424B3 1 form424b3.htm YOU ON DEMAND HOLDINGS 424B3 7-12-2011 form424b3.htm

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-175215
 
PROSPECTUS
 
 
 
YOU ON DEMAND HOLDINGS, INC.
 
79,065,972 Shares of Common Stock
 
This prospectus relates to 79,065,972 shares of common stock of YOU On Demand Holdings, Inc. that may be sold from time to time by the selling stockholders named in this prospectus.

We will not receive any proceeds from sales by the selling stockholders.

Our common stock is quoted on the Over-the-Counter Bulletin Board, or the OTCBB, under the symbol “CBBD”.  The closing price for our Common Stock on June 23, 2011 was $0.09 per share, as reported on the OTCBB. You are urged to obtain current market quotations of our Common Stock before purchasing any of the shares being offered for sale pursuant to this prospectus.

Any participating broker-dealers and any selling stockholders who are affiliates of broker-dealers may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, or the Securities Act, and any commissions or discounts given to any such broker-dealer or affiliates of a broker-dealer may be regarded as underwriting commissions or discounts under the Securities Act.  The selling stockholders have informed us that they do not have any agreement or understanding, directly or indirectly, with any person to distribute their common stock.

Investing in our common stock involves a high degree of risk.  See “Risk Factors” beginning on page 4 to read about factors you should consider before buying shares of our common stock.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete.  Any representation to the contrary is a criminal offense.
 
The date of this prospectus is July 12, 2011.
 
 
 

 
 
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You should only rely on the information contained in this prospectus.  We have not, and the selling stockholders have not, authorized any other person to provide you with different information.  This prospectus is not an offer to sell, nor is it seeking an offer to buy, these securities in any state where the offer or sale is not permitted.  The information in this prospectus is accurate only as of the date on the front cover, but the information may have changed since that date.
 

 
 The items in the following summary are described in more detail later in this prospectus.  This summary provides an overview of selected information and does not contain all the information you should consider.  Therefore, you should also read the more detailed information set out in this prospectus, including the financial statements, the notes thereto and matters set forth under “Risk Factors.”
 
·
Except as otherwise indicated by the context, references in this prospectus to “we,” “us,” “our,” “our Company,” or “the Company” are to the combined business of YOU On Demand Holdings, Inc., a Nevada corporation, and its consolidated subsidiaries and variable interest entities.
·
In addition, unless the context otherwise requires and for the purposes of this prospectus only:
·
“AdNet” refers to Wanshi Wangjing Media Technologies (Beijing) Co., Ltd. (a/k/a Adnet Media Technologies (Beijing) Co., Ltd.), a PRC company controlled by CB Cayman through a contractual arrangement;
·
“CB Cayman” refers to our wholly-owned subsidiary China Broadband Ltd., a Cayman Islands company;
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“Exchange Act” refers to the Securities Exchange Act of 1934, as amended;
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“Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China;
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“Jinan Broadband” refers to Jinan Guangdian Jiahe Broadband Co., Ltd., a PRC joint venture owned 51% by WFOE and 49% by Jinan Parent;
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“Jinan Parent” refers to Jinan Guangdian Jiahe Digital Television Co., Ltd., a PRC company;
·
“Jinan Zhongkuan” refers to Jinan Zhongkuan Dian Guang Information Technology Co., Ltd., a PRC company owned 90% by Pu Yue and 10% by Liang Yuejing, PRC individuals, and controlled by CB Cayman through contractual arrangements;
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“Modern Movie” refers to Modern Movie and TV Biweekly Press, a PRC company;
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“Networks Center” refers to Jinan Radio & Television Network;
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“PPV” refers to pay-per-view;
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“PRC,” “China,” and “Chinese,” refer to the People’s Republic of China;
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“Renminbi” and “RMB” refer to the legal currency of China;
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“SEC” refers to the Securities and Exchange Commission;
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“Securities Act” refers to the Securities Act of 1933, as amended;
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“Shandong Broadcast” refers to Shandong Broadcast & TV Weekly Press, a PRC company;
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“Shandong Publishing” refers to Shandong Lushi Media Co., Ltd., a PRC company owned 50% by Jinan Zhongkuan, 30% by Shandong Broadcast and 20% by Modern Movie;
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“Sinotop Beijing” refers to Sino Top Scope Technology Co., Ltd., a PRC company controlled by Sinotop Hong Kong through contractual arrangements;
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“Sinotop Hong Kong” refers to Sinotop Group Limited, a Hong Kong company wholly-owned by CB Cayman;
·
“U.S. dollars,” “dollars,” “US$” and “$” refer to the legal currency of the United States;
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“VIEs” refers to our variable interest entities, including Jinan Broadband, Shandong Publishing and Sinotop Beijing;
·
“VOD” refers to video on demand; and
·
“WFOE” refers to Beijing China Broadband Network Technology Co., Ltd., a PRC company wholly-owned by CB Cayman. 
·
In this prospectus we are relying on and we refer to information and statistics regarding the media industry in China that we have obtained from various public sources.  Any such information is publicly available for free and has not been specifically prepared for us for use or incorporation in this prospectus or otherwise.


The Company
 
Overview of our Business
 
We operate in the media segment, through our Chinese subsidiaries and variable interest entities (“VIEs”), (1) a business which provides integrated value-added service solutions for the delivery of pay-per-view (“PPV”), video on demand (“VOD”), and enhanced premium content for cable providers, (2) a cable broadband business based in the Jinan region of China and (3) a television program guide, newspaper and magazine publishing business based in the Shandong region of China. 

On July 30, 2010, we acquired Sinotop Group Limited (“Sinotop Hong Kong”) through our subsidiary China Broadband Ltd. (“CB Cayman”).  Through a series of contractual arrangements, Sinotop Hong Kong controls Sino Top Scope Technology Co., Ltd. (“Sinotop Beijing”).  Through Sinotop Beijing, a corporation established in the PRC which is party to a joint venture with two other PRC companies, we plan to provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers.

Through our VIE Jinan Broadband, we provide cable and wireless broadband services, principally internet services, Internet Protocol Point wholesale services, related network equipment rental and sales, and fiber network construction and maintenance.  Jinan Broadband’s revenue consists primarily of sales to our PRC-based internet consumers, cable modem consumers, business customers and other internet and cable services. This broadband business accounted for 63% of our revenues in 2010.

Through our VIE Shandong Publishing, we operate our publishing business, which includes the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services. Shandong Publishing’s revenue consists primarily of sales of publications and advertising revenues. Our publishing business accounted for 37% of our revenues in 2010.

We acquired AdNet during the first half of 2009.  Due to the shift of our business model to the PPV and VOD business, as of December 31, 2009, we permanently suspended the day-to-day operations of AdNet.  We have maintained our technology and other assets of AdNet for future use in our new pay-per-view business.
 
See “Corporate History and Structure” later in this prospectus for additional information on our VIE structures.
 
Our Industry
 
Until 2005, there were over 2,000 independent cable operators in the PRC.  While the PRC’s State Administration of Radio, Film, and Television (“SARFT”) has advocated for national consolidation of cable networks, the consolidation has primarily occurred at the provincial level.  The 30 provinces are highly variable in their consolidation efforts and processes.  
 
SARFT has taken various steps to implement a separation scheme to achieve economies of scale in the value-added service and cable operation sector.  First, SARFT has been separating cable network assets from broadcasting assets and currently allows state-owned-enterprises to hold up to 49% in the cable network infrastructure assets.  Second, SARFT is separating the value-added services segment from the network infrastructure which tends to increase private investments.
 
Due to its highly-regulated nature, we believe that the radio and broadcasting industry does not have the same financial resources as the deregulated telecom industry in China, and that the priorities and goals of this industry are different from the telecom industry.
 
We believe that SARFT and its broadcasters are currently focusing on increasing subscription revenues by converting Chinese television viewers from “analog” service to “digital” (pay TV) service.  The digitalization efforts include providing set-top-boxes free of charge as part of a digital television service bundling initiative.   Due to the lack of financial resources, we believe that the roll-out of cable broadband services and other value-added services has moved lower on SARFT’s priority list.
 
Our Growth Strategy
 
We intend to implement the following strategic plans to take advantage of industry opportunities and expand our business:
 
·  
Pay-Per-View and Video On Demand Services. Through our recently announced acquisition of Sinotop Hong Kong, and its VIE, Sinotop Beijing, which is a party to a joint venture consisting of partnerships with two major PRC companies, we have received an exclusive and national license to deploy PPV and VOD services onto cable TV networks throughout China. Currently we have access to the largest movie library in China and we plan to acquire content from entertainment companies and studios in the U.S. and other parts of the world to deliver an integrated solution for enhanced premium content through cable providers. There are over 175 million cable television households in China and we plan to capitalize on the revenue opportunities as the government continues to mandate the switch from analog to digital cable by 2015.
 
 
·  
Focus on Additional Delivery Platforms. Once we build an extensive entertainment content library and establish our reputation within the cable television industry, we plan to expand the distribution of our content over multiple delivery platforms including internet, mobile, internet protocol television (“IPTV”) and satellite to expand out product offerings and diversifying our revenue streams.
 
·  
Deployment of Value-added Services. To augment our product offerings and create other revenue sources, we work with strategic partners to deploy value-added services to our cable broadband customers.  Value-added services will become a focus of revenue generation. 
 
Our Corporate History
 
YOU On Demand Holdings, Inc. (formerly China Broadband, Inc.), our parent holding company, was formed in the State of Nevada on October 22, 2004, pursuant to a reorganization of a California entity formed in 1988.   Prior to January 2007, we were a blank check shell company.  
 
On January 23, 2007, we acquired CB Cayman, which at the time was a party to the cooperation agreement with our PRC-based WFOE, in a reverse acquisition transaction.
 
All of our business operations are conducted through our Chinese subsidiaries and VIEs, as described under “Corporate History and Structure” below.
 
Office Location
 
The address of our principal executive office is 27 Union Square West, Suite 502, New York, New York 10003 and our telephone number is (212) 206-1216.  We maintain a website at www.yod.com.
 

The Offering
 
Common stock offered by selling stockholders
 
 
79,065,972 shares.  This number represents 10.07% of our current outstanding common stock (1)
Common stock outstanding before the offering
 
 
79,065,972 shares.
Common stock outstanding after the offering
 
 
79,065,972 shares.
Offering Price
 
The selling stockholders will determine at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices.
 
Proceeds to us
 
All of the shares of common stock being offered under this prospectus are being offered and sold by the selling stockholders. Accordingly, we will not receive any proceeds from the resale of the shares by the selling security holders.
 
Risk Factors
 
See “Risk Factors” beginning on page 5 of this prospectus and the risk factors set forth in our annual report on Form 10-K for the year ended December 31, 2010, for a discussion of factors you should carefully consider before deciding to invest in our securities.
 
(1)
Based on 785,034,721 shares of common stock outstanding as of June 23, 2011.
 
Unless we specifically state otherwise, the share information in this prospectus excludes shares of our common stock issuable upon conversion of outstanding preferred stock and the exercise of warrants or options outstanding as of 23, 2011.
 
 
An investment in our common stock involves a high degree of risk.  You should carefully consider the risks described below, together with all of the other information included in this prospectus, before making an investment decision.  If any of the following risks actually occurs, our business, financial condition or results of operations could suffer.  In that case, the trading price of our common stock could decline, and you may lose all or part of your investment
 
RISKS RELATED TO OUR BUSINESS
 
Our auditors have expressed substantial doubt in their report on our financial statements about our ability to continue as a going concern.
 
Our auditors have included an explanatory paragraph in their report dated as of April 15, 2011 on our consolidated financial statements for the year ended December 31, 2010, indicating that there is substantial doubt regarding our ability to continue as a going concern.  The financial statements included elsewhere in this prospectus do not include any adjustments to asset values or recorded liability amounts that might be necessary in the event we are unable to continue as a going concern. If we are in fact unable to continue as a going concern, our shareholders may lose their entire investment in our Company. Expansion of our business may put added pressure on our management and operational infrastructure impeding our ability to meet any potential increased demand for our services and possibly hurting our future operating results.
 
Our business plan is to significantly grow our operations to meet anticipated growth in demand for the services that we offer, and by the introduction of new goods or services.  Growth in our businesses may place a significant strain on our personnel, management, financial systems and other resources.  The evolution of our business also presents numerous risks and challenges, including:
 
·  
our ability to successfully and rapidly expand sales to potential new distributors in response to potentially increasing demand;
 
 
·  
the costs associated with such growth, which are difficult to quantify, but could be significant; and
·  
rapid technological change.

The June 2011 private placements (discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations) help the Company accommodate any such growth and compete effectively.  However, we may need to obtain additional funding to improve information systems, procedures and controls and expand, train, motivate and manage our employees, and such funding may not be available in sufficient quantities, if at all.  If we are not able to manage these activities and implement these strategies successfully to expand to meet any increased demand, our operating results could suffer.
 
In order to comply with PRC regulatory requirements, we operate our businesses through companies with which we have contractual relationships but in which we do not have controlling ownership. If the PRC government determines that our agreements with these companies are not in compliance with applicable regulations, our business in the PRC could be materially adversely affected.
 
 We do not have direct or indirect equity ownership of our VIEs, which collectively operate all our businesses in China. At the same time, however, we have entered into contractual arrangements with each of our VIEs and their individual owners pursuant to which we received an economic interest in, and exert a controlling influence over each of the VIEs, in a manner substantially similar to a controlling equity interest.
 
 Although we believe that our current business operations are in compliance with the current laws in China, we cannot be sure that the PRC government would view our operating arrangements to be in compliance with PRC regulations that may be adopted in the future. If we are determined not to be in compliance, the PRC government could levy fines, revoke our business and operating licenses, require us to discontinue or restrict our operations, restrict our right to collect revenues, require us to restructure our business, corporate structure or operations, impose additional conditions or requirements with which we may not be able to comply, impose restrictions on our business operations or on our customers, or take other regulatory or enforcement actions against us that could be harmful to our business. As a result, our business in the PRC could be materially adversely affected.
 
We rely on contractual arrangements with our VIEs for our operations, which may not be as effective in providing control over these entities as direct ownership.
 
Our operations and financial results are dependent on our VIEs in which we have no equity ownership interest and must rely on contractual arrangements to control and operate the businesses of each of our VIEs. These contractual arrangements are not as effective in providing control over the VIEs as direct ownership. For example, one of the VIEs may be unwilling or unable to perform their contractual obligations under our commercial agreements. Consequently, we would not be able to conduct our operations in the manner currently planned. In addition, any of the VIEs may seek to renew their agreements on terms that are disadvantageous to us. Although we have entered into a series of agreements that provide us with substantial ability to control the VIEs, we may not succeed in enforcing our rights under them insofar as our contractual rights and legal remedies under PRC law are inadequate. In addition, if we are unable to renew these agreements on favorable terms when these agreements expire or enter into similar agreements with other parties, our business may not be able to operate or expand, and our operating expenses may significantly increase.
 
