) Restricted cash

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

F-8

(e) Short-term investments

Short-term investments include investment funds with no fixed term or with terms less than one year. The investment funds are classified as available-for-sale investments and they are reported at fair value with unrealized gains (losses), if any, recorded as accumulated other comprehensive income in shareholder’s equity. Realized gains or losses are charged to the consolidated statements of operations during the period in which the gain or loss is realized. The Group recognized gains of RMB9,772,000, RMB5,994,921 and RMB3,819,737 from the available-for-sale investments for the years ended December 31, 2008, 2009 and 2010, respectively. There was no material unrealized gain (loss) at the end of each reporting period presented.

The Group considers available evidence, including the duration and extent to which declines in fair value of the available-for-sale investments compared to cost, in determining whether an unrealized loss is “other-than-temporary”. If the decline is considered other than temporary, the unrealized loss is recorded as other expense in the consolidated statements of operations. For each period presented, the Company did not record any charges to write down investments.

(f) Allowances for doubtful accounts

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

Allowances for doubtful accounts charged to the consolidated statements of operations amounted to RMB4,319,808 and RMB2,187,830 for the years ended December 31, 2008 and 2009, respectively. In 2010, a recovery of bad debt provision amounting to RMB2,493,558 was made to the consolidated statements of operations after the Group successfully collected a outstanding receivable from a client. In addition, a subsequent write-off of bad debt provision amounting to RMB 3,600,000 was made to the consolidated balance sheets when the Group reached a settlement agreement with Shidai Charm and Yida Charm where all parties agreed to waive all rights and obligations under the agreements and the relating courts' rulings. See Note19 “Subsequent Events”. Accounts receivable are stated net of such provisions.

(g)  Property and equipment, net

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

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

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

(h) Impairment of long-lived assets

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

(i) Revenue recognition

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

F-9

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

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

Advertising agency services

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

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

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

In order to obtain exclusive access to the CCTV-4 news related programs advertising time slots, starting from 2008, the Group purchases those CCTV-4 advertising time slots for a fixed media cost and attempts to sell the time slots to its customers. The Group believes it undertakes the majority of the risks and rewards in these arrangements. Therefore, revenues are recognized at gross billings to customers in accordance with the guidance from ASC 605-45 on the date of broadcast of their advertisements. Cost of purchasing the advertising time slots from the media supplier is recorded to cost of revenues over the period the time slots are broadcast on a straight line basis. The CCTV-4 revenues recognized at gross billing were approximately RMB 149.6 million, RMB 164.3 million and RMB 112.3 million for the years ended December 31, 2008, 2009 and 2010 respectively.

Production and sponsorship services

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

(j) Customer advances

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

F-10

(k) Operating leases

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

(l) Purchase commitments

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

(m) Foreign Currency Translation

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

(n) Income taxes

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

Under the Enterprise Income Tax Law (the “New EIT Law”) adopted by the Chinese National People’s Congress in March 2007, effective from January 1, 2008, dividends from earnings made after January 1, 2008, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise is subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. The BVI, where UIAL is incorporated, does not have such tax treaty with the PRC. This 10% withholding tax imposed on the dividend income received from the Group’s PRC subsidiary reduces the Group’s net income in accordance with ASC 740-30, “Income Taxes: Other Considerations or Special Areas”. It is the Company’s intention to permanently reinvest part of the earnings made by the Group’s PRC foreign-invested enterprise. Starting from January 1, 2008, the Group has accrued 10% withholding tax on those earnings from China operations that the Group has no intention to permanently reinvest.

(o) Comprehensive income

The Group has adopted the provision of ASC 220, “Comprehensive Income”. ASC 220 establishes standards for the reporting and display of comprehensive income, its components and accumulated balances. ASC 220 defines comprehensive income (loss) to include all changes in equity, including adjustments to minimum pension liabilities, accumulated foreign currency transaction, and unrealized gains or losses on marketable securities, except those resulting from investments by owners and distributions to owners. There have been no sources of other comprehensive income (loss) during the periods covered by the consolidated financial information.

(p) Fair value of financial instruments

Financial instruments include cash and cash equivalents, notes receivable, accounts receivable, short-term investments, accounts payable, accrued expenses and other current liabilities. As of December 31, 2008, 2009 and 2010, the carrying values of cash and cash equivalents, notes receivable, accounts receivable, short-term investments, accounts payable, accrued expenses and other current liabilities approximate their fair values.

F-11

(q)  Earnings per share

In accordance with ASC 260, “Earnings per Share”, the Group presents basic earnings per share and diluted earnings per share. Basic earnings per share is computed by dividing net income attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year using the two-class method. Under the two-class method, net income is allocated between ordinary shareholders and other participating securities based on their respective participating rights. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares. Ordinary share equivalents are excluded from the computation in loss periods as their effects would be anti-dilutive.

(r) Segment reporting

The Group operates and manages its business as a single segment. As the Group primarily generates its revenues from customers in the PRC, no geographical segments are presented.

(s) Share-based compensation

The Group has accounted for share-based compensation in accordance with ASC 718, “Compensation-Stock Compensation” for share-based payment transactions with employees. For service-based share options awards, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as an expense on a straight-line basis over the requisite service period for each separately vesting portion of the award, net of estimated forfeitures, over the requisite service period, which is generally the vesting period. For performance-based share options awards, share-based compensation cost is measured at the date that the performance goals and vesting schedule of these awards are determined by the board of directors. Share-based compensation costs are then recorded on a graded-vesting basis, net of estimated forfeitures, over the requisite service period, which is generally the vesting period; an evaluation is made each quarter as to the likelihood of the performance criteria being met.