Our arrangements with our VIEs and their respective shareholders may be subject to a transfer pricing adjustment by the PRC tax authorities which could have an adverse effect on our income and expenses.
 
 We could face material and adverse tax consequences if the PRC tax authorities determine that our contracts with our VIEs and their respective shareholders were not entered into based on arm’s length negotiations. Although our contractual arrangements are similar to other companies conducting similar operations in China, if the PRC tax authorities determine that these contracts were not entered into on an arm’s length basis, they may adjust our income and expenses for PRC tax purposes in the form of a transfer pricing adjustment. Such an adjustment may require that we pay additional PRC taxes plus applicable penalties and interest, if any.
 
The success of our business is dependent on our ability to retain our existing key employees and to add and retain senior officers to our management.
 
We depend on the services of our existing key employees, in particular, Mr. Shane McMahon, our Chairman and Chief Executive Officer, Mr. Marc Urbach, our President and Chief Financial Officer, and Mr. Weicheng Liu, a Senior Executive Officer.  Our success will largely depend on our ability to retain these key employees and to attract and retain qualified senior and middle level managers to our management team. We have recruited executives and management in China to assist in our ability to manage the business and to recruit and oversee employees.  While we believe we offer compensation packages that are consistent with market practice, we cannot be certain that we will be able to hire and retain sufficient personnel to support our business.  In addition, severe capital constraints have limited our ability to attract specialized personnel.  Moreover, our budget limitations will restrict our ability to hire qualified personnel.  The loss of any of our key employees would significantly harm our business. We do not maintain key person life insurance on any of our employees.
 
Our officers and directors may allocate their time to other businesses, and are or may be affiliated with entities that may cause conflicts of interest.
 
Certain officers and all of our directors have the ability to allocate their time to other businesses and activities, thereby causing possible conflicts of interest in their determination as to how much time to devote to the affairs of our Company.
 
These individuals are engaged in several other business endeavors and will continue to be so involved from time to time, and are not obligated to devote any specific number of hours to our affairs.  If other business affairs require them to devote more substantial amounts of time to such affairs, it could limit their ability to devote time to our affairs and could have a negative impact on our ongoing business.  Certain of our officers and directors are now, and all of them may in the future become, affiliated with entities engaged in business activities similar to those intended to be conducted by us or otherwise, and accordingly, may have conflicts of interest in allocating their time and determining to which entity a particular investment or business opportunity should be presented. Moreover, in light of our officers’ and directors’ existing affiliations with other entities, they may have fiduciary obligations to present potential investment and business opportunities to those entities in addition to presenting them to us, which could cause additional conflicts of interest.  While we do not believe that any of our officers or directors has a conflict of interest in terms of presenting to entities other than our investment and business opportunities that may be suitable for it, conflicts of interest may arise in the future in determining to which entity a particular business opportunity should be presented.
 
We can not assure you that any conflicts will be resolved in our favor.  These possible conflicts may inhibit the activities of such officers and directors in seeking acquisition candidates to expand the geographic reach of the Company or broaden its service offerings.  For a complete description of our management’s other affiliations, see “Management’’ below.  In any event, it cannot be predicted with any degree of certainty as to whether or not our officers or directors will have a conflict of interest with respect to a particular transaction as such determination would be dependent upon the specific facts and circumstances surrounding such transaction at the time.
 
We may be unable to compete successfully against new entrants and established industry competitors.
 
The Chinese market for internet content and services is intensely competitive and rapidly changing. Barriers to entry are relatively minimal, and current and new competitors can launch new websites at a relatively low cost.  Many companies offer competitive products or services including Chinese language-based Web search, retrieval and navigation services, wireless value-added services, online games and extensive Chinese language content, informational and community features and e-mail.  In addition, as a consequence of China joining the World Trade Organization, the Chinese government has partially lifted restrictions on foreign-invested enterprises so that foreign investors may hold in the aggregate up to approximately 51% of the total equity ownership in any value-added telecommunications business, including an Internet business, in China.
 
Currently, our competition comes from standard “telephone” internet providers. Any of our present or future competitors may offer products and services that provide significant performance, price, creativity or other advantages over those offered by us and, therefore, achieve greater market acceptance than ours.
 
Because many of our existing competitors, as well as a number of potential competitors, have longer operating histories in the internet market, greater name and brand recognition, better connections with the Chinese government, larger customer bases and databases and significantly greater financial, technical and marketing resources than we have, we cannot assure you that we will be able to compete successfully against our current or future competitors. Any increased competition could reduce page views, making it difficult for us to attract and retain users, reduce or eliminate our market share, lower our profit margins and reduce our revenues.
 
Unexpected network interruption caused by system failures may reduce user base and harm our reputation.
 
Both the continual and foremost accessibility of internet service websites and the performance and reliability of our technical infrastructure are critical to our reputation and the ability of our internet services to attract and retain users and advertisers. Any system failure or performance inadequacy that causes interruptions or delays in the availability of our services or increases the response time of our services could reduce user satisfaction and traffic, which would reduce the internet service appeal to users of “high speed” internet usage. As the number of users and traffic increase, we cannot assure you that we will be able to scale our systems proportionately. In addition, any system failures and electrical outages could materially and adversely impact our business.
 
 
Computer viruses may cause delays or interruptions on our systems and may reduce our customer base and harm our reputation.
 
Computer viruses may cause delays or other service interruptions on our systems. In addition, the inadvertent transmission of computer viruses could expose us to a material risk of loss or litigation and possible liability. We may be required to expend significant capital and other resources to protect our internet service against the threat of such computer viruses and to alleviate any problems. Moreover, if a computer virus affecting our system is highly publicized, our reputation could be materially damaged and customers may cancel our service.
 
If our providers of bandwidth and server custody service fail to provide these services, our business could be materially curtailed.
 
We rely on affiliates of Jinan Parent to provide us with bandwidth and server custody service for Internet users.  If Jinan Parent or their affiliates fail to provide such services or raise prices for their services, we may not be able to find a reliable and cost-effective substitute provider on a timely basis or at all. If this happens, our business could be materially curtailed.
 
We face strong competition from both local and foreign competitors and increased competition could negatively affect our financial results.
 
Our magazines compete with a number of other magazine publishers. Both local and overseas publishers issue business related magazines in China, some of which may have substantially greater financial resources than us that may enhance their ability to compete in the publication of sales and marketing periodicals. In addition, we face broad competition for audiences and advertising revenue from other media companies that produce magazines, newspapers and online content. Overall competitive factors include product positioning, editorial quality, circulation, price and customer service. Competition for advertising dollars is primarily based on advertising rates, the nature and scope of readership, reader response to advertisers’ products and services and the effectiveness of the sales team. Increased competition could force us to lower our prices or offer services at a higher cost to us, which could reduce our operating income.
 
Since we publish our magazines in China, we are subject to the Chinese Advertising Law, which imposes upon us restrictions regarding the content of our publication and our ability, as a foreign corporation, to own media assets in China.
 
The advertising industry in China is governed by the Advertising Law which came into effect in February 1995. Advertisers, advertising operators and distributors, including entities such as ourselves, which engage in advertising activities are required to comply with applicable procedures and provisions under the Advertising Law. If our operations are determined to be in breach of the Advertising Law, penalties may be imposed which include fines, confiscation of advertising fees, orders to cease dissemination of the relevant advertisement and orders to publish an advertisement with corrective information.
 
Our PPV and VOD business depends on third parties to provide the programming that we offer to subscribers in China, and if we are unable to secure access to this programming, we may be unable to attract subscribers.
 
Our PPV and VOD business depends on third parties to provide us with programming services which we would distribute to our subscribers in China. We plan to negotiate with various U.S. entertainment studios to secure access to programming content, however we may not be able to obtain access to the programming content on favorable terms or at all.  If we are unable to successfully negotiate agreements for access to high quality programming content, we may not be able to attract subscribers for our service and our operating results would be negatively affected.
 
If we are unable to attract subscribers for our PPV and VOD services, or are unable to successfully negotiate agreements with cable television providers in China to deliver our programming content, our financial performance will be adversely affected.
 
At present, there is a limited market for PPV and VOD services in China, and there is no guarantee that a market will develop or that we will be able to attract subscribers to purchase our services.  In addition, we rely on cable television providers to deliver our programming content to subscribers and we may not be able to negotiate agreements to deliver our programming content on favorable terms or at all.  If we are unable to attract subscribers or successfully negotiate delivery agreements with cable television providers, our financial performance will be adversely affected.
 
 
We may be exposed to potential risks relating to our internal controls over financial reporting.
 
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports, including Form 10-K.  Under current law, we were subject to these requirements beginning with our annual report for the fiscal year ended December 31, 2007.  Our internal control over financial reporting and our disclosure controls and procedures have been ineffective, and failure to improve them could lead to future errors in our financial statements that could require a restatement or untimely filings, which could cause investors to lose confidence in our reported financial information, and a decline in our stock price.
 
We are constantly striving to establish and improve our business management and internal control over financial reporting to forecast, budget and allocate our funds.  However, as a PRC company that has become a US public company, we face difficulties in hiring and retaining a sufficient number of qualified employees to achieve and maintain an effective system of internal control over financial reporting in a short period of time.
 
In connection with the preparation and audit of our 2010 financial statements and notes, we were informed by our auditor, UHY LLP, or UHY, of certain deficiencies in our internal controls that UHY considered to be material weaknesses.  These deficiencies related to the lack of sufficient internal personnel with an adequate level of accounting knowledge, experience and training.  The Company utilizes external consultants to assist in the selection and application of US GAAP and related SEC disclosure requirements.
 
Because of the above-referenced deficiencies and weaknesses in our disclosure controls and procedures in internal control over financial reporting, we may be unable to comply with the SOX 404 internal controls requirements.  As a result of any deficiencies and weaknesses, we may experience difficulty in collecting financial data and preparing financial statements, books of account and corporate records, and instituting business practices that meet international standards, failure of which may prevent us from accurately reporting our financial results or detecting and preventing fraud.
 
RISKS RELATED TO DOING BUSINESS IN CHINA
 
Changes in China's political or economic situation could harm us and our operating results.
 
Economic reforms adopted by the Chinese government have had a positive effect on the economic development of the country, but the government could change these economic reforms or any of the legal systems at any time. This could either benefit or damage our operations and profitability. Some of the things that could have this effect are:
 
·  
 
Level of government involvement in the economy;
·  
 
Control of foreign exchange;
·  
 
Methods of allocating resources;
·  
 
Balance of payments position;
·  
 
International trade restrictions; and
·  
 
International conflict.

The Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD, in many ways. For example, state-owned enterprises still constitute a large portion of the Chinese economy, and weak corporate governance and the lack of a flexible currency exchange policy still prevail in China. As a result of these differences, we may not develop in the same way or at the same rate as might be expected if the Chinese economy was similar to those of the OECD member countries.
 
Increased government regulation of the telecommunications and Internet industries in China may result in the Chinese government requiring us to obtain additional licenses or other governmental approvals to conduct our business which, if unattainable, may restrict our operations.
 
The telecommunications industry is highly regulated by the Chinese government, the main relevant government authority being the Ministry of Information Industry, or MII. Prior to China’s entry into the World Trade Organization, the Chinese government generally prohibited foreign investors from taking any equity ownership in or operating any telecommunications business.  Internet Content Provider, or ICP, services are classified as telecommunications value-added services and therefore fall within the scope of this prohibition. This prohibition was partially lifted following China’s entry into the World Trade Organization, allowing foreign investors to own interests in Chinese businesses. In addition, foreign and foreign invested enterprises are currently not able to apply for the required licenses for operating cable broadband services in China.
 
 
We cannot be certain that we will be granted any of the appropriate licenses, permits or clearance that we may need in the future. Moreover, we cannot be certain that any local or national ICP or telecommunications license requirements will not conflict with one another or that any given license will be deemed sufficient by the relevant governmental authorities for the provision of our services.
 
We rely exclusively on contractual arrangements with Jinan Parent and its approvals to operate as an ICP. We believe that our present operations are structured to comply with applicable Chinese law. However, many Chinese regulations are subject to extensive interpretive powers of governmental agencies and commissions. We cannot be certain that the Chinese government will not take action to prohibit or restrict our business activities. We are uncertain as to whether the Chinese government will reclassify our business as a media or retail company, due to our acceptance of fees for Internet advertising, online games and wireless value-added and other services as sources of revenues, or as a result of our current corporate structure. Such reclassification could subject us to penalties, fines or significant restrictions on our business. Future changes in Chinese government policies affecting the provision of information services, including the provision of online services, internet access, e-commerce services and online advertising, may impose additional regulatory requirements on us or our service providers or otherwise harm our business.
 
Uncertainties with respect to the PRC legal system could limit the legal protections available to you and us.
 
We conduct substantially all of our business through our subsidiaries in the PRC. Our subsidiaries are generally subject to laws and regulations applicable to foreign investments in China and, in particular, laws applicable to foreign-invested enterprises. The PRC legal system is based on written statutes, and prior court decisions may be cited for reference but have limited precedential value. Since 1979, a series of new PRC laws and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since the PRC legal system continues to evolve rapidly, the interpretations of many laws, regulations, and rules are not always uniform, and enforcement of these laws, regulations, and rules involve uncertainties, which may limit legal protections available to you and us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.
 
The PRC government exerts substantial influence over the manner in which we must conduct our business activities.
 
The PRC government has exercised and continues to exercise substantial control over virtually every sector of the Chinese economy through regulation and state ownership. Our ability to operate in China may be harmed by changes in its laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property, and other matters. We believe that our operations in China are in material compliance with all applicable legal and regulatory requirements. However, the central or local governments of the jurisdictions in which we operate may impose new, stricter regulations or interpretations of existing regulations that would require additional expenditures and efforts on our part to ensure our compliance with such regulations or interpretations.
 
Accordingly, government actions in the future, including any decision not to continue to support recent economic reforms and to return to a more centrally planned economy or regional or local variations in the implementation of economic policies, could have a significant effect on economic conditions in China or particular regions thereof and could require us to divest ourselves of any interest we then hold in Chinese properties or joint ventures.
 
Future inflation in China may inhibit our ability to conduct business in China.
 
In recent years, the Chinese economy has experienced periods of rapid expansion and highly fluctuating rates of inflation. During the past ten years, the rate of inflation in China has been as high as 5.9% and as low as -0.8% . These factors have led to the adoption by the Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our products and our company.
 
Restrictions on currency exchange may limit our ability to receive and use our sales effectively.
 