The Group has accounted for share-based compensation in accordance with ASC 505-50, “Equity: Equity-Based Payments to Non-Employees” for share-based payment transactions with consultants. For each quarter, share-based compensation cost is measured at reporting date based on the fair value of the award.

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

(t) Fair value measurements

The Group adopted ASC 820, “Fair Value Measurements and Disclosures” for financial assets and liabilities. ASC 820 defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles, and expands disclosures about fair value measurement. The carrying amounts of the Group’s cash and cash equivalents, restricted cash and short-term investments approximate their fair value due to the short maturity of those instruments. The carrying value of receivables and payables approximates their market value based on their short-term maturities.

(u) Recently issued accounting standards

In January 2010, the FASB issued ASU 2010-06, “Improving Disclosures about Fair Value Measurements”. ASU 2010-06 requires new disclosures for significant transfers in and out of Level 1 and 2 fair value measurements and descriptions of the reasons for the transfer, and for level 3 fair value measurements new disclosures will require entities to present information separately for purchases, sales, issuances, and settlements. ASU 2010-06 also updates existing disclosures by providing fair value measurement disclosures for each class of assets and liabilities and disclosures about valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements. The new disclosures and clarifications on existing disclosures were effective for interim and annual reporting periods beginning after December 15, 2009, except for disclosures about purchase, sales, issuances, and settlements in the roll forward activity for Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The new disclosure requirements will not have a material impact on the Group’s consolidated financial information.

F-12

In April 2010, the FASB issued an accounting standards update on the effect of denominating the exercise price of share-based payment awards in the currency of the market in which the underlying equity security trades. This updates the guidance in ASC 718, Compensation — Stock Compensation to clarify that share-based payment awards with an exercise price denominated in the currency of a market in which a substantial portion of the underlying equity security trades should not be considered to meet the criteria requiring classification as a liability. The updated guidance is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. Early adoption is permitted. This amendment is not expected to have a material impact on the Group’s financial position, results of operations or cash flows. In July 2010, the FASB issued an accounting standards update that enhances disclosures about the credit quality of financing receivables and the allowance for credit losses. The amendment requires an entity to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. In addition, it requires disclosure of credit quality indicators, past due information, and modifications of its financing receivables. For public entities, the disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010. For non-public entities, the disclosures are effective for annual reporting periods ending on or after December 15, 2011. Since the Group does not have financial receivable as defined in the standard, its adoption is not expected to have a material impact on the Group’s financial position, results of operations or cash flows.

(v) Convenience translation

Translations of amounts in the consolidated balance sheets and consolidated statements of operations and of cash flows as of and for the year ended December 31, 2010, from RMB into United States dollars (“US$”) are solely for the convenience of the reader and were calculated at the rate of USD1.00 = RMB6.6, representing the noon buying rate in the City of New York for cable transfers of RMB, as certified for customs purposes by the Federal Reserve Bank of New York, on December 31, 2010. No representation is made that the RMB amount could have been, or could be, converted, realized or settled into US$ at that rate on December 31, 2010, or at any other rate.

3 Concentration and Risks

(a) Ultimate media supplier

The Group’s business substantially depends on CCTV. The Group relies on its access to advertising time slots on CCTV, to broadcast the customers’ advertisements. Any unfavorable change of CCTV’s advertising model, any change that adversely affect CCTV’s marketing option or limitation on the Group’s access to desired television time slots could harm the effectiveness and attractiveness of the Group’s advertising services.

(b) Major customers

No customer represents more than 10% of the Group’s consolidated revenues for any of the periods presented.

(c) Credit risk

Financial instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments and accounts receivable. The Group adopts a conservative approach in cash flow management with an objective to maintain sufficient cashflow to cover its total expenses and not to engage in any highly leveraged or speculative derivative products. In the event that there is idle cash, the Group will invest in short term products offered with listed PRC financial institutions to earn better interest income than placing into saving accounts and the Board considers that the credit risk in respect of those short terms investment are very low.

F-13

The Group primarily collects revenues for advertising services up front and has not experienced significant losses from uncollectible accounts. The Group will continue to evaluate its collection experience and will provide for an allowance for doubtful accounts as appropriate.

(d) Foreign currency risk

A majority of the Group’s sales and expenses transactions and a significant portion of the Group’s assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Group in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.

4 Short-term Investments

	December 31,
	2008		2009		2010
	RMB		RMB		RMB
Short-term investments:
Investment funds — unlisted		500,000,000		80,000,000		150,000,000

The fair value of above short-term investments approximately equal to their carrying value and the unrealized gains and losses were immaterial as of December 31, 2008, 2009 and 2010.

At December 31, 2010, the Group has invested RMB 150,000,000 (December 31, 2009, RMB 80,000,000; December 31, 2008, RMB500,000,000) into certain investment funds issued by Industrial and Commercial Bank of China. These investment funds invest in highly rated government bonds, bank notes, financial bonds and inter-bank short-term financial instruments. The Group’s investment in these investment funds mature within three months.

5  Accounts Receivable, Net

	December 31,
	2008			2009			2010
	RMB			RMB			RMB
Accounts receivable, gross		18,687,001			6,883,206			1,405,104
Allowance for doubtful accounts		(4,319,808	)		(6,507,638	)		(414,080	)
Accounts receivable, net		14,367,193			375,568			991,024

The movement of the allowance for doubtful accounts receivable for the years ended December 31, 2008, 2009 and 2010 are as below:

	Year ended December 31,
	2008			2009			2010
	RMB			RMB			RMB
Beginning of the period		—			(4,319,808	)		(6,507,638	)
Additions		(4,319,808	)		(4,035,920	)		—
Recoveries		—			1,848,090			2,493,558
Write-offs		—			—			3,600,000
End of the period		(4,319,808	)		(6,507,638	)		(414,080	)

F-14

6 Prepaid Expenses and Other Current Assets

	December 31,
	2008		2009		2010
	RMB		RMB		RMB
Bidding and agency deposits to CCTV		16,005,000		37,064,000		10,543,000
Deferred business tax and related surcharges		41,315,128		10,733,566		16,166,210
Prepayment for advertising time slots		—		8,623,096		4,604,154
Capitalized project cost		7,457,063		2,701,267		4,202,896
Interests receivable		786,740		751,617		1,004,055
Advances to staff		1,687,876		3,760,306		65,600
Prepayment for share repurchase (Note 11)		—		—		3,716,276
Others		1,049,716		2,926,900		1,492,152
Total		68,301,523		66,560,752		41,794,343

7 Property and Equipment, Net

	December 31,
	2008			2009			2010
	RMB			RMB			RMB
Computers and electronic equipment		709,685			1,175,560			1,590,637
Office equipment		173,556			778,459			795,240
Office furniture		99,658			306,230			304,945
Vehicles		4,714,560			4,714,560			10,238,139
Office property (Note 18(b))		52,610,000			52,610,000			52,610,000
Total		58,307,459			59,584,809			65,538,961
Less: accumulated depreciation		(1,046,251	)		(4,120,408	)		(6,936,461	)
Net book value		57,261,208			55,464,401			58,602,500

The depreciation expenses for property and equipment were RMB1,045,357, RMB3,074,157 and RMB3,324,151 for the years ended December 31, 2008, 2009 and 2010, respectively.

8  Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

	December 31,
	2008		2009		2010
	RMB		RMB		RMB
Deposits from customers		5,638,510		4,821,658		6,806,392
Accrued professional fees		2,928,152		5,214,163		4,250,666
Accrued production fees		1,686,583		1,845,577		805,000
Deferred withholding income tax liabilities		2,263,171		2,955,794		6,623,152
Accrued payroll		424,642		1,954,314		5,126,314
Others		824,032		984,543		1,193,360
Total		13,765,090		17,776,049		24,804,884

F-15

9 Taxation

(a) Taxes payable

	December 31,
	2008		2009		2010
	RMB		RMB		RMB
Income tax payable		9,175,580		6,609,723		10,192,314
Business tax and related surcharges payable		42,623,211		13,568,058		18,720,924
Other taxes payable		159,886		342,118		324,801
Total		51,958,677		20,519,899		29,238,039

(b) Income tax

The Company was incorporated in the Cayman Islands and only has operations in the PRC.

Components of income before income taxes are as follows:

	Year ended December 31,
	2008			2009			2010
	RMB			RMB			RMB
Income before taxes		130,552,282			100,793,601			61,414,828
Loss from non PRC operation		5,352,609			12,888,391			21,077,531
Income from the PRC operation		135,904,891			113,681,992			82,492,359
Income tax expenses applicable to the PRC operation		20,138,650			14,327,931			21,522,126
Effective tax rate for PRC operations		14.8	%		12.6	%		26.1	%

Cayman Islands and BVI

Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain. Additionally, upon payments of dividends by the Company to its shareholders, no Cayman Islands tax will be imposed.

The subsidiary in British Virgin Islands under the International Business Companies Act of the British Virgin Islands is exempted from payment of British Virgin Islands income tax.

China

On January 1, 2008, the New EIT Law, which unifies the statutory income tax rate of enterprises in China to 25%, became effective. In accordance with the New EIT Law, there was a transition period for enterprises, which received preferential tax treatments granted by relevant tax authorities. Enterprises that are subject to an enterprise income tax rate lower than 25% may continue to enjoy the lower rate and gradually transit to the new tax rate within five years after the effective date of the New EIT Law. During the transition period, the preferential tax rates for operations within Shenzhen Special Economic Zone (“SZSEZ”) are 18%, 20%, 22%, 24% and 25% for the years ended December 31, 2008, 2009 and 2010 and years ending December 31, 2011 and 2012, respectively. In addition, the tax holiday grandfathering provision allowed enterprises to continue to enjoy their unexpired tax holiday under the previous income tax laws and rules. Universal continued to enjoy a 50% tax reduction from the preferential tax rate for the years ended December 31, 2008 and 2009. From 2010 to 2012, Universal’s tax rate transits from the preferential rates to the new uniform tax rate of 25%. Accordingly, the tax rates for Universal’s operations within SZSEZ were 9%, 10% and 22% for the years ended December 31, 2008, 2009 and 2010, respectively. The tax rates for Universal’s operations outside of SZSEZ were 12.5% for the years ended December 31, 2008 and 2009 and 25% for the year ended December 31, 2010.