The majority of our revenues will be settled in RMB and U.S. dollars, and any future restrictions on currency exchanges may limit our ability to use revenue generated in RMB to fund any future business activities outside China or to make dividend or other payments in U.S. dollars. Although the Chinese government introduced regulations in 1996 to allow greater convertibility of the RMB for current account transactions, significant restrictions still remain, including primarily the restriction that foreign-invested enterprises may only buy, sell or remit foreign currencies after providing valid commercial documents, at those banks in China authorized to conduct foreign exchange business. In addition, conversion of RMB for capital account items, including direct investment and loans, is subject to governmental approval in China, and companies are required to open and maintain separate foreign exchange accounts for capital account items. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of the RMB.
 
 
Fluctuations in exchange rates could adversely affect our business and the value of our securities.
 
The value of our common stock will be indirectly affected by the foreign exchange rate between the U.S. dollar and RMB and between those currencies and other currencies in which our revenues may be denominated. Appreciation or depreciation in the value of the RMB 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 that will be exchanged into U.S. dollars, as well as earnings from, and the value of, any U.S. dollar-denominated investments we make in the future.
 
Since July 2005, the RMB has no longer been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, the RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future PRC authorities may lift restrictions on fluctuations in the RMB exchange rate and lessen intervention in the foreign exchange market.
 
Very limited hedging transactions are available in China to reduce our exposure to exchange rate fluctuations. To date, we have not entered into any hedging transactions. While we may enter into hedging transactions in the future, the availability and effectiveness of these transactions may be limited, and we may not be able to successfully hedge our exposure at all. In addition, our foreign currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert RMB into foreign currencies.
 
Restrictions under PRC law on our PRC VIEs’ ability to make dividends and other distributions could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends to you, and otherwise fund and conduct our business.
 
Substantially all of our revenues are earned by our PRC VIEs. However, PRC regulations restrict the ability of our PRC VIEs to make dividends and other payments to its offshore parent company. PRC legal restrictions permit payments of dividends by our PRC VIEs only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC VIEs are also required under PRC laws and regulations to allocate at least 10% of their annual after-tax profits determined in accordance with PRC generally accepted accounting principles to a statutory general reserve fund until the amounts in said fund reaches 50% of our registered capital. Allocations to these statutory reserve funds can only be used for specific purposes and are not transferable to us in the form of loans, advances, or cash dividends. Any limitations on the ability of our PRC VIEs to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
 
Because Our Assets Are Located In China, Any Dividends Of Proceeds From Liquidation Is Subject To The Approval Of The Relevant Chinese Government Agencies.
 
Our assets are located inside China. Under the laws governing foreign invested enterprises in China, dividends of proceeds from liquidation are allowed but subject to special procedures under the relevant laws and rules. Any dividend of proceeds from liquidation is subject to both the relevant government agency’s approval and supervision as well as the foreign exchange control. This may generate additional risk for our investors in case of liquidation.
 
Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident stockholders to personal liability, limit our ability to acquire PRC companies or to inject capital into PRC subsidiaries, limit our PRC subsidiary's ability to distribute profits to us or otherwise materially adversely affect us.
 
In October 2005, the PRC State Administration of Foreign Exchange, or SAFE, issued the Notice on Relevant Issues in the Foreign Exchange Control over Financing and Return Investment Through Special Purpose Companies by Residents Inside China, generally referred to as Circular 75, which required PRC residents to register with the competent local SAFE branch before establishing or acquiring control over an offshore special purpose company, or SPV, for the purpose of engaging in an equity financing outside of China on the strength of domestic PRC assets originally held by those residents. Internal implementing guidelines issued by SAFE, which became public in June 2007 (known as Notice 106), expanded the reach of Circular 75 by (1) purporting to cover the establishment or acquisition of control by PRC residents of offshore entities which merely acquire “control” over domestic companies or assets, even in the absence of legal ownership; (2) adding requirements relating to the source of the PRC resident’s funds used to establish or acquire the offshore entity; (3) covering the use of existing offshore entities for offshore financings; (4) purporting to cover situations in which an offshore SPV establishes a new subsidiary in China or acquires an unrelated company or unrelated assets in China; and (5) making the domestic affiliate of the SPV responsible for the accuracy of certain documents which must be filed in connection with any such registration, notably, the business plan which describes the overseas financing and the use of proceeds. Amendments to registrations made under Circular 75 are required in connection with any increase or decrease of capital, transfer of shares, mergers and acquisitions, equity investment or creation of any security interest in any assets located in China to guarantee offshore obligations, and Notice 106 makes the offshore SPV jointly responsible for these filings. In the case of an SPV which was established, and which acquired a related domestic company or assets, before the implementation date of Circular 75, a retroactive SAFE registration was required to have been completed before March 31, 2006. This date was subsequently extended indefinitely by Notice 106, which also required that the registrant establish that all foreign exchange transactions undertaken by the SPV and its affiliates were in compliance with applicable laws and regulations. Failure to comply with the requirements of Circular 75, as applied by SAFE in accordance with Notice 106, may result in fines and other penalties under PRC laws for evasion of applicable foreign exchange restrictions. Any such failure could also result in the SPV’s affiliates being impeded or prevented from distributing their profits and the proceeds from any reduction in capital, share transfer or liquidation to the SPV, or from engaging in other transfers of funds into or out of China.
 
 
We have asked our stockholders who are PRC residents, as defined in Circular 75, to register with the relevant branch of SAFE as currently required in connection with their equity interests in us and our acquisitions of equity interests in our PRC subsidiary. However, we cannot provide any assurances that they can obtain the above SAFE registrations required by Circular 75 and Notice 106. Moreover, because of uncertainty over how Circular 75 will be interpreted and implemented, and how or whether SAFE will apply it to us, we cannot predict how it will affect our business operations or future strategies. For example, our present and prospective PRC subsidiaries' ability to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 75 and Notice 106 by our PRC resident beneficial holders.
 
In addition, such PRC residents may not always be able to complete the necessary registration procedures required by Circular 75 and Notice 106. We also have little control over either our present or prospective direct or indirect stockholders or the outcome of such registration procedures. A failure by our PRC resident beneficial holders or future PRC resident stockholders to comply with Circular 75 and Notice 106, if SAFE requires it, could subject these PRC resident beneficial holders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit our subsidiaries' ability to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
 
Failure to comply with The implementation of the new PRC employment contract law and increases in the labor costs in China may hurt our business and profitability.
 
We are primarily a service provider. A new employment contract law became effective on January 1, 2008 in China. It imposes more stringent requirements on employers in relation to entry into fixed-term employment contracts, recruitment of temporary employees and dismissal of employees. In addition, under the newly promulgated Regulations on Paid Annual Leave for Employees, which also became effective on January 1, 2008, employees who have worked continuously for more than one year are entitled to paid vacation ranging from 5 to 15 days, depending on the length of the employee’s service. Employees who waive such vacation entitlements at the request of the employer will be compensated for three times their normal daily salaries for each vacation day so waived. As a result of the new law and regulations, our labor costs may increase. There is no assurance that disputes, work stoppages or strikes will not arise in the future. Increases in the labor costs or future disputes with our employees could damage our business, financial condition or operating results.
 
Under the New Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.
 
China passed a new Enterprise Income Tax Law, or the EIT Law, and its implementing rules, both of which became effective on January 1, 2008. Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
 
 
On April 22, 2009, the State Administration of Taxation issued the Notice Concerning Relevant Issues Regarding Cognizance of Chinese Investment Controlled Enterprises Incorporated Offshore as Resident Enterprises pursuant to Criteria of de facto Management Bodies, or the Notice, further interpreting the application of the EIT Law and its implementation against non-Chinese enterprise or group controlled offshore entities. Pursuant to the Notice, an enterprise incorporated in an offshore jurisdiction and controlled by a Chinese enterprise or group will be classified as a “domestically incorporated resident enterprise” if (i) its senior management in charge of daily operations reside or perform their duties mainly in China; (ii) its financial or personnel decisions are made or approved by bodies or persons in China; (iii) its substantial assets and properties, accounting books, corporate chops, board and shareholder minutes are kept in China; and (iv) at least half of its directors with voting rights or senior management often resident in China. A resident enterprise would be subject to an enterprise income tax rate of 25% on its worldwide income and its non-PRC stockholders would be subject to a withholding tax at a rate of 10% when dividends are paid to such non-PRC stockholders. However, it remains unclear as to whether the Notice is applicable to an offshore enterprise incorporated by a Chinese natural person. Nor are detailed measures on enforcement of PRC tax against non-domestically incorporated resident enterprises are available. Therefore, it is unclear how tax authorities will determine tax residency based on the facts of each case.
 
We may be deemed to be a resident enterprise by Chinese tax authorities. If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as interest on financing proceeds and non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Second, although under the EIT Law and its implementing rules dividends paid to us from our PRC subsidiary would qualify as “tax-exempt income,” we cannot guarantee that such dividends will not be subject to a 10% withholding tax, as the PRC foreign exchange control authorities, which enforce the withholding tax, have not yet issued guidance with respect to the processing of outbound remittances to entities that are treated as resident enterprises for PRC enterprise income tax purposes. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which a 10% withholding tax is imposed on dividends we pay to our non-PRC stockholders and with respect to gains derived by our non-PRC stockholders from transferring our shares. We are actively monitoring the possibility of “resident enterprise” treatment for the 2010 tax year and are evaluating appropriate organizational changes to avoid this treatment, to the extent possible.
 
If we were treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both the U.S. and China, and our PRC tax may not be creditable against our U.S. tax.
 
We May Be Classified As A Passive Foreign Investment Company, Which Could Result In Adverse U.S. Tax Consequences To U.S. Investors.
 
Based upon the nature of our income and assets, we may be classified as a passive foreign investment company, or PFIC, by the United States Internal Revenue Service for U.S. federal income tax purposes. This characterization could result in adverse U.S. tax consequences to you. For example, if we are a PFIC, our U.S. investors will become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to more burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis, and those determinations depend on the composition of our income and assets, including goodwill, from time to time. We intend to operate our business so as to minimize the risk of PFIC treatment; however you should be aware that certain factors that could affect our classification as PFIC are out of our control. For example, the calculation of assets for purposes of the PFIC rules depends in large part upon the amount of our goodwill, which in turn is based, in part, on the then market value of our shares, which is subject to change. Similarly, the composition of our income and assets is affected by the extent to which we spend the cash we have raised on acquisitions and capital expenditures. In addition, the relevant authorities in this area are not clear and so we operate with less than clear guidance in our effort to minimize the risk of PFIC treatment. Therefore, we cannot be sure whether we are not and will not be a PFIC for the current or any future taxable year. In the event we are determined to be a PFIC, our stock may become less attractive to U.S. investors, which may negatively impact the price of our common stock.
 
We face uncertainty from China’s Circular on Strengthening the Administration of Enterprise Income Tax on Non-Resident Enterprises' Share Transfer, or Circular 698, that was released in December 2009 with retroactive effect from January 1, 2008.
 
The Chinese State Administration of Taxation released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which is effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698, which provides parties with a short period of time to comply with its requirements, indirectly taxes foreign companies on gains derived from the indirect sale of a Chinese company. Where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction where the effective tax burden is less than 12.5% or where the offshore income of his, her, or its residents is not taxable, the foreign investor is required to provide the tax authority in charge of that Chinese resident enterprise with the relevant information within 30 days of the transfers. Moreover, where a foreign investor indirectly transfers equity interests in a Chinese resident enterprise through an abuse of form of organization and there are no reasonable commercial purposes such that the corporate income tax liability is avoided, the PRC tax authority will have the power to re-assess the nature of the equity transfer in accordance with PRC’s “substance-over-form” principle and deny the existence of the offshore holding company that is used for tax planning purposes. There is uncertainty as to the application of Circular 698. For example, while the term "indirectly transfer" is not defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. It is also unclear, in the event that an offshore holding company is treated as a domestically incorporated resident enterprise, whether Circular 698 would still be applicable to transfer of shares in such offshore holding company. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax in the country or jurisdiction and to what extent and the process of the disclosure to the tax authority in charge of that Chinese resident enterprise. In addition, there are not any formal declarations with regard to how to decide “abuse of form of organization” and “reasonable commercial purpose,” which can be utilized by us to balance if our Company complies with the Circular 698. If Circular 698 is determined to be applicable to us based on the facts and circumstances around such share transfers, we may become at risk of being taxed under Circular 698 and we may be required to expend valuable resources to comply with Circular 698 or to establish that we should not be taxed under Circular 698, which could have a material adverse effect on our financial condition and results of operations.
 
 
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We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption laws, and any determination that we violated these laws could have a material adverse effect on our business.
 
We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute, for the purpose of obtaining or retaining business. We have operations, agreements with third parties, and make most of our sales in China. The PRC also strictly prohibits bribery of government officials. Our activities in China create the risk of unauthorized payments or offers of payments by the employees, consultants, sales agents, or distributors of our Company, even though they may not always be subject to our control. It is our policy to implement safeguards to discourage these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents, or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the U.S. government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
 
RISKS RELATED TO THE MARKET FOR OUR STOCK
 
The market price of our common stock is volatile, leading to the possibility of its value being depressed at a time when you may want to sell your holdings.
 
The market price of our common stock is volatile, and this volatility may continue.  Numerous factors, many of which are beyond our control, may cause the market price of our common stock to fluctuate significantly.  In addition to market and industry factors, the price and trading volume for our common stock may be highly volatile for specific business reasons.  Factors such as variations in our revenues, earnings and cash flow, announcements of new investments, cooperation arrangements or acquisitions, and fluctuations in market prices for our products could cause the market price for our shares to change substantially.
 
Securities class action litigation is often instituted against companies following periods of volatility in their stock price.  This type of litigation could result in substantial costs to us and divert our management’s attention and resources.
 
Moreover, the trading market for our common stock will be influenced by research or reports that industry or securities analysts publish about us or our business.  If one or more analysts who cover us downgrade our common stock, the market price for our common stock would likely decline.  If one or more of these analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which, in turn, could cause the market price for our common stock or trading volume to decline.
 
Furthermore, securities markets may from time to time experience significant price and volume fluctuations for reasons unrelated to operating performance of particular companies.  These market fluctuations may adversely affect the price of our common stock and other interests in our company at a time when you want to sell your interest in us.
 
 
Although publicly traded, the trading market in our common stock has been substantially less liquid than the average trading market for a stock quoted on the NASDAQ Global Market and this low trading volume may adversely affect the price of our common stock.
 
Our common stock trades on the OTC Bulletin Board (“OTCBB”).  The trading market in our common stock has been substantially less liquid than the average trading market for companies quoted on the NASDAQ Global Market.   Although we believe that this offering will improve the liquidity for our common stock, there is no assurance that the offering will increase the volume of trading in our common stock.  Limited trading volume will subject our shares of common stock to greater price volatility and may make it difficult for you to sell your shares of common stock at a price that is attractive to you.
 