F-16

As described in Note 2(n), under the New EIT Law, dividends, interests, rent, royalties and gains on transfers of property payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise is subject to a 10% withholding tax, unless such non-resident enterprise’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a reduced rate of withholding tax. On February 22, 2008, the Ministry of Finance and State Tax Bureau jointly issued a circular which stated that for foreign invested enterprises, all profits accumulated up to December 31, 2007 are exempted from withholding tax when they are distributed to foreign investors. Accordingly, the Group accrued 10% withholding tax, amounted to RMB5,398,047, RMB 2,274,872 and RMB 1,885,677 respectively, on net income attributable to UIAL, the foreign investor of Universal, which arose in 2008, 2009 and 2010 that is not indefinitely reinvested. Unrecognized deferred withholding tax liability related to undistributed earnings considered to be indefinitely reinvested was RMB3,491,264, RMB 9,116,114 and RMB 13,516,028 as of December 31, 2008, 2009 and 2010 respectively. No withholding taxes were accrued for the profits accumulated up to December 31, 2007. There were no material deferred tax assets or liabilities other than those related to undistributed earnings that will not be indefinitely reinvested.

Reconciliation of the difference between statutory tax rate and the effective tax rate for the PRC operation for the periods presented:

	Year ended December 31,
	2008			2009			2010
Statutory income tax rate		25.0	%		25.0	%		25.0	%
Effect of tax holiday		-12.5	%		-12.5	%		—
Effect of preferential tax rate for operations in SZSEZ		-1.7	%		-1.3	%		-1.5	%
Effect of withholding income tax in relation to net income attributable to foreign investor of the PRC operation		4.0	%		2.0	%		2.3	%
Difference between enacted tax rate and current tax rate		—			-0.8	%		0.1	%
Permanent book-tax differences		—			0.2	%		0.2	%
Effective tax rate		14.8	%		12.6	%		26.1	%

The aggregate amount and per share effect of the benefit of the tax holiday are as follows:

	Year ended December 31,
	2008		2009		2010
	RMB		RMB		RMB
The aggregate dollar effect		16,988,111		14,210,249		—
Per share effect, basic and diluted		0.03		0.02		—

Hong Kong

No provision has been made for Hong Kong profits tax as the Group did not earn any taxable income subject to Hong Kong profits tax for the periods presented.

(c) Business tax (“BT”) and related surcharges

The Group is subject to BT and related surcharges levied on advertising services in China, which are approximately 8% (increased to 8.5% starting from December 1, 2010) of certain net or value added advertising revenues. Deferred business tax and related surcharges assets are recognized when the tax invoice has not been received from the media suppliers for the media fees accrued. Upon receipt of the tax invoice from the media suppliers, the deferred business tax and related surcharges assets are offset against the business tax and related surcharges payable.

F-17

10  Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share as retroactively adjusted for all periods presented for the 1 for 10 stock dividends declared by the Board on May 22, 2010 (Note 11):

	Year ended December 31,
	2008			2009		2010
	RMB			RMB		RMB
Numerator:
Net income		110,413,632			86,465,670		39,892,702
Net income allocated to participating Series A convertible preferred shares		(9,751,329	)		—		—
Net income available to ordinary shareholders		100,662,303			86,465,670		39,892,702
Numerator for computing earnings per ordinary share, basic and diluted		100,662,303			86,465,670		39,892,702
Numerator for computing earnings per preferred share, basic and diluted		9,751,329			—		—
Denominator:
Weighted average shares outstanding used in computing basic earnings per ordinary share		589,764,324			788,012,500		787,181,901
Effect of dilutive share options for ordinary shares		—			1,848,306		1,480,184
Weighted average shares used in computing diluted earnings per ordinary share		589,764,324			789,860,806		788,662,085
Weighted average preferred shares outstanding used in computing basic and diluted earnings per preferred share		57,131,476			—		—
Weighted average shares used in computing basic earnings per ADS		19,658,811			26,267,083		26,239,397
Effect of dilutive share options for ADS		—			61,611		49,339
Weighted average shares used in computing diluted earnings per ADS		19,658,811			26,328,694		26,288,736
Earnings per ordinary share, basic and diluted		0.17			0.11		0.05
Earnings per preferred share, basic and diluted		0.17			—		—
Earnings per ADS, basic		5.12			3.29		1.52
Earnings per ADS, diluted		5.12			3.28		1.52

For the year ended December 31, 2008, options to purchase ordinary shares that were anti-dilutive and excluded from the calculation of diluted net income per share were approximately 40,637,000.

11 Shareholders’ equity

Ordinary Shares

The Company was authorized to issue 900,000,000 ordinary shares and 100,000,000 preferred shares, at par value of US$0.001 per share upon inception. On November 13, 2007 the Group issued 1,000 ordinary shares to Mr. Shengcheng Wang, for cash consideration of US$0.001 (adjusted for the effect of the share split on July 18, 2008).

On March 6, 2008, the Company issued 99,000 ordinary shares for cash consideration of US$99 (adjusted for the effect of the share split on July 18, 2008) to companies controlled by Mr. Shengcheng Wang, the Company’s chairman and chief executive officer. Such issuance was accounted for in a manner similar to a share split.

On June 16, 2008, the Company issued 412,300,000 ordinary shares for cash consideration of US$412 (adjusted for the effect of the share split on July 18, 2008). After the issuance, the issued and outstanding ordinary shares of the Company have been increased to 412,400,000 (adjusted for the effect of the share split on July 18, 2008). At the same time, the Company issued 87,600,000 preferred shares (adjusted for the effect of the share split on July 18, 2008) to the existing shareholders controlled by Mr. Shengcheng Wang for cash consideration of US$88. Both issuances were treated as stock splits.