 Provisions in our articles of incorporation and bylaws or Nevada law might discourage, delay or prevent a change of control of us or changes in our management and, therefore depress the trading price of the common stock.
 
Our articles of incorporation authorize our board of directors to issue up to 50,000,000 shares of preferred stock. The preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by the board of directors without further action by the stockholders. These terms may include preferences as to dividends and liquidation, conversion rights, redemption rights and sinking fund provisions. The issuance of any preferred stock could diminish the rights of holders of our common stock, and therefore could reduce the value of such common stock. In addition, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell assets to, a third party. The ability of our board of directors to issue preferred stock could make it more difficult, delay, discourage, prevent or make it more costly to acquire or effect a change-in-control, which in turn could prevent our stockholders from recognizing a gain in the event that a favorable offer is extended and could materially and negatively affect the market price of our common stock.
 
In addition, Nevada corporate law and our articles of incorporation and bylaws contain certain other provisions that could discourage, delay or prevent a change in control of our Company or changes in its management that our stockholders may deem advantageous.  These provisions:
 
 
deny holders of our common stock cumulative voting rights in the election of directors, meaning that stockholders owning a majority of our outstanding shares of common stock will be able to elect all of our directors;
 
  
require any stockholder wishing to properly bring a matter before a meeting of stockholders to comply with specified procedural and advance notice requirements; and
 
  
allow any vacancy on the board of directors, however the vacancy occurs, to be filled by the directors.
 
We may be subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.
 
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions.  If our common stock becomes a “penny stock” as defined in Rule 3a51-1 of the Exchange Act,  we may become subject to Rule 15g-9 under the Exchange Act, or the Penny Stock Rule.  This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses).  For transactions covered by the Penny Stock Rule, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale.  As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
 
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market.  Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.  Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
 
There can be no assurance that our common stock will qualify for exemption from the Penny Stock Rule.  In any event, even if our common stock were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
 
 
Certain of our stockholders hold a significant percentage of our outstanding voting securities.
 
Mr. Shane McMahon, our Chairman and Chief Executive Officer, is the beneficial owner of approximately 54.54% of our outstanding voting securities, and Mr. Weicheng Liu, a Senior Executive Officer,  is the beneficial owner of approximately 12.34% of our outstanding voting securities (as calculated in accordance with Rule 13d-3(d)(1) of the Exchange Act). As a result, each possesses significant influence and can elect a majority of our board of directors and authorize or prevent proposed significant corporate transactions. Their respective ownership and control may also have the effect of delaying or preventing a future change in control, impeding a merger, consolidation, takeover or other business combination or discourage a potential acquirer from making a tender offer.
 
The number of shares being registered for sale is significant in relation to our trading volume.
 
All of the shares registered for sale on behalf of the selling stockholders are “restricted securities” as that term is defined in Rule 144 under the Securities Act.  We have filed this registration statement to register these restricted shares for sale into the public market by the selling stockholders.  These restricted securities, if sold in the market all at once or at about the same time, could depress the market price during the period the registration statement remains effective and also could affect our ability to raise equity capital.  Any outstanding shares not sold by the selling stockholders pursuant to this prospectus will remain as “restricted shares” in the hands of the holders, except for those sales that satisfy the requirements under Rule 144 or another exemption to the registration requirements under the Securities Act.
 
We do not intend to pay dividends for the foreseeable future.
 
For the foreseeable future, we intend to retain any earnings to finance the development and expansion of our business, and we do not anticipate paying any cash dividends on our common stock. Accordingly, investors must be prepared to rely on sales of their common stock after price appreciation to earn an investment return, which may never occur. Investors seeking cash dividends should not purchase our common stock. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial condition, contractual restrictions, restrictions imposed by applicable law and other factors our board deems relevant.
 
 
This prospectus contains forward-looking statements.  The forward-looking statements are contained principally in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Our Business.”  These statements involve known and unknown risks, uncertainties and other 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.  These risks and uncertainties include, but are not limited to the factors described in the section captioned “Risk Factors” above.  In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “would” and similar expressions intended to identify forward-looking statements. These forward-looking statements include, among other things, those concerning market and industry segment growth and demand and acceptance of new and existing products or services; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Forward-looking statements reflect our current views with respect to future events and are based on assumptions and subject to risks and uncertainties.  Given these uncertainties, you should not place undue reliance on these forward-looking statements.
 
Also, forward-looking statements represent our estimates and assumptions only as of the date of this prospectus.  You should read this prospectus and the documents that we reference in this prospectus, or that we filed as exhibits to the registration statement of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
 
Except as required by law, we assume no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future.
 
 
 
We will not receive any of the proceeds from the sale of shares of our common stock by the selling stockholders, nor will any of the proceeds from resale be available for our use or otherwise for our benefit.  The selling stockholders will receive all of the net proceeds from the sales of common stock offered by them under this prospectus.
 
 
The selling stockholders will determine at what price they may sell the offered shares, and such sales may be made at prevailing market prices or at privately negotiated prices.
 
 
Market Information
 
Our common stock is quoted on the OTCBB under the symbol “CBBD.”   Trading of our common stock is sometimes limited and sporadic.  The following table sets forth, for the periods indicated, the high and low closing prices of our common stock.  These prices reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
 
   
Closing Bid Prices(1)
 
   
High
   
Low
 
Year Ended December 31, 2011
           
1st Quarter
 
$
0.090
   
$
0.040
 
2nd Quarter (through June 23, 2011)
   
0.124
     
0.045
 
                 
Year Ended December 31, 2010
               
1st Quarter
 
$
0.200
   
$
0.080
 
2nd Quarter
   
0.160
     
0.070
 
3rd Quarter
   
0.110
     
0.050
 
4th Quarter
   
0.075
     
0.030
 
  
               
Year Ended December 31, 2009
               
1st Quarter
 
$
0.240
   
$
0.020
 
2nd Quarter
   
0.250
     
0.100
 
3rd Quarter
   
0.200
     
0.150
 
4th Quarter
   
0.250
     
0.050
 
                 
Year Ended December 31, 2008
               
1st Quarter
 
$
0.020
   
$
0.020
 
2nd Quarter
   
0.100
     
0.100
 
3rd Quarter
   
0.500
     
0.500
 
4th Quarter
   
1.150
     
0.510
 
 

(1) The above table sets forth the range of high and low closing bid prices per share of our common stock as reported by www.quotemedia.com for the periods indicated.
 
Approximate Number of Holders of Our Common Stock
 
As of June 23, 2011, there were approximately 381 stockholders of record of our common stock, as reported by our transfer agent.  In computing the number of holders of record, each broker-dealer and clearing corporation holding shares on behalf of its customers is counted as a single shareholder.
 
 
Dividends
 
We have never declared dividends or paid cash dividends.  Our board of directors will make any future decisions regarding dividends.  We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the near future.  Our board of directors has complete discretion on whether to pay dividends.  Even if our board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Overview

We operate in the media segment, through our Chinese subsidiaries and VIEs, (1) a business which provides integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers, (2) a cable broadband business based in the Jinan region of China and (3) a television program guide, newspaper and magazine publishing business based in the Shandong region of China.

Through our VIE, Sinotop Beijing, we provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers.  Sinotop Beijing’s revenue is derived primarily from a pay-TV model, consisting of a one-time fee to view movies, popular titles and live events.

Through our VIE, Jinan Broadband, we provide cable and wireless broadband services, principally internet services, Internet Protocol Point wholesale services, related network equipment rental and sales, and fiber network construction and maintenance.  Jinan Broadband’s revenue consists primarily of sales to our PRC-based internet consumers, cable modem consumers, business customers and other internet and cable services.

Through our VIE Shandong Publishing, we operate our publishing business, which includes the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services. Shandong Publishing’s revenue consists primarily of sales of publications and advertising revenues.

We acquired AdNet, a business that provided internet content advertising in cafes, during the first half of 2009.  Due to the shift of our business model to the PPV and VOD business, as of December 31, 2009, we permanently suspended the day-to-day operations of AdNet.  We have maintained our technology and other assets of AdNet for future use in our new pay-per-view business.

Acquisition of Sinotop and Concurrent Financing

On July 30, 2010, we acquired Sinotop Hong Kong through our subsidiary CB Cayman.  Through a series of contractual arrangements, Sinotop Hong Kong controls Sinotop Beijing.  Sinotop Beijing, a corporation established in the PRC is, in turn, a party to a joint venture with two other PRC companies to provide integrated value-added service solutions for the delivery of PPV, VOD and enhanced premium content for cable providers.

Also on July 30, 2010, in connection with the acquisition of Sinotop Honk Kong, we closed financings with several accredited investors and sold an aggregate of $9,625,000 of securities, including (i) $3.125 million of common units, at a per unit price of $0.05, each common unit consisting of one share of common stock and a warrant for the purchase of one share of common stock at an exercise price of $0.05, (ii) $3.5 million of Series A units, at a per unit price of $0.50, each Series A unit consisting of one share of Series A Preferred Stock (convertible into ten shares of common stock) and a warrant to purchase 34.2857 shares of common stock at an exercise price of $0.05, and (iii) $3.0 million of Series B units, at a per unit price of $0.50, each Series B unit consisting of one share of Series B Preferred Stock (convertible into ten shares of common stock) and a warrant to purchase ten shares of common stock.
 
Simultaneous with the closing of the financings above, and pursuant to (i) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of $4,971,250 in principal amount of notes of the Company, dated January 11, 2008, and (ii) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of $304,902 in principal amount of notes of the Company, dated June 30, 2009, the holders of such notes agreed to convert 100% of the outstanding principal and interest owing on such notes into an aggregate of 62,855,048 shares of common stock, 4,266,800 shares of Series B Preferred Stock and warrants for the purchase of an aggregate of 105,523,048 shares of common stock, as set forth in the respective waivers.

 
On July 30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop HK to the Company, in exchange for 1,200,000 shares of our Series B Preferred Stock and warrants to purchase of 36,000,000 shares of our common stock.
 
Warrant Exchange Transaction

On October 20, 2010, we entered into separate Warrant Exchange Agreements, or the Exchange Agreements, with the holders of different series of warrants to purchase shares of our common stock.  Pursuant to the Exchange Agreements, (i) the holders of warrants issued in January 2008 and July 2010 to purchase an aggregate of 9,700,000 shares of our common stock at an exercise price of $0.60, $0.05 and $2.00 per share, have exchanged such warrants for an aggregate of 485,000 shares of our common stock, and (ii) the holders of warrants issued in April 2010  and in July 2010 to purchase an aggregate of 622,591,300 shares of our common stock at an exercise price of $0.05 per share, have exchanged such warrants for an aggregate of 373,554,780 shares of our common stock.  Immediately following the consummation of the transactions contemplated by the Exchange Agreements, we had 11,393,500 outstanding warrants to purchase shares of Company common stock at exercise prices ranging from $0.60 to $2.00.

Recent Developments

On June 3, 2011, we completed a private placement transaction with FIL Investment Management (Hong Kong) Limited, or Fidelity, professional fiduciary for various accounts from time to time. Pursuant to a securities purchase agreement between us and Fidelity, we issued to funds managed by Fidelity and its affiliates an aggregate of 73,440,972 shares of our common stock at a per share price of $0.088, resulting in aggregate gross proceeds to the Company of $6,462,806.  Pursuant to the securities purchase agreement with Fidelity, we may not, during the six month period following the closing, without the prior written consent of Fidelity, issue any shares of our common stock, including securities that are exercisable or convertible into common stock except for (i) up to 146,881,944 shares of our common stock at a per share price equal to or greater than US$0.088, (ii) shares of our common stock upon the exercise, exchange or conversion of our securities which were outstanding prior to the closing, (iii) shares of our common stock upon the exercise, exchange or conversion of callable warrants to purchase up to 50,000,000 shares of our common stock, with a per share exercise price equal to or greater than US$0.088, and (iv) pursuant to our 2010 Equity Incentive Plan, options to purchase up to an aggregate of 33,000,000 shares of our common stock to new and existing employees in the normal course of business.  In addition, we granted to Fidelity a right of first refusal during the six month period following the closing to purchase up to ten percent of the number of shares of common stock offered to investors as permitted in the securities purchase agreement, at a per share price of $0.088 and on identical terms as set forth in the securities purchase agreement.

In connection with the private placement transaction with Fidelity, we entered into a registration rights agreement with Fidelity pursuant to which we are obligated to file a registration statement with the U.S. Securities and Exchange Commission within thirty days following the closing to register the shares of common stock issued to Fidelity.  In addition, we agreed to use our commercially reasonable efforts to have the registration statement declared effective within ninety days of the closing.

Chardan Capital Markets LLC acted as agent for the Company in connection with the private placement transaction with Fidelity, and received an agent fee equal to $323,140, or five percent of the gross proceeds of the transaction.

On June 7, 2011, we completed a private placement transaction with a group of twenty-seven accredited investors.  Pursuant to a securities purchase agreement between us and the investors, we issued to the investors an aggregate of 50,625,000 shares of our common stock at a per share price of $0.088, resulting in aggregate gross proceeds of $4,455,000.  The offer and sale of the shares to the accredited investors was made in compliance with Section 8.4(i) of the securities purchase agreement with Fidelity, and following the private placement with the accredited investors we may, without the prior written consent of Fidelity, sell up to an aggregate of 96,256,944 shares of our common stock during the six month period following the closing of the private placement transaction with Fidelity at a per share price equal or greater to US$0.088.

Chardan Capital Markets LLC acted as placement agent in connection with the private placement transaction with the accredited investors, and received a placement agent fee equal to $445,500, or ten percent of the gross proceeds of the transaction.

In connection with the June 7, 2011 private placement, Fidelity had the right to purchase up to 5,625,000 shares of our common stock, or up to ten percent of the number of shares sold to the accredited investors, at a per share price of $0.088.  On June 7, 2011, we agreed with Fidelity that they will maintain the right to purchase such shares until December 3, 2011.

 
Principal Factors Affecting Our Financial Performance

Our operating results are primarily affected by the following factors:

 
·
Growth in the Chinese Economy. We operate in China and derive almost all of our revenues from sales to customers in China. Economic conditions in China, therefore, affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our raw materials and our other expenses. China has experienced significant economic growth, achieving a compound annual growth rate of over 10% in gross domestic product from 1996 through 2008. China is expected to experience continued growth in all areas of investment and consumption, even in the face of a global economic recession. However, China has not been entirely immune to the global economic slowdown and is experiencing a slowing of its growth rate.
 