Subsequent to the issuance of the shares, on June 24, 2008, the existing shareholders controlled by Mr. Shengcheng Wang entered into investment agreements with a group of third parties and sold the preferred shares at US$ 60 million.

When the existing shareholders sold the preferred shares, they granted additional rights to the group of third parties with no recourse back to the Company. None of the proceeds from the sale proceeds were received by the Company.

F-18

The preferred shares have been treated as a stock split because the purpose of the preferred shares issuance was to obtain wider distribution and to improve marketability of the Company’s equity, and that the issuance did not grant the existing shareholders controlled by Mr. Shengcheng Wang any additional ownership rights to the residual net assets of the Company they did not have previously.

On July 18, 2008, the Company issued 999 additional shares for every outstanding ordinary and Preferred Share. The share issuances were accounted for as a 1,000-for-one share split.

Accordingly, all shares and per share amounts in the accompanying consolidated financial information have been revised on a retroactive basis to reflect the effect of the issuances on November 13, 2007, March 6, 2008 and June 16, 2008.

On July 23, 2008, the existing shareholders controlled by Mr. Shengcheng Wang entered into an agreement to repurchase all the preferred shares for US$60 million plus one month of interest at an annual rate of 8.0%. None of the repurchase cost was borne by the Company. The existing shareholders controlled by Mr. Shengcheng Wang agreed to convert all the existing preferred shares into ordinary shares upon completion of the Company’s US IPO.

On August 7, 2008, the Company completed its US IPO where 7,212,500 ADS, representing 216,375,000 ordinary shares, were sold at a price of US$6.80 per ADS (or US$0.23 per ordinary share). Upon completion of US IPO, all outstanding preferred shares were automatically converted into 87,600,000 ordinary shares.

On December 10, 2009, at the Company’s annual general meeting of shareholders, shareholders approved the increase of the Company’s authorized share capital divided into 3,000,000,000 shares of a par value of US$0.001 each.

Stock Dividend

On May 22, 2010, the Board declared the distribution of a dividend in form of issuing new fully paid ordinary shares (“New Shares”) at the rate of one New Share for every 10 existing issued ordinary shares held by any shareholder whose name appears on the register of members of the Company at the close of business on June 16, 2010. The issuance of no more than 71,637,500 ordinary shares, par value US$0.001 per share, of the Company as a stock dividend was approved at its extraordinary general meeting of shareholders held on July 19, 2010.

The dividend was paid in the form of additional ordinary shares on December 31, 2010. The number of options and exercise price of all options issued and outstanding has been adjusted to prevent dilution caused by this stock dividend to holders of stock options as approved by the Board of Directors (Note 14). The Group has retroactively adjusted basic and diluted earnings per share for all periods presented to reflect this stock dividend.

Share Repurchase to be cancelled

On September 27, 2010, the Board approved a share repurchase program. Under the terms of this program, the Company may repurchase and cancel up to US$6.0 million worth of its issued and outstanding ADSs by and before November 1, 2011. Any repurchase will be made from time to time on the open market at prevailing market prices, in negotiated transactions off the market, in block trades. The timing and extent of any repurchases will depend upon market conditions, the trading price of ADSs and other factors, and be subject to the restrictions relating to volume, price and timing under applicable laws. As of December 31, 2010, the Company has repurchased 462,000 ADSs (13,860,000 ordinary shares) with the amount of US$ 1.4 million, which have been cancelled as at the Latest Practicable Date.

12 Dividends

	Year ended December 31,
	2008
	RMB
Cash dividend declared and paid
Cash dividend declared and paid attributable to earnings from the previous periods		29,194,814
Subtotal		29,194,814
Cash dividend declared but unpaid
Cash dividend declared but unpaid at December 31, 2008 (paid in 2009) attributable to earnings from the period		28,213,880
Cash dividend declared but unpaid at December 31, 2008 (paid in 2009) attributable to earnings from the previous periods		68,121,235
Subtotal		96,335,115
Total cash dividend declared during the year		125,529,929
Dividends declared per ordinary share		0.19

F-19

No cash dividend was declared in 2009 and 2010. Refer to Note 11 for stock dividend declared in 2010.

13 Mainland China Contribution Plan and Profit Appropriation

(a) China contribution plan

Full-time employees of the Group are entitled to staff welfare benefits including medical care, welfare subsidies, unemployment insurance and pension benefits through a PRC government mandated multi-employer defined contribution plan. The Group is required to make contributions to the Chinese government based on certain percentages of the employees’ salaries. The Chinese government is responsible for the medical benefits and the pension liability to be paid to these employees and the Group’s obligations are limited to the amounts contributed. The total contribution for such employee benefits were not material for the periods presented.

(b) Statutory reserves

Universal is required to make appropriations to reserves, comprising the statutory surplus reserve and discretionary surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (the “PRC GAAP”). Appropriation to the statutory surplus reserve should be at least 10% of the after-tax net income determined in accordance with the legal requirements in the PRC until the reserve is equal to 50% of the entities’ registered capital. Appropriation to the discretionary surplus reserve is made at the discretion of the Board of Directors. Statutory surplus reserve and discretionary surplus reserve are established for the purpose of offsetting accumulated losses, enlarging productions or increasing share capital. The Group had appropriated RMB6,549,763, nil, and nil to the statutory surplus reserve for the years ended December 31, 2008, 2009 and 2010 for Universal in accordance with the PRC GAAP.

14 Share-based Compensation

On July 1, 2008, the Company adopted an equity incentive plan (the “2008 Equity Incentive Plan”). The 2008 Equity Incentive Plan provided for the grant of options, share appreciation rights, restricted shares, restricted share units, and other share-based awards. The maximum aggregate number of ordinary shares that may be issued under the plan is 50,000,000, plus an annual increase in the number of ordinary shares available for issuance equal to 2% of the outstanding ordinary shares on the first day of a fiscal year or such lesser amount as determined by the board of directors. The share options granted vest over 4 years and have a contractual term of 10 years. Some of the share options are subject to certain performance conditions. The grant date of performance based share options is determined to be the date when performance targets are set because a mutual understanding of the key terms and conditions have not been reached until then.

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

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

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

On February 21, 2009, the Company’s board of directors resolved to offer to the holders of stock options the opportunity to modify the terms of their existing options through (i) resetting the exercise price of each option to US$0.0726 per ordinary share, which equals approximately one-thirtieth (owing to the 30 to 1 ordinary share to ADS ratio) of the average closing trading price per ADS of the Company reported on NYSE Arca in the last 60 trading days immediately prior to February 13, 2009; and (ii) reducing the number of each award of options by 50%. No other changes were made to the terms and conditions of the stock options. All holders of stock options accepted the offer by February 27, 2009. As a result of this modification, a total of RMB 1.8 million (US$ 0.3 million) additional share-based compensation expense will be amortized over the remaining vesting period of 3 years and 4 months since March 1, 2009. The option activities for the years ended December 31, 2008, 2009 and 2010 are as follows:

	Number of options			Weighted average exercise price		Weighted average remaining contractual term		Aggregate intrinsic value
Balance at January 1, 2008		—			—		—		—
Granted on July 1, 2008		42,891,000		US$	0.685	6.25 years
Forfeited		(2,254,000	)	US$	0.685	6.25 years
Balance at December 31, 2008		40,637,000		US$	0.685	5.75 years			—
Modification		(25,813,625	)		—
Granted on December 31, 2009		1,516,750		US$	0.0726	6.25 years
Forfeited		(912,916	)	US$	0.0726	5.75 years
Balance at December 31, 2009		15,427,209		US$	0.0726	4.75 years		RMB	1,580,100
Granted on June 30, 2010		45,000		US$	0.0726	6 months
Increase due to declaration of stock dividend (Note 11)		1,486,071		US$	0.066	4.25 years
Granted on December 31, 2010		1,437,425		US$	0.066	3.75 years
Exercised		(319,860	)	US$	0.066
Forfeited		(1,574,025	)	US$	0.066	4.75 years
Balance at December 31, 2010		16,501,820		US$	0.066	3.75 years		RMB	4,553,610
Vested and expected to vest at December 31, 2010		16,216,524		US$	0.066	3.75 years		RMB	4,468,373
Exercisable at December 31, 2010		9,217,345		US$	0.066	3.75 years		RMB	2,543,488

Valuation of Stock Options

The fair value of options granted under the 2008 Equity Incentive Plan is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

	Year ended December 31,
	2008			2009			2010
Expected term (in years)		6.25			4.75			4
Expected volatility		50	%		60	%		60	%
Risk-free interest rate		3.49	%		2.53	%		1.52	%
Expected dividend yield		6	%		6.73	%		6.73	%

The expected term represents the weighted average period of time that share-based awards granted are expected to be outstanding.

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The expected volatility of 50% in 2008 was based on the average volatility of several comparable U.S. listed companies in the advertising industry. Since the Company did not have a trading history at the time the options were issued, the Company estimated the potential volatility of its ordinary share price by referring to the average volatility of these comparable companies because management believes that the average volatility of such companies was a reasonable benchmark to use in estimating the expected volatility of the Company’s ordinary shares. The expected volatility of 60% in 2009 and 2010 was estimated based on historical volatility.

Risk-free interest rate is based on US Treasury zero-coupon issues with maturity terms similar to the expected term on the share-based awards. The Company anticipates to distribute 20-30% of its annual earnings as cash dividends in the foreseeable future.

Compensation Costs

For the years ended December 31, 2008, 2009 and 2010, the Company recognized share-based compensation expenses in the Company’s consolidated statements of operations for the share options granted to directors and employees in accordance with ASC 718 and for the share options granted to consultants in accordance with ASC 505-50. The total compensation costs have been recognized on a straight line basis over the requisite service period for each separately vesting portion of the award.

	Year ended December 31,
	2008		2009		2010
	RMB		RMB		RMB
Cost of revenues		33,757		432,876		318,912
Sales and marketing		221,166		516,512		317,734
General and administrative		1,444,506		1,190,348		841,580
Total		1,699,429		2,139,736		1,478,226

As of December 31, 2010, there was RMB0.7 million (December 31, 2009: RMB2.3 million; December 31, 2008: RMB4.4 million) of unrecognized compensation cost, adjusted for estimated forfeitures, related to non-vested share-based awards granted to the Company’s employees which will be recognized over a weighted-average period of 1.5 years (December 31, 2009: 2.5 years; December 31, 2008 3.5 years). When estimating forfeitures, the Company considers voluntary termination behavior as well as analysis of actual option forfeitures. Total unrecognized compensation cost may be adjusted for future changes in estimated forfeitures.

15 Fair Value Measurements

ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 — Inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 — Inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3—Inputs are defined as unobservable inputs for the asset or liability.