 
·
PRC Economic Stimulus Plans. The PRC government has issued a policy entitled “Central Government Policy On Stimulating Domestic Consumption To Counter The Damage Result From Export Business Of The Country,” pursuant to which the PRC Central Government is dedicating approximately $580 billion to stimulate domestic consumption. Companies that are either directly or indirectly related to construction, and to the manufacture and sale of building materials, electrical household appliances and telecommunication equipment, are expected to benefit.   China Broadband could potentially benefit if the stimulus plan injects funds into cable infrastructure allowing access to our PPV network.
 
 
·
Deployment of Value-added Services. To augment our product offerings and create other revenue sources, we work with strategic partners to deploy value-added services to our cable broadband customers.  Value-added services, including but not limited to the synergies created by the additions of our new assets, will become a focus of revenue generation for our company. No assurance can be made that we will add other value-added services, or if added, that they will succeed.

Taxation

United States

YOU On Demand Holdings, Inc. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as YOU On Demand Holdings, Inc. had no income taxable in the United States.

Cayman Islands

CB Cayman was incorporated in the Cayman Islands. Under the current law of the Cayman Islands, it is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.

Hong Kong

Our indirect subsidiary, Sinotop Honk Kong, was incorporated in Hong Kong and under the current laws of Hong Kong, is subject to Profits Tax of 16.5%. No provision for Hong Kong Profits Tax has been made as Sinotop Hong Kong has no taxable income.
  
The People’s Republic of China

Under the EIT Law, our Chinese subsidiaries and VIEs are subject to an earned income tax of 25.0%.  See “Our Business – Regulation – Taxation” for a detailed description of the EIT Law and tax regulations applicable to our Chinese subsidiaries and VIEs.

Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income and non-tax deductible expenses incurred.  Our management carefully monitors these legal developments to determine if there will be any change in the statutory income tax rate.
 
 
Consolidated Results of Operations

Comparison of Three Months Ended March 31, 2011 and 2010

The following table sets forth key components of our results of operations for the periods indicated.

   
Three Months Ended
   
Amount
   
%
 
   
March 31,
2011
   
March 31,
2010
   
Increase / (Decrease)
   
Increase / (Decrease)
 
                         
Revenue
 
$
1,698,000
   
$
1,876,000
   
$
(178,000)
     
-9
%
Cost of revenue
   
1,250,000
     
1,074,000
     
176,000
     
16
%
Gross profit
   
448,000
     
802,000
     
(354,000)
     
-44
%
                                 
Selling, general and administrative expenses
   
1,813,000
     
723,000
     
1,090,000
     
151
%
Professional fees
   
318,000
     
169,000
     
149,000
     
88
%
Depreciation and amortization
   
1,074,000
     
946,000
     
128,000
     
14
%
                                 
Loss from operations
   
(2,757,000)
     
(1,036,000)
     
(1,721,000)
     
166
%
                                 
Interest & other income / (expense)
                               
Interest income
   
3,000
     
3,000
     
-
     
0
%
Interest expense
   
       (1,000)
     
(91,000)
     
90,000
     
-99
%
Change in fair value of warrant liabilities
   
-
     
42,000
     
(42,000)
     
-
 
Change in fair value of contingent consideration
   
39,000
     
-
     
39,000
     
-
 
Loss on equity investment
   
(7,000)
     
-
     
(7,000)
     
-
 
                                 
Loss before income taxes and non-controlling interests
   
(2,723,000)
     
(1,082,000)
     
(1,641,000)
     
152
%
                                 
Income tax benefit
   
75,000
     
14,000
     
61,000
     
436
%
                                 
Net loss, net of tax
   
(2,648,000)
     
(1,068,000)
     
(1,580,000)
     
148
%
                                 
Net loss attributable to non-controlling interests
   
421,000
     
263,000
     
158,000
     
60
%
                                 
Net loss attributable to YOU On Demand shareholders
 
$
(2,227,000)
   
$
(805,000)
   
$
1,422,000
     
177
%

 
The following table breaks down the results of operations for the three months ended March 31, 2011 and 2010 between our VIE operating companies and our non-operating companies.  Our VIE operating companies include Jinan Broadband, Shandong Media and Sinotop.

   
Three Months Ended
   
Three Months Ended
 
   
March 31, 2011
   
March 31, 2010
 
   
Operating
   
% of
Total
Revenue
   
Non-
Operating
   
Total
   
Operating
   
% of
Total
Revenue
   
Non-
Operating
   
Total
 
                                                 
Revenue
  $ 1,698,000           $ -     $ 1,698,000     $ 1,876,000           $ -     $ 1,876,000  
Cost of revenue
    1,250,000             -       1,250,000       1,074,000             -       1,074,000  
Gross profit
    448,000       26 %     -       448,000       802,000       43 %     -       802,000  
                                                                 
Selling, general and administrative expenses
    935,000       55 %     878,000       1,813,000       532,000       28 %     191,000       723,000  
Professional fees
    15,000       1 %     303,000       318,000       1,000       0 %     168,000       169,000  
Depreciation and amortization
    610,000       36 %     464,000       1,074,00       805,000       43 %     141,000       946,000  
                                                                 
Loss from operations
    (1,112,000 )     -65 %     (1,645,000 )     (2,757,000 )     (536,000 )     -29 %     (500,000 )     (1,036,000 )
                                                                 
Interest & other income / (expense)
                                                               
Interest income
    3,000               -       3,000       1,000               2,000       3,000  
Interest expense
    (1,000 )             -       (1,000 )     -               (91,000 )     (91,000 )
Change in fair value of warrant liabilities
    -               -       -       -               42,000       42,000  
Change in fair value of contingent consideration
    -               39,000       39,000       -               -       -  
Loss on equity investment
    -               (7,000 )     (7,000 )     -               -       -  
                                                                 
Loss before income taxes and non-controlling interest
    (1,110,000 )             (1,613,000 )     (2,723,000 )     (535,000 )             (547,000 )     (1,082,000 )
                                                                 
Income tax benefit
    10,000               65,000       75,000       -               14,000       14,000  
                                                                 
Net income (loss)
    (1,100,000 )             (1,548,000 )     (2,648,000 )     (535,000 )             (533,000 )     (1,068,000 )
                                                                 
Net loss attributable to non-controlling interest
    421,000               -       421,000       263,000               -       263,000  
                                                                 
Net loss attributable to shareholders
  $ (679,000 )           $ (1,548,000 )   $ (2,227,000 )   $ (272,000 )           $ (533,000 )   $ (805,000 )

Revenues

Our revenues are generated by our operating companies in the PRC, primarily Jinan Broadband and Shandong Publishing.  As of March 31, 2011, Sinotop Hong Kong had not fully commenced operations and, therefore, had no revenues through March 31, 2011.

Revenues for the three months ended March 31, 2011 totaled $1,698,000, as compared to $1,876,000 for the same period of 2010.  The decrease in revenue of approximately $178,000, or 9%, is attributable to decreases in revenue from Jinan Broadband as discussed below.

For the three months ended March 31, 2011, Jinan Broadband’s revenue consisted primarily of sales to our PRC based Internet consumers, cable modem consumers, business customers and other internet and cable services of $1,043,000, a decrease of $187,000, or 15%, as compared to revenues of $1,230,000 for 2010. The decrease is attributable to a decrease in our value-added services.

For the three months ended March 31, 2011, Shandong Publishing’s revenue consisted primarily of sales of publications and advertising revenue of $655,000, an increase of $9,000, or 1%, as compared to $646,000 in 2010.  The increase is mainly attributable to increases in our advertising revenues.
 
Gross Profit

Our gross profit for the three months ended March 31, 2011 was $448,000, as compared to $802,000 for the same period of 2010.  The decrease in gross profit of approximately $354,000, or 44%, is due to both a decrease in Jinan Broadband revenue and increased costs at both Jinan Broadband and Shandong Media.  The increase in costs attributable to Jinan Broadband was due to increases in HDMI and telecom bandwidth fees.  The increase in costs attributable to Shandong Media was due to increases in printing costs.

Gross profit as a percentage of revenue was 27% for the three months ended March 31, 2011, as compared to 43% for same period in 2010.  The decrease is due to both decreased revenue and increased costs.

 
Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the three months ended March 31, 2011 increased approximately $1,090,000 to $1,813,000, as compared to $723,000 for the three months ended March 31, 2010.  The increase is mainly due to increased costs related to the development of our new PPV and VOD business (Sinotop).

Salaries and personnel costs are the primary components of selling, general and administrative expenses.  For the three months ended March 31, 2011, salaries and personnel costs accounted for 64% of our selling, general and administrative expenses.  During the three months ended March 31, 2011, salaries and personnel costs totaled $1,088,000, an increase of $627,000, or 136%, as compared to $461,000 for the same period of 2010.  The increase in salaries and personnel costs is primarily attributable to corporate costs related to our new Sinotop operation.

The other major components of our selling, general and administrative expenses include marketing and promotion, rent, sales tax and travel.  For the three months ended March 31, 2011, these costs totaled $333,000, an increase of $210,000, or 170% as compared to $123,000 for the same period of 2010.

As we continue to grow our new PPV and VOD business, other expenses that have increased include employment services, investor relations, licenses and fees, maintenance, office and telephone.

Professional Fees

Professional fees are generally related to public company reporting and governance expenses as well as costs related to our acquisitions.  Our costs for professional fees increased $149,000, or 88%, to $318,000 in the three months ended March 31, 2011, from $169,000 during the same period of 2010, primarily due to our new Sinotop operation.
 
Depreciation and Amortization

Our depreciation expense decreased $240,000, or 30%, to $564,000 in the three months ended March 31, 2011 from $804,000 during the same period of 2010.   The decrease is due to equipment at Jinan Broadband being taken out of service due to changes in customer needs.  As such, the Company ceased depreciating such equipment as of July 2010.
 
Our amortization expense increased $368,000, or 261%, to $510,000 in the three months ended March 31, 2011 from $141,000 during the same period of 2010.  The increase is mainly attributable to $398,000 amortization costs related to intangible assets acquired in our Sinotop acquisition.
 
Interest and Other Income (Expense), net

Interest income
Our interest income remained constant at $3,000 for the three months ended March 31, 2011 and 2010.

Interest expense
Interest expense was primarily related to our 5% Convertible Notes issued in January 2008 and June 2009.  All convertible notes were converted to common stock in 2010 and therefore interest expense decreased $90,000, or 99%, to $1,000 for the three months ended March 31, 2011 from $91,000 during the same period of 2010.  Interest expense in 2010 included amortization of the original issue discount on the notes resulting from the allocation of fair value to the warrants issued in the financing.  Interest on the Notes compounded monthly at the annual rate of five percent (5%).
 
Change in fair value of warrant liabilities
We recorded a gain of $42,000 classified as a change in fair value of warrants on our statement of operations for the three months ended March 31, 2010.
 
There was no gain or charge recorded in 2011 because in connection with the July 2010 financings, the Company and the investors agreed to amend the warrants to remove the non-standard anti-dilution protection. As a result, the warrants were fair valued at July 30, 2010 and were then re-classified to equity.

Change in fair value of contingent consideration
Our contingent consideration related to our acquisition of Sinotop is classified as a liability because the earn-out securities do not meet the fixed-for-fixed criteria under ASC 815-40-15.  Further ASC 815-40-15 requires us to re-measure at the end of every reporting period with the change in value reported in the statement of operations and accordingly we reported a gain of approximately $39,000 for the three months ended March 31, 2011 (none in 2010).
 
 
Loss on equity investment
In July 2010, our VIE, Sinotop Beijing, acquired a 39% equity interest in Huacheng Interactive.  We account for this investment under the equity method.  In accordance with this method, where investments in affiliates, which are not controlled by the Company but where the Company has the ability to exercise significant influence, are accounted for using the equity-method where the earnings and losses attributable to the investment are recorded in the accompanying consolidated statements of operations.  Accordingly, for the three months ended March 31, 2011 we recorded a loss on equity investment of approximately $7,000 (none in 2010).

Net Loss Attributable to Non-controlling Interest

49% of the operating loss of our Jinan Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this business.  During the three months ended March 31, 2011, $221,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $203,000 during the same period of 2010.
 
50% of the operating loss of our Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint venture partner.  During the three months ended March 31, 2011, $117,000 of our operating loss from Shandong Media was allocated to Shandong Newspaper, as compared to $60,000 during the same period of 2010.

20% of the operating loss of our Zhong Hai Video joint venture is allocated to Huacheng Interactive (Beijing) TV, our 20% joint venture partner.  During the three months ended March 31, 2011, $83,000 of our operating loss from Zhong Hai Video was allocated to Huacheng Interactive (Beijing) TV (none in 2010).
 
Net Loss Attributable to Common Shareholders

Net loss attributable to common shareholders for the three months ended March 31, 2011 was $2,227,000, an increase of $1,422,000, or 177%, as compared to $805,000 for the three months ended March 31, 2010.  The increase is mainly due to increases in selling, general and administrative expenses associated with our new Sinotop operation as well as a decreased gross profit at both Jinan Broadband and Shandong Media.
 
Comparison of Years Ended December 31, 2010 and December 31, 2009
 
The following table sets forth key components of our results of operations for the years ended December 31, 2010 and 2009.
 
   
Year Ended
             
   
December 31,
2010
   
December 31,
2009
   
Amount
Change
   
%
Change
 
                         
Revenue
 
$
7,649,000
   
$
8,443,000
   
$
(794,000
)
   
-9
%
Cost of revenue
   
4,722,000
     
5,661,000
     
(939,000
)
   
-17
%
Gross profit
   
2,927,000
     
2,782,000
     
145,000
     
5
%
                                 
Selling, general and adminstrative expenses
   
3,919,000
     
3,228,000
     
691,000
     
21
%
Professional fees
   
1,240,000
     
641,000
     
599,000
     
93
%
Depreciation and amortization
   
4,283,000
     
3,564,000
     
719,000
     
20
%
Impairments
   
2,405,000
     
1,239,000
     
1,166,000
     
94
%
                                 
Loss from operations
   
(8,920,000
)
   
(5,890,000
)
   
(3,030,000
)
   
51
%
                                 
Interest & other income / (expense)
                               
Interest income
   
8,000
     
8,000
     
-
     
0
%
Interest expense
   
(554,000
)
   
(363,000
)
   
(191,000
)
   
53
%
Inducement to convert and reduction in conversion
                         
price of convertible notes
   
(6,706,000
)
   
-
     
(6,706,000
)
   
-
 
  
                               
Change in fair value of warrant liabilities and modification to certain warrants
   
669,000
     
(512,000
)
   
1,181,000
     
-
 
Change in fair value of contingent consideration
   
(501,000
)
   
-
     
(501,000
)
   
-
 
Loss on sale of marketable equity securities
   
(15,000
)
   
(15,000
)
   
-
     
0
%
Loss on equity investment
   
(15,000
)
   
-
     
(15,000
)
   
-
 
Other
   
(4,000
)
   
(13,000
)
   
9,000
     
-
 
                                 
Loss before income taxes and noncontrolling interests
   
(16,038,000
)
   
(6,785,000
)
   
(9,253,000
)
   
136
%
                                 
Income tax benefit
   
518,000
     
243,000
     
275,000
     
113
%
                                 
Net loss, net of tax
   
(15,520,000
)
   
(6,542,000
)
   
(8,978,000
)
   
137
%
                                 
Net loss attributable to noncontrolling interests
   
2,616,000
     
1,102,000
     
1,514,000
     
137
%
                                 
Net loss attributable to YOU On Demand shareholders
   
(12,904,000
)
   
(5,440,000
)
   
(7,464,000
)
   
137
%
                                 
Dividends on preferred stock
   
(2,315,000
)
   
-
     
(2,315,000
)
   
-
 
                                 
Net loss attributable to YOU On Demand common shareholders
 
$
(15,219,000
)
 
$
(5,440,000
)
 
$
(9,779,000
)
   
180
%
 
 
The following table breaks down the results of operations for the years ended December 31, 2010 and 2009 between our VIE operating companies and our non-operating companies.  Our VIE operating companies include Jinan Broadband, Shandong Media and Sinotop.

 
  Year Ended
December 31, 2010
   
  Year Ended
December 31, 2009
 
 
Operating
 
% of
Total
Revenue
 
Non-
Operating
 
Total
   
Operating
 
% of
Total
Revenue
 
Non-
Operating
 
Total
 
                                   
                                   
Revenue
$
7,649,000
     
$
-
 
$
7,649,000
   
$
8,443,000
     
$
-
 
$
8,443,000
 
Cost of revenue
 
4,722,000
       
-
   
4,722,000
     
5,661,000
       
-
   
5,661,000
 
Gross profit
 
2,927,000
   
38
%
 
-
   
2,927,000
     
2,782,000
   
33
%
 
-
   
2,782,000
 
                                                   
Selling, general and adminstrative expenses
 
2,511,000
   
33
%
 
1,408,000
   
3,919,000
     
2,402,000
   
28
%
 
826,000
   
3,228,000
 
Professional fees
 
7,000
   
0
%
 
1,233,000
   
1,240,000
     
45,000
   
1
%
 
596,000
   
641,000
 
Depreciation and amortization
 
3,091,000
   
40
%
 
1,192,000
   
4,283,000
     
3,071,000
   
36
%
 
493,000
   
3,564,000
 
Impairments
 
2,405,000
   
31
%
 
-
   
2,405,000
     
1,239,000
   
22
%
 
-
   
1,239,000
 
                                                   
Loss from operations
 
(5,087,000
)
 
-67
%
 
(3,833,000
)
 
(8,920,000
)
   
(3,975,000
)
 
-47
%
 
(1,915,000
)
 
(5,890,000
)
                                                   
Interest & other income / (expense)
                                                 
Interest income
 
8,000
         
-
   
8,000
     
8,000
         
-
   
8,000
 
Interest expense
 
(2,000
)
       
(552,000
)
 
(554,000
)
   
(1,000
)
       
(362,000
)
 
(363,000
)
Inducement to convert and reduction in conversion price of convertible notes
 
-
         
(6,706,000
)
 
(6,706,000
)
   
-
         
-
   
-
 
Change in fair value of warrant liabilities and modification to certain warrants
 
-
         
669,000
   
669,000
     
-
         
-
   
-
 
Change in fair value of contingent consideration
 
-
         
(501,000
)
 
(501,000
)
   
-
         
(512,000
)
 
(512,000
)
Loss on sale of marketable equity securities
 
-
         
(15,000
)
 
(15,000
)
   
-
         
(15,000
)
 
(15,000
)
Loss on equity investment
 
-
         
(15,000
)
 
(15,000
)
   
-
         
-
   
-
 
Other
 
-
         
(4,000
)
 
(4,000
)
   
(13,000
)
       
-
   
(13,000
)
                                                   
Loss before income taxes and noncontrolling interest
 
(5,081,000
)
       
(10,957,000
)
 
(16,038,000
)
   
(3,981,000
)
       
(2,804,000
)
 
(6,785,000
)
                                                   
Income tax benefit
 
318,000
         
200,000
   
518,000
     
-
         
243,000
   
243,000
 
                                                   
Net income (loss)
 
(4,763,000
)
       
(10,757,000
)
 
(15,520,000
)
   
(3,981,000
)
       
(2,561,000
)
 
(6,542,000
)
                                                   
Net loss attributable to noncontrolling interest
 
2,616,000
         
-
   
2,616,000
     
1,102,000
         
-
   
1,102,000
 
                                                   
Net loss attributable to shareholders
 
(2,147,000
)
       
(10,757,000
)
 
(12,904,000
)
   
(2,879,000
)
       
(2,561,000
)
 
(5,440,000
)
                                                   
Dividends on preferred stock
 
-
         
(2,315,000
)
 
(2,315,000
)
   
-
         
-
   
-
 
                                                   
Net loss attributable to China Broadband common shareholders
$
(2,147,000
)
     
$
(13,072,000
)
$
(15,219,000
)
 
$
(2,879,000
)
     
$
(2,561,000
)
$
(5,440,000
)
 
Revenues

Our revenues are generated by our operating companies in the PRC, primarily Jinan Broadband and Shandong Publishing.  As of December 31, 2010, Sinotop HK had not fully commenced operations and, therefore, had no revenues through December 31, 2010.

Revenues for the year ended December 31, 2010 totaled $7,649,000, as compared to $8,443,000 for 2009.  The decrease in revenue of approximately $794,000, or 9%, is attributable to decreases in revenue from both companies as discussed below.

For the year ended December 31, 2010, Jinan Broadband’s revenue consisted primarily of sales to our PRC based Internet consumers, cable modem consumers, business customers and other internet and cable services of $4,811,000, a decrease of $182,000, or 4%, as compared to revenues of $4,993,000 for 2009. The decrease is attributable to a decrease in our value-added services.

For the year ended December 31, 2010, Shandong Publishing’s revenue consisted primarily of sales of publications and advertising revenue of $2,838,000, a decrease of $605,000, or 18%, as compared to $3,443,000 in 2009.  The decrease is mainly attributable to a decrease in our advertising revenues.

Due to the permanent suspension of AdNet Media’s operations as of December 31, 2009, there were no revenues in 2010, as compared to $7,000 for 2009.

Gross Profit

Our gross profit in the year ended December 31, 2010 was $2,927,000, as compared to $2,782,000 for 2009.  The increase in gross profit of approximately $145,000, or 5%, is primarily due to decreased costs at both companies.  The decrease in costs attributable to Jinan Broadband was primarily due to charges in 2009 associated with the write-down of obsolete and damaged switches and other consumer related parts held in inventory.  The decrease in costs attributable to Shandong Media was due to decreases in printing and advertising costs correlating with the decrease in advertising revenues.

Gross profit as a percentage of revenue was 38% for the year ended December 31, 2010, as compared to 33% for 2009. The increase is mainly due to decreased costs.
 
 
Selling, General and Administrative Expenses

Our selling, general and administrative expenses for the year ended December 31, 2010 increased approximately $691,000 to $3,919,000, as compared to $3,228,000 for the year ended December 31, 2009.

Salaries and personnel costs are the primary components of selling, general and administrative expenses.  For the year ended December 31, 2010, salaries and personnel costs accounted for 61% of our selling, general and administrative expenses.  During 2010, salaries and personnel costs totaled $2,372,000, an increase of $551,000, or 30%, as compared to $1,821,000 for 2009.  The increase in salaries and personnel costs is primarily attributable to corporate costs related to our acquisition of Sinotop.

The other major components of our selling, general and administrative expenses include marketing and promotion, rent, sales tax and travel.  For the year ended 2010, these costs totaled $661,000, an increase of $95,000, or 17% as compared to $567,000 for 2009.

We expect our selling, general and administrative expenses will increase as we grow our new pay-per-view and video-on-demand business.

Professional Fees

Professional fees are generally related to public company reporting and governance expenses as well as costs related to our acquisitions.  Our costs for professional fees increased $599,000, or 93%, to $1,240,000 in the year ended December 31, 2010 from $641,000 in 2009 primarily due to our acquisition of Sinotop.
 
Depreciation and Amortization

Our depreciation expense decreased $169,000, or 6%, to $2,899,000 in the year ended December 31, 2010 from $3,068,000 in 2009.   The decrease is due to equipment at Jinan Broadband being taken out of service due to changes in customer needs.  As such, the Company ceased depreciating such equipment as of July 2010.
 
Our amortization expense increased $887,000, or 179%, to $1,383,000 in the year ended December 31, 2010 from $496,000 in 2009.  The increase is because we were amortizing the debt issuance costs associated with our 2008 convertible notes over the life of the convertible notes.  The convertible notes were converted to equity in July 2010.  In connection with the conversion, we recognized the unamortized debt issuance costs remaining of $229,504 during the third quarter of 2010.  The increase is also attributable to $663,665 amortization costs related to our intangible assets acquired in our Sinotop acquisition.
 
Interest and Other Income (Expense), net

Interest income
Our interest income remained constant at $8,000 for the years ended December 31, 2010 and 2009.

Interest expense
Interest expense was related to our 5% Convertible Notes issued in January 2008 and June 2009 and our April 2010 convertible note.  Interest expense increased $191,000, or 53%, to $554,000 for the year ended December 31, 2010 from $363,000 in 2009.  Interest expense includes amortization of the original issue discount on the notes resulting from the allocation of fair value to the warrants issued in the financing.  Interest on the Notes compounded monthly at the annual rate of five percent (5%).

We expect our interest expense to decrease substantially in future periods.  Simultaneous with the closing of the financings on July 30, 2010 (see “Acquisition of Sinotop and Concurrent Financing” above), and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010, each of the holders of all of our outstanding notes agreed to convert 100% of the outstanding principal and interest owing on such notes into shares of common stock and warrants.  In addition, the convertible promissory note issued in April 2010 was paid in full.  The increase in interest expense for the year was mainly due to the recognition of the unamortized amount remaining on the original issue discount.

 
Inducement to convert and reduction in conversion price of convertible notes
The Company recorded a charge of $6,706,000 related to the cost of new warrants issued and reduction in the conversion price of the 2008 and 2009 Convertible Notes in connection with the financings on July 30, 2010 (see “Acquisition of Sinotop and Concurrent Financing” above) and pursuant to a Waiver and Agreement to Convert, dated May 20, 2010, the note holders agreed to convert 100% of the outstanding principal and interest owing on such notes into shares of common stock and warrants
 
Change in fair value of warrant liabilities and cost of reduction in exercise price of certain warrants
Under new authoritative guidance, effective January 1, 2009, the Company was required to reclassify warrants from equity to warrant liabilities.  Warrants are fair valued quarterly using the Black-Scholes Merton Model and changes in fair value are recorded to the statement of operations.  We recorded a gain of $819,000 classified as a change in fair value of warrants on our statement of operations for the year ended December 31, 2010 and we recorded a charge of $512,000 in 2009.
 
As described in “Acquisition of Sinotop and Concurrent Financing” above, in connection with the July 2010 financings, the Company and the investors agreed to amend the warrants to remove the non-standard anti-dilution protection. .As a result, the warrants were fair valued  at July 30, 2010 and were then re-classified to equity.  The Company recorded a charge of $150,000 related to these Warrants.

Change in fair value of contingent consideration
Our contingent consideration related to our acquisition of Sinotop as described in our Financial Note 4 is classified as a liability at December 31, 2010 because the earn-out securities do not meet the fixed-for-fixed criteria under ASC 815-40-15.  Further ASC 815-40-15 requires us to re-measure at the end of every reporting period with the change in value reported in the statement of operations and accordingly we reported a charge of approximately $501,000 for the period ended December 31, 2010.

Loss on sale of marketable equity securities
During the years ended December 31, 2010 and 2009 we recorded losses of approximately $15,000 on the sale of our Cablecom Holding shares in both 2010 and 2009.

Impairment of intangibles
Our Shandong Media joint venture has not experienced the growth that we initially anticipated.  We prepared an analysis and accordingly recorded an impairment charge of $900,000 to our Shandong Media intangibles which include publication rights, operating permits and customer relationships in 2010.

Impairment of equipment
During the second quarter of 2010, the Company recorded an impairment write-down of $750,000 related to the equipment at our Jinan Broadband subsidiary.  In July 2010, the equipment was taken out of service due to changes in customer needs.  As of December 31, 2010 the Company has determined there are no other uses for the equipment and the equipment cannot be sold.  As such, the Company has recorded a total equipment impairment charge of $1,505,008 in 2010.
 
Goodwill impairment
We initially recorded a $1,900,000 intangible asset related to the AdNet Acquisition.  After completion of our purchase accounting for the AdNet acquisition, we recorded $1,239,000 to goodwill and $757,000 to software technology.  Due to the shift of our business model to the pay-per-view and video-on-demand business, as of December 31, 2009 we permanently suspended day to day operations of AdNet.  We have maintained our technology for future use.  Consequently, we recorded an impairment charge to goodwill of $1,239,000 as of December 31, 2009.
 
Loss on equity investment
Our VIE, Sinotop Beijing, has a 39% equity interest in Huacheng Interactive.  We account for this investment under the equity method.  In accordance with this method, where investments in affiliates, which are not controlled by the Company but where the Company has the ability to exercise significant influence, are accounted for using the equity-method where the earnings and losses attributable to the investment are recorded in the accompanying consolidated statements of operations.  Accordingly, for the year ended December 31, 2010 we recorded a loss on equity investment of approximately $15,000.

 
Net Loss Attributable to Non-controlling Interest

49% of the operating loss of our Jinan Broadband subsidiary is allocated to Jinan Parent, the 49% co-owner of this business.  During the year ended December 31, 2010, $1,655,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $1,012,000 during the same period of 2009.
 
50% of the operating loss of our Shandong Media joint venture is allocated to our 50% Shandong Newspaper joint venture partner.  During the year ended December 31, 2010, $884,000 of our operating loss from Shandong Media was allocated to Shandong Newspaper, as compared to $91,000 during the same period of 2009.

20% of the operating loss of our Zhong Hai Video joint venture is allocated to Huacheng Interactive (Beijing) TV, our 20% joint venture partner.  During the year ended December 31, 2010, $77,000 of our operating loss from Zhong Hai Video was allocated to Huacheng Interactive (Beijing) TV.

Dividends on preferred stock

We recorded a beneficial conversion feature associated with the Series A and Series B Preferred Stocks, which was limited to the proceeds allocated to them.  Because the preferred stocks are immediately convertible at the option of the holder, we recorded a deemed dividends of $2,315,000 from the beneficial conversion feature associated with the issuances of the Series A and Series B Preferred Stock.
 
Net Loss Attributable to Common Shareholders

Net loss attributable to common shareholders for the year ended December 31, 2010 was $15,219,000, an increase of $9,779,000, or 180%, as compared to $5,440,000 for the year ended December 31, 2009.  The increase is primarily due to the costs associated with the issuance of new warrants from our July 2010 financings, the reduction in conversion price of the convertible notes which were converted to equity at the same time and dividends on preferred stock.  The increase was also attributable to impairment charges related to our Shandong Media intangibles and Jinan Broadband equipment.

Liquidity and Capital Resources

As of March 31, 2011 we had cash and cash equivalents of approximately $4,646,000.  The following table provides a summary of our net cash flows from operating, investing, and financing activities.

   
Three Months Ended
March 31,
   
Year Ended
December 31,
 
   
2011
   
2010
   
2010
   
2009
 
Net cash (used in) provided by operating activities
 
$
(1,108,000
)
 
$
89,000
   
$
(2,435,000)
   
$
851,000
 
Net cash used in investing activities
   
(920,000
)
   
(1,372,000
)
   
(2,023,000)
     
(1,069,000
)
Net cash provided by (used in) financing activities
   
152,000
     
581,000
     
9,114,000
     
(2,046,000
)
Effect of exchange rate change in cash
   
(62,000
)
   
26,000
     
(262,000)
     
28,000
 
Net (decrease) increase in cash and cash equivalents
   
(1,938,000
)
   
(676,000
)
   
4,394,000
     
(2,235,000
)
Cash and cash equivalents at beginning of the period
   
6,584,000
     
2,190,000
     
2,190,000
     
4,426,000
 
Cash and cash equivalents at end of the period
   
4,646,000
     
1,514,000
     
6,584,000
     
2,190,000
 
 
Operating Activities

Net cash (used in) provided by operating activities for the three months ended March 31, 2011 and 2010 was $(1,108,000) and $89,000, respectively.  The increased cash used relates to corporate and Sinotop operation costs incurred in the development of our new PPV and VOD business.

Net cash (used in) provided by operating activities for the years ended December 31, 2010 and 2009 was $(2,435,000) and $851,000, respectively.

 
Investing Activities

Investing activities for the three months ended March 31, 2011 and 2010 used cash of $920,000 and $1,372,000, respectively.  For 2011, this amount consisted primarily of $554,000 for additions to property and equipment and (ii) $210,000 loan to our Shandong Media shareholder.  For 2010, this amount consisted of (i) $224,000 for additions to property and equipment, (ii) $580,000 loan for our Sinotop acquisition and (iii) $568,000 net loan to our Shandong Media shareholders.

Investing activities for the years ended December 31, 2010 and 2009 used cash of $2,023,000 and $1,069,000, respectively.  For 2010, this amount consisted primarily of (i) $1,295,000 for additions to property and (ii) $575,000 investment in an equity company associated with Sinotop.  For 2009, this amount consisted primarily of $1,135,000 for additions to property and equipment.
 
Financing activities

Cash provided by financing activities for the three months ended March 31, 2011and 2010 was $152,000 and $581,000 respectively.  For 2011, the amount was from proceeds advanced from our Jinan Parent.  For 2010, the amount was from the issuance of a convertible note payable of $600,000 offset by a $19,000 decrease in the payable to Jinan Parent.

Cash provided by (used in) financing activities for the year ended December 31, 2010 was $9,114,000, as compared to cash used in financing activities for the year ended 2009 of $2,046,000.  For 2010, the amount consisted primarily of net proceeds of $9,025,000 from the sale of equity securities.  For 2009, the amount was due to an increase in the payable to Jinan Parent in the amount of $2,643,000 offset by total proceeds of approximately $605,000 from the sale of equity securities and the issuance of convertible notes payable.
 
As discussed above, (i) on July 30, 2010, we consummated financings which resulted in gross proceeds of $9.625 million, (ii) on June 3, 2011, we consummated a financing which resulted in gross proceeds of $6,462,806, and (iii) on June 7, 2011 we consummated a financing which resulted in gross proceeds of $4,455,000.  While we believe that the proceeds from these financings will sustain our business operations for the near term, we anticipate that we will need to raise additional funds to fully implement our business model and related strategies.  In addition, the fact that we have incurred significant continuing losses during 2010 and have relied on debt and equity financings to fund our operations to date, could raise substantial doubt about our ability to continue as a going concern.

Obligations Under Material Contracts

On March 7, 2008, we entered into a cooperation agreement with Shandong Broadcast and Modern Movie, pursuant to which Shandong Broadcast and Modern Movie contributed their entire businesses and transferred certain employees to Shandong Publishing in exchange for a 50% stake in Shandong Publishing.  In exchange, we were required to pay 10 million RMB (approximately $1.5 million), which was contributed to Shandong Publishing as working and acquisition capital.  Based on certain financial performance requirements, we were required to make an additional payment of 5 million RMB (approximately US $730,000).  In 2008, we recorded the additional payment due as an increase to our Shandong Publishing noncontrolling interest account.  We are currently in discussions with Shandong Broadcast and Modern Movie with regards to the outstanding $730,000 payment.

Effects of Inflation
 
Inflation and changing prices have not had a material effect on our business and we do not expect that inflation or changing prices will materially affect our business in the foreseeable future. However, our management will closely monitor the price change and continually maintain effective cost control in operations.
 
Off Balance Sheet Arrangements
 
We do not have any off balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in our securities.
 
Seasonality
 
Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.
 
 
Critical Accounting Policies
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates, and judgments that affect the amounts reported, including the notes thereto, and related disclosures of commitments and contingencies, if any. We have identified certain accounting policies that are significant to the preparation of our financial statements. These accounting policies are important for an understanding of our financial condition and results of operations. Critical accounting policies are those that are most important to the portrayal of our financial condition and results of operations and require management’s difficult, subjective, or complex judgment, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in subsequent periods. Certain accounting estimates are particularly sensitive because of their significance to financial statements and because of the possibility that future events affecting the estimate may differ significantly from management’s current judgments. We believe the following critical accounting policies involve the most significant estimates and judgments used in the preparation of our financial statements:
 
  ·   
Variable Interest Entities.  We account for entities qualifying as VIEs in accordance with ASC 810, Consolidation. VIEs are required to be consolidated by the primary beneficiary. The primary beneficiary is the entity that holds the majority of the beneficial interests in the variable interest entity. A VIE is an entity for which the primary beneficiary’s interest in the entity can change with changes in factors other than the amount of investment in the entity.
 
  ·   
Revenue Recognition.  Revenue is recorded as services are provided to customers.  We generally recognize all revenue in the period in which the service is rendered, provided that persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is reasonably assured.  We record deferred revenue for payments received from customers for the performance of future services and recognizes the associated revenue in the period that the services are performed.  Provision for discounts and rebates to customers and other adjustments, if any, are provided for in the same period the related sales are recorded.
 
  ·   
Inventories.  Inventories, consisting of cables, fiber, connecting material, power supplies and spare parts are stated at the lower of cost or market value.  Cost is determined using the first-in, first-out (FIFO) method.
 
  ·   
Intangible Assets.  We follow Financial Accounting Standards Board, or FASB, ASC 350, Intangibles-Goodwill and Other, or ASC 350.  ASC 350 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment at least annually.  ASC 350 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives and reviewed for impairment whenever events indicate the carrying amount may not be recoverable.  In accordance with ASC 350, goodwill is allocated to reporting units, which are either the operating segment or one reporting level below the operating segment. On an annual basis, we must test goodwill and other indefinite life intangible assets for impairment.  To determine the fair value of these intangible assets, there are many assumptions and estimates used that directly impact the results of the testing.  In making these assumptions and estimates, we will use set criteria that are reviewed and approved by various levels of management, and we will estimate the fair value of our reporting units by using discounted cash flow analyses and other valuation methods.  At December 31, 2009 we recorded a goodwill impairment charge of $1,239,291 related to goodwill from our AdNet acquisition.
 
  ·   
Income Taxes.  Deferred taxes are recognized for the future tax consequences attributable to temporary differences between the carrying amounts of assets and liabilities for financial statement purposes and income tax purposes using enacted rates expected to be in effect when such amounts are realized or settled.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.
 
  ·   
Warrant Liabilities.  We account for derivative instruments and embedded derivative instruments in accordance with the accounting standard for Accounting for Derivative Instruments and Hedging Activities, as amended.  The amended standard requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure these instruments at fair value.  Fair value is estimated using the Black-Scholes Pricing model.  We also follow accounting standards for the Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company’s Own Stock, which requires freestanding contracts that are settled in a company’s own stock, including common stock warrants, to be designated as an equity instrument, asset or a liability.  Under these provisions a contract designated as an asset or a liability must be carried at fair value, with any changes in fair value recorded in the results of operations.  A contract designated as an equity instrument can be included in equity, with no fair value adjustments required.  The asset/liability derivatives are valued on a quarterly basis using the Black-Scholes Pricing model.  Significant assumptions used in the valuation included exercise dates, fair value for our common stock, volatility of our common stock and a proxy-free interest rate.  Gains (losses) on warrants are included in “Changes in fair value of warrant liabilities in our consolidated statement of operations”.
 
  ·   
Foreign Currency Translation.  The businesses of our operating subsidiaries are currently conducted in and from China in Renminbi.    The Company makes no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at any particular rate, the rates stated below, or at all.  The Chinese 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.  The Company uses the U.S. dollar as its reporting and functional currency.  Translation adjustments are reported as other comprehensive income or expenses and accumulated as other comprehensive income in the equity section of the balance sheet.  Financial information is translated into U.S. dollars at prevailing or current rates respectively, except for revenues and expenses which are translated at average current rates during the reporting period.  Exchange gains and losses resulting from retained profits are reported as a separate component of stockholders’ equity.

 
Recent Accounting Pronouncements
 
ASC 810. We adopted ASC 810 on January 1, 2010, which provides consolidation guidance for variable-interest entities include: (1) the elimination of the exemption for qualifying special purpose entities, (2) a new approach for determining who should consolidate a variable-interest entity, and (3) changes to when it is necessary to reassess who should consolidate a variable-interest entity. The adoption of ASC 810 did not have a material impact on the Company’s financial statements.

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.
 
 
General
 
YOU On Demand Holdings, Inc., a Nevada corporation and our parent holding company, was formed on October 22, 2004, pursuant to a reorganization of a California entity formed in 1988.   Prior to January 2007, we were a blank check shell company.  On January 23, 2007, we acquired CB Cayman, which at the time was a party to the cooperation agreement with our PRC based WFOE, Beijing China Broadband Network Technology Co., Ltd., in a reverse acquisition transaction and simultaneously completed the first closing of an equity financing of common stock and warrants.  
 
Name Change

On February 23, 2011, we filed a Certificate of Amendment to our Articles of Incorporation with the Nevada Secretary of State to amend the Company’s Articles of Incorporation to change the name of the Company from “China Broadband, Inc.” to “YOU On Demand Holdings, Inc.”

Corporate Structure

The following chart depicts our corporate structure as of the date of this prospectus:
 
 
 
1.
Controlled through a Trust Agreement with controlling shareholder(s).
2.
Equity Pledge of 100% of Jinan Zhongkuan in favor of WFOE.
3.
Exclusive Advertising Agency and Exclusive Consulting Service Agreements dated June 2, 2008 between Shandong Publishing, Shandong Broadcast, Modern Movie and Music Review Press; Cooperation Agreement dated as of March 7, 2008, between Jinan Zhongkuan, Shandong Broadcast and Modern Movie.
4.
Exclusive Service Agreements dated December 2006 and March 2007 between Jinan Broadband, Jinan Parent and Networks Center; Cooperation Agreement dated as of January 2007 between Jinan Broadband and Networks Center; Cooperation Agreement dated as of December 26, 2006 between CB Cayman and Jinan Parent.
5.
Media Cooperation Agreement.
6.
Sinotop VIE Agreements, including with Zhang Yan, the sole shareholder of SinoTop Beijing.
7.
Controlled through a Loan Agreement dated January 2008, an Equity Option Agreement dated January 2008, a Trustee Arrangement dated January 2008, and a Power of Attorney dated January 2008.
8.
Sinotop Joint Venture Agreements
 
VIE Structure and Arrangements

Jinan Broadband

In December 2006, through our WFOE, we entered into to a cooperation agreement with Jinan Parent, pursuant to which we acquired and currently own a 51% controlling interest in Jinan Broadband.  The cooperation agreement provides that Jinan Broadband’s operations and pre-tax revenues would be assigned to our WFOE for 20 years, effectively providing for an acquisition of the business.  In consideration for this 20 year business and management rights license, we paid approximately $2,572,000, including expenses, in March 2007 and the remaining approximate $3.2 million (based on 23 million RMB) in March of 2008.  While this acquisition was completed in late March of 2007 with an effective transfer of assets date of April 1, 2007, we commenced certain operational oversight of this entity prior to such time.

Under the terms of an exclusive services agreement between Jinan Broadband, Jinan Parent and Networks Center, Jinan Broadband is obligated to provide certain technical services needed by Jinan Parent and is entitled to receive 100% of the pre-tax income of Jinan Parent in exchange.  Accordingly, because all of the pre-tax income of Jinan Broadband is then required to be paid over to our WFOE under the terms of the cooperation agreement, and due to the nature of our ownership/control of Jinan Broadband, it is considered a VIE and therefore is consolidated in our financial statements.

 
Shandong Publishing

On March 7, 2008, we entered into a cooperation agreement, or the Shandong Newspaper Cooperation Agreement, with Shandong Broadcast and Modern Movie, or the Shandong Newspaper Entities.  The cooperation agreement provides for, among other terms, the creation of a joint venture entity in the PRC, Shandong Publishing, that would own and operate the television program guide, newspaper and magazine publishing businesses previously owned and operated by the Shandong Newspaper Cooperation Agreement pursuant to exclusive licenses.  In addition, Shandong Publishing entered into an exclusive advertising agency agreement and an exclusive consulting services agreement with the Shandong Newspaper Cooperation Agreement and another third party, Music Review Press, which requires that the Shandong Newspaper Cooperation Agreement and Music Review Press shall appoint Shandong Publishing as their exclusive advertising agents and providers of technical and management support for a fee.
 
Under the terms of the Shandong Newspaper Cooperation Agreement and related pledge and trust documents, the Shandong Newspaper Entities contributed their entire Shandong newspaper business and transferred certain employees, to Shandong Publishing in exchange for a 50% stake in Shandong Publishing, with the other 50% of Shandong Publishing to be owned directly by Jinan Zhongkuan, and indirectly by our WFOE in the PRC in the second quarter of 2008, with the joint venture becoming operational in July of 2008.  In exchange therefore, the Cooperation Agreement provided for total initial consideration from us of approximately $1.5 million (approximately 10 million RMB) which was contributed to Shandong Publishing as working and acquisition capital.  As part of the transaction, and to facilitate our subsidiary’s ownership and control over Shandong Newspaper under PRC law, through our WFOE in the PRC, this acquisition was completed in accordance with a pledge and loan agreement, pursuant to which all of the shares of Shandong Publishing which we acquired are held in trust on our behalf by a nominee holder, as security for a loan to Shandong Media’s parent seller.  We are entitled to 100% of the pre-tax income of Jinan Zhongkuan, the 50% owner of Shandong Publishing in two ways, which are discussed below.
 
First, there are two individual owners of Jinan Zhongkuan which hold all of the equity in that company in trust for the benefit of CB Cayman, pursuant to trustee arrangements entered into with them in 2008.  The trustee arrangements relieve the individual shareholders from any responsibilities for the day-to-day operations of the company and any liability arising from their role as equity holders.  All actions taken by them as shareholders will be in accordance with instructions provided by CB Cayman.  The trustee arrangements provide that, in consideration for an up-front fee paid by CB Cayman, and monthly cash payments thereafter, the equity holders of Jinan Zhongkuan will hold the equity of Jinan Zhongkuan in trust for, and only for the benefit of, CB Cayman.  We believe CB Cayman’s right to receive 100% of the dividends paid on the equity held in trust for it by the two individuals is appropriate under PRC transfer pricing rules, which are found in Arts. 41-48 of the PRC Enterprise Income Tax Law and Arts. 109-123 of the Implementing Regulations thereunder, and complies with the “arm’s length principle” mandated by Art. 41 of the Enterprise Income Tax Law, because those individuals have no responsibilities and take no risk in connection with their role as trustee shareholders other than to vote when requested and as directed by CB Cayman.
 
As a practical matter, however, there are not likely to be any dividends paid on the equity of Jinan Zhongkuan, because all of its pre-tax income is required to be paid over to WFOE under the terms of an exclusive services agreement entered into in January 2008. Under the terms of the exclusive services agreement, the WFOE is obligated to provide all management, technical and support services needed by Jinan Zhongkuan and is entitled to receive 100% of the pre-tax income of Jinan Zhongkuan in exchange. Jinan Zhongkuan has no income other than profit distributions from Shandong Publishing.  Jinan Zhongkuan and our WFOE are related parties, and all of the risk and burden of the operations of Jinan Zhongkuan is shifted to the WFOE under the exclusive services agreement, and therefore all of the economic benefit is shifted to the WFOE as well.

The Company, through CB Cayman, is the sole owner of WOFE, and exercises the overall voting power over WFOE.  In addition, through the various contractual agreements between CB Cayman, the trustees, the WFOE and Jinan Zhongkuan, as discussed above, Jinan Zhongkuan is considered a VIE.  As the Company bears all risks and is entitled to all benefits relating to the investment in Jinan Zhongkuan, the Company is a primary beneficiary of Jinan Zhongkuan and is required to consolidate Jinan Zhongkuan under the variable interest model.  With respect to Shandong Publishing, it cannot finance its own activities without the cash contribution from Jinan Zhongkuan.  In addition, apart from its 50% equity interest in Shandong Publishing, Jinan Zhongkuan has the obligation to bear expected losses and receive expected returns through the services agreement, which entitles Jinan Zhongkuan to all net profits of Shandong Publishing.  Accordingly, due to the nature of our ownership/control of Jinan Zhongkuan and Shandong Publishing, they are considered VIEs and therefore are consolidated in our financial statements.

If the PRC tax authorities were to disagree with our position regarding the pricing under the exclusive services agreement between Jinan Zhongkuan and the WFOE, there is no potential for past-due tax liability with respect to Jinan Zhongkuan because, as noted above, Jinan Zhongkuan has never recognized any profits.  However, if Jinan Zhongkuan did recognize profits, and the PRC tax authorities partially disallowed Jinan Zhongkuan’s deduction of amounts paid to the WFOE, such that Jinan Zhongkuan is seen to retain some percentage of its pre-tax profit as taxable income, that entity would be responsible for enterprise income tax at a rate of 25% on such retained percentage.

 
AdNet

On April 7, 2009, we acquired AdNet, a development stage company, whose primary business was, until December 2009 as discussed above, the delivery of multimedia advertising content to internet cafés in the PRC.   Pursuant to the terms of this acquisition, we issued 11,254,898 shares of our common stock to AdNet’s shareholders in exchange for 100% of AdNet’s equity ownership and $100,000 paid to us.  As part of the terms of this acquisition, and to facilitate our ownership and control over AdNet under PRC law, we loaned AdNet $100,000 pursuant to a loan agreement and equity option agreement, and all of the shares of AdNet are held by a trustee appointed by us to act as directed by CB Cayman.  Due to the nature of our ownership/control of AdNet, it is considered a VIE and therefore is consolidated in our financial statements  However, due to the shift of our business model to the PPV and VOD business, as of December 31, 2009, we permanently suspended the day-to-day operations of AdNet.  We have maintained our technology and other assets of AdNet for future use in our new pay-per-view business.

Sinotop Beijing

On July 30, 2010, we acquired Sinotop Hong Kong through CB Cayman.  Through a series of contractual arrangements, Sinotop Hong Kong controls Sinotop Beijing.  Sinotop Beijing, a corporation established in the PRC is, in turn, a party to a joint venture with two other PRC companies to provide integrated value-added service solutions for the delivery of pay-per-view, video-on-demand and enhanced premium content for cable providers.

In March 2010, Sinotop Hong Kong entered into a management services agreement with Sinotop Beijing pursuant to which Sinotop Beijing pays consulting and service fees, equal to 100% of all pre-tax revenues of Sinotop Beijing, to Sinotop Hong Kong  for various management, technical, consulting and other services in connection with its business.  Payment of the fees under the management services agreement is secured through an equity pledge agreement pursuant to which the sole shareholder of Sinotop Beijing pledged all equity interests in Sinotop Beijing to Sinotop Hong Kong.  In addition, Sinotop Hong Kong entered into a voting rights agreement with Sinotop Beijing and the sole shareholder of Sinotop Beijing, whereby Sinotop Hong Kong was entrusted with all of the voting rights of the sole shareholder of Sinotop Beijing.  Through these contractual arrangements, upon our acquisition of Sinotop Hong Kong, we acquired control over, and rights to 100% of the economic benefit of, Sinotop Beijing.  Accordingly, Sinotop Beijing is considered a VIE and therefore is consolidated in our financial statements.
 
July 2010 Private Placements and Related Transactions
 
On July 30, 2010, we closed financings with several accredited investors and sold an aggregate of $9,625,000 of securities, including (i) $3.125 million of common units, at a per unit price of $0.05, each common unit consisting of one share of common stock and a warrant for the purchase of one share of common stock at an exercise price of $0.05, (ii) $3.5 million of Series A units, at a per unit price of $0.50, each Series A unit consisting of one share of our Series A Preferred Stock (convertible into ten shares of common stock) and a warrant to purchase 34.2857 shares of common stock at an exercise price of $0.05, and (iii) $3.0 million of Series B units, at a per unit price of $0.50, each Series B unit consisting of one share of our Series B Preferred Stock (convertible into ten shares of common stock) and a warrant to purchase ten shares of common stock.  Accordingly, we issued 62,500,000 shares of common stock, 7,000,000 shares of Series A Preferred Stock, 6,000,000 shares of Series B Preferred Stock in connection with the financings, and warrants to purchase an aggregate of 362,500,000 shares of common stock.  The proceeds of the financings will be used to fund our value added service platform and for general working capital purposes.
 
Simultaneous with the closing of the financings above, and pursuant to (i) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of $4,971,250 in principal amount of notes of the Company, dated January 11, 2008, and (ii) a Waiver and Agreement to Convert, dated May 20, 2010, with the holders of an aggregate of $304,902 in principal amount of notes of the Company, dated June 30, 2009, the holders of such notes agreed to convert 100% of the outstanding principal and interest owing on such notes into an aggregate of 62,855,048 shares of common stock, 4,266,800 shares of Series B Preferred Stock and warrants for the purchase of an aggregate of 105,523,048 shares of common stock, as set forth in the respective waivers.
 
On July 30, 2010, Oliveira Capital LLC agreed to (i) cancel the remaining $20,000 of the March 9, 2010 loan and (ii) assign the $580,000 note of Sinotop HK to the Company, in exchange for 1,200,000 shares of our Series B Preferred Stock and warrants to purchase of 36,000,000 shares of our common stock.
 
 
October 2010 Warrant Exchange Transaction
 
On October 20, 2010, we entered into separate Warrant Exchange Agreements with the holders of different series of warrants to purchase shares of our common stock, including all of the investors in the financing transactions discussed above.  Pursuant to the Warrant Exchange Agreements, (i) the holders of warrants issued on January 11, 2008  to purchase an aggregate of 9,699,993 shares of our common stock at an exercise price of $0.20 per share, exchanged their warrants for an aggregate of 485,000 shares of our common stock, and (ii) the holders of warrants issued on July 30, 2010 to purchase an aggregate of 622,591,300 shares of the Company’s common stock at an exercise price of $0.05 per share, have exchanged their warrants for an aggregate of 373,554,780 shares of our common stock. 
 
June 2011 Private Placements
 
On June 3, 2011, we completed a private placement transaction with FIL Investment Management (Hong Kong) Limited, or Fidelity, professional fiduciary for various accounts from time to time. Pursuant to a securities purchase agreement between us and Fidelity, we issued to funds managed by Fidelity and its affiliates an aggregate of 73,440,972 shares of our common stock at a per share price of $0.088, resulting in aggregate gross proceeds to the Company of $6,462,806.  Pursuant to the securities purchase agreement with Fidelity, we may not, during the six month period following the closing, without the prior written consent of Fidelity, issue any shares of our common stock, including securities that are exercisable or convertible into common stock except for (i) up to 146,881,944 shares of our common stock at a per share price equal to or greater than US$0.088, (ii) shares of our common stock upon the exercise, exchange or conversion of our securities which were outstanding prior to the closing, (iii) shares of our common stock upon the exercise, exchange or conversion of callable warrants to purchase up to 50,000,000 shares of our common stock, with a per share exercise price equal to or greater than US$0.088, and (iv) pursuant to our 2010 Equity Incentive Plan, options to purchase up to an aggregate of 33,000,000 shares of our common stock to new and existing employees in the normal course of business.  In addition, we granted to Fidelity a right of first refusal during the six month period following the closing to purchase up to ten percent of the number of shares of common stock offered to investors as permitted in the securities purchase agreement, at a per share price of $0.088 and on identical terms as set forth in the securities purchase agreement.

In connection with the private placement transaction with Fidelity, we entered into a registration rights agreement with Fidelity pursuant to which we are obligated to file a registration statement with the U.S. Securities and Exchange Commission within thirty days following the closing to register the shares of common stock issued to Fidelity.  In addition, we agreed to use our commercially reasonable efforts to have the registration statement declared effective within ninety days of the closing.

Chardan Capital Markets LLC acted as agent for the Company in connection with the private placement transaction with Fidelity, and received an agent fee equal to $323,140, or five percent of the gross proceeds of the transaction.

On June 7, 2011, we completed a private placement transaction with a group of twenty-seven accredited investors.  Pursuant to a securities purchase agreement between us and the investors, we issued to the investors an aggregate of 50,625,000 shares of our common stock at a per share price of $0.088, resulting in aggregate gross proceeds of $4,455,000.  The offer and sale of the shares to the accredited investors was made in compliance with Section 8.4(i) of the securities purchase agreement with Fidelity, and following the private placement with the accredited investors we may, without the prior written consent of Fidelity, sell up to an aggregate of 96,256,944 shares of our common stock during the six month period following the closing of the private placement transaction with Fidelity at a per share price equal or greater to US$0.088.

Chardan Capital Markets LLC acted as placement agent in connection with the private placement transaction with the accredited investors, and received a placement agent fee equal to $445,500, or ten percent of the gross proceeds of the transaction.

In connection with the June 7, 2011 private placement, Fidelity had the right to purchase up to 5,625,000 shares of our common stock, or up to ten percent of the number of shares sold to the accredited investors, at a per share price of $0.088.  On June 7, 2011, we agreed with Fidelity that they will maintain the right to purchase such shares until December 3, 2011.

 
 
Overview

We operate in the media segment, through our Chinese subsidiaries and variable interest entities “VIEs”, (1) a business which provides integrated value-added service solutions for the delive
ry of pay-per-view “PPV”, video-on-demand “VOD”, and enhanced premium content for cable providers, (2) a cable broadband business based in the Jinan region of China and (3) a television program guide, newspaper and magazine publishing business based in the Shandong region of China.

On July 30, 2010, we acquired Sinotop Group Limited (“Sinotop Hong Kong”) through our subsidiary China Broadband Cayman.  Through a series of contractual arrangements, Sinotop Hong Kong controls Sinotop Beijing.  Through Sinotop Beijing, a corporation established in the PRC which is party to a joint venture with two other PRC companies, we plan to provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers.

Through our VIE Jinan Broadband, we provide cable and wireless broadband services, principally internet services, Internet Protocol Point wholesale services, related network equipment rental and sales, and fiber network construction and maintenance.  Jinan Broadband’s revenue consists primarily of sales to our PRC-based internet consumers, cable modem consumers, business customers and other internet and cable services. This broadband business constitutes 63% of our revenues in 2010.

Through our VIE Shandong Publishing, we operate our publishing business, which includes the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services. Shandong Publishing’s revenue consists primarily of sales of publications and advertising revenues. Our publishing business accounted for 37% of our revenues in 2010.

We acquired AdNet during the first half of 2009.  Due to the shift of our business model to the PPV and VOD business, as of December 31, 2009, we permanently suspended the day-to-day operations of AdNet.  We have maintained our technology and other assets of AdNet for future use in our new pay-per-view business.

Our Pay-Per-View and Video-On-Demand Business

Through our acquisition of Sinotop Hong Kong and its VIE Sinotop Beijing, we have acquired the rights to use a national license to provide the first integrated value-added service solution for the delivery of PPV and VOD in China. Our core revenues will be derived from a pay-TV model, consisting of a one-time fee to view movies, popular titles, and live events. The service will provide cable television households subscribers, the ability to view broadcast events at any time using an on-screen guide and the streaming of content through a set-top box. Currently, there are no other companies nationally offering PPV or VOD services in China.

China is the largest cable TV market in the world. We believe that spending on television in China will continue to grow, as it is still regarded as the most effective form of media in China, largely due to television’s ability to reach a nationwide audience. With the increase of middle class income and greater disposable budgets, we anticipate seeing greater demand for entertainment, including movies, concerts and sporting events. This projection has been reflected through box office receipts, up 86% in 2010 from 2009 according to China’s Film Bureau, and the exploding sales of flat screen televisions, up 32% from 2009 according to the China Electronic