The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In accordance with ASC 820, the Group measures its cash equivalents, restricted cash and investment funds at fair value. The Group’s cash equivalents, restricted cash and investment funds are classified within Level 2. This is because its cash equivalents, restricted cash and investment funds are valued using the estimated value of cash equivalents, restricted cash and investment funds when realized provided by the banks, discounted using estimated risk-free interest rate.

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Assets measured at fair value on a recurring basis are summarized below:

	Fair value measurement at reporting date using
	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents:
Time deposits		20,000,000		—		20,000,000		—
Restricted cash
Restricted deposit		10,000,000		—		10,000,000		—
Short term investments:
Investment funds		150,000,000		—		150,000,000		—
		180,000,000		—		180,000,000		—

	Fair value measurement at reporting date using
	December 31, 2009		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents:
Time deposits		40,000,000		—		40,000,000		—
Short term investments:
Investment funds		80,000,000		—		80,000,000		—
		120,000,000		—		120,000,000		—

	Fair value measurement at reporting date using
	December 31, 2008		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Cash equivalents:
Time deposits		438,349,411		—		438,349,411		—
Short term investments:
Investment funds		500,000,000		—		500,000,000		—
		938,349,411		—		938,349,411		—

16 Interest and investment income

	December 31,
	2008		2009		2010
	RMB		RMB		RMB
Interest income		5,330,846		3,499,115		1,437,570
Investment income		9,772,000		5,994,921		3,819,737
		15,102,846		9,494,036		5,257,307

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17 Commitments and Contingencies

(a) Operating lease commitments

The Group has entered into certain leasing arrangements relating to the lease of the Group’s office premises. Rental expenses under operating leases for the years ended December 31, 2008, 2009 and 2010 were RMB 3,553,469, RMB 104,004 and RMB 772,939, respectively.

As at December 31, 2010, the Group has commitments under non-cancellable operating leases to make minimum payments as follows:

	December 31, 2010
	RMB
Within 1 year		211,023
After 1 year but within 5 years		189,544
Total		400,567

(b) Other fixed or guaranteed payment contract

i)  On June 20, 2008, Universal entered into a five-year contract to secure the exclusive advertising rights to CCTV’s Spanish and French Channels, under which Universal is committed to pay media fees of RMB1.0 million in the second year and RMB2.0 million in the third year of the contract. The media fees for the remaining term will be determined by CCTV and Universal in the future.

ii)  As of December 31, 2010, the Group had agreed to pay RMB 73.5 million to purchase the related advertising time slots of the CCTV-4 News at Periodic China News package in 2011. As at December 31, 2010, the Group had paid RMB 12.1 million of RMB 73.5 million to CCTV as security deposit and advances.

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18  Related Party Transactions

(a) The table below sets forth the major related parties and their relationships with the Group:

Related party’s name	Relationship with the Group
Mr. Zhiyi Wang	Father of Mr. Shengcheng Wang, controlling shareholder of the Group before the reorganization
Shenzhen Guang Er Gao Zhi Co., Ltd. (“Shenzhen Guang Er Gao Zhi”)	Shareholder of Mass Media (51%), under the control of Mr. Shengcheng Wang’s parents
Beijing Guang Er Gao Zhi Media Advertising Co., Ltd. (“Beijing Guang Er Gao Zhi”)	Under the control of Mr. Shengcheng Wang’s parents
Guang Er Gao Zhi Film and Television Production Co., Ltd. (“FTP”)	50% controlled by Beijing Guang Er Gao Zhi
Beijing Mass Media Web Media Co., Ltd. (“Beijing Mass Media Web Media”)	Under the control of Mr. Shengcheng Wang’s parents
Mass Media International Advertising Co., Ltd. (Mass Media)	Predecessor of Universal, which was excluded from the Group, effective from December 30, 2007

(b) Details of significant related party transactions are as follows during the periods presented:

	Year ended December 31,
	2008		2009		2010
	RMB		RMB		RMB
Lease office premise from Mr. Zhiyi Wang		1,735,646		—		—
Lease office premise from FTP		1,704,824		—		—
Purchase of advertising time slots from FTP		211,506,020		296,559,920		—
Provision of advertising services to FTP		3,786,800		—		—
Film production and advertising services to Mass Media		2,025,772		—		—
Purchase of remaining 30% equity interests of Universal held by Shenzhen Guang Er Gao Zhi(2)		15,000,000		—		—
Purchase of office property from Mr. Zhiyi Wang		24,020,000		—		—
Purchase of office property from FTP		26,980,000		—		—
Lease office premise to FTP		—		493,440		493,440
Purchase advertising agency service from FTP		—		—		300,000
Sale of used vehicle to Beijing Mass Media Web Media		—		—		300,000
Lease office furniture and equipment from FTP		—		—		103,000

F-25

Prior to February 15, 2008, UIAL’s shareholder and his immediate family used the cash and investment accounts of UIAL to hold their personal cash and investments. On February 15, 2008, such cash and investment amounts were transferred to a company outside of the Group, which is controlled by Mr. Shengcheng Wang’s immediate family. Since the cash and investment balances were held on trust for the shareholder, no interest expense for the loan or investment income for the cash and investment account were recognized by the Group. The net movements of these balances were included in financing activities in cash flow statements.

	Year ended December 31,
	2008			2009		2010
	RMB			RMB		RMB
Movement of shareholder’s cash and investment accounts / payable to shareholder, excluding effect of foreign currency exchange		(15,043,236	)		—		—

According to the reorganization agreement, starting from January 1, 2008, Mass Media ceased all its advertising and film production operations. However, there were three advertisement production and sponsorship service contracts outstanding to be completed as at December 31, 2007, and the customers declined to sign another set of agreements with Universal as those projects were close to completion. In order to deliver uncompleted services, Mass Media engaged Universal as a service contractor and paid the net income earned from these service contracts, amounted to RMB2,025,772, to Universal as advertisement production and sponsorship service fees.

In June 2008, UIAL agreed to complete the purchase of the remaining 30% equity interests of Universal held by Shenzhen Guang Er Gao Zhi for RMB15,000,000, which represents the initial cost of investment made and capital contributed by Shenzhen Guang Er Gao Zhi. This amount was recorded as a distribution to shareholder.

(c) Purchase of advertising time slots from FTP

In December 2007, the Group entered into a framework agreement with FTP, an advertising agency that has secured advertising rights relating to a number of television programs on CCTV. FTP is 50%-owned by CCTV and 50%-owned by Beijing Guang Er Gao Zhi. Beijing Guang Er Gao Zhi is controlled by the parents of Mr. Shengcheng Wang. Under the framework agreement, the Group has obtained the exclusive right from FTP to procure advertisers for the advertising time slots FTP has secured from CCTV, effective from January 1, 2008.

On January 22, 2008, Universal entered into an exclusive advertising service agency contract with FTP to secure exclusive access to some advertising time slots that FTP obtained from CCTV Channel 2 and Channel 4 and paid a guarantee deposit of RMB1,000,000 to FTP. For the year ended December 31, 2008, the purchase of advertising time slots on CCTV Channel 2 and Channel 4 from FTP was RMB48,306,020 and RMB163,200,000, respectively. For the year ended December 31, 2009, the purchase of advertising time slots on CCTV Channel 2 and Channel 4 from FTP was RMB66,559,920 and RMB230,000,000, respectively.

(d) Details of amount due from/to related parties were as follows:

	December 31,
	2008		2009		2010
	RMB		RMB		RMB
Due from FTP		1,000,000		—		—
Due to Mass Media (Note 1(b))		18,878,848		18,878,848		18,878,848
Accounts payable to FTP		194,544,236		108,189,776		34,358,200
Due to Mr. Zhiyi Wang		23,505,994		—		—
Due to Mr. Shengcheng Wang		280,716		—		—
Due to Shenzhen Guang Er Gao Zhi Co., Ltd.		15,000,000		—		—

The balances due from/to related parties are unsecured, non-interest bearing and have no fixed terms of payment.

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19 Subsequent Events

(a) Stock options

On April 1, 2011, the Company’s board of directors resolved to award share options under the 2008 Equity Incentive Plan to certain executive officers and directors to purchase 15,478,625 ordinary shares of the Company at an exercise price of US$0.078 per share. The share options granted vest over 4 years and have a contractual term of 10 years. Certain share options are subject to certain performance conditions.

(b) Litigation with Charm

In March 2010, Universal initiated an action against a customer, Beijing Shidai Charm Advertising Co., Ltd. (“Shidai Charm”), a subsidiary of Charm, for outstanding advertising agent fees of RMB 3.6 million and interest of RMB 0.5 million based on a supplemental agreement dated June 30, 2009. In November 2010, Universal received the final ruling from relevant court in favour of Universal.

In May 2010, Beijing Yida Charm Advertising Co., Ltd (“Yida Charm”), another subsidiary of Charm, filed an action against Universal, alleging that Universal failed to pay them certain promotion and advertising services fee in an amount of RMB 3.6 million based on a supplemental agreement also dated June 30, 2009. In November 2010, Universal received the final ruling from relevant court in favour of Yida Charm.

In June 2011, Universal reached a settlement agreement with Shidai Charm and Yida Charm where all parties agreed to waive all rights and obligations under the aforementioned agreements and the relating courts' rulings. The Group subsequently wrote off the receivable from the outstanding advertising agent fees and interest, as well as the relating bad debt provision.

(c) Employee claim

On February 25, 2010, Yu Jia, a former employee of Universal, filed an application to Beijing Xicheng District Labor Arbitration Committee (“Xicheng Arbitration Committee”) against Universal Beijing Branch claiming: (1) salary differences for the two-month period between December 2009 and January 2010 in the amount of RMB48,526.68 plus relevant compensation of 25% of such amount; and (2) unfair dismissal from the post of media purchase director of Universal Beijing Branch on January 29, 2010 and reinstatement to her original duty from that date. On January 20, 2011, Xicheng Arbitration Committee ruled in favor of Yu on both claims and Universal Beijing shall pay Yu RMB281, 532.23 in total. On January 31, 2011, Universal Beijing Branch filed a lawsuit to Beijing Xicheng District Court against the arbitration ruling made by Xicheng Arbitration Committee.

The case is currently pending on court ruling. The Company does not expect the lawsuit will have any significant financial impact on the Company.

F-27

20 Additional Information — Condensed Financial Statements of the Company

Rule 12-04(a) and 4-08(e)(3) of Regulation S-X require condensed financial information as to financial position, changes in financial position and results of operations of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of consolidated and unconsolidated subsidiaries together exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. As of December 31, 2010, RMB75,109,995 of the Group’s consolidated net assets was not available for distribution, representing approximately 14.8% of the Group’s consolidated net asset value. There were no undistributed retained earnings by the equity accounted investees in the consolidated retained earnings.

F-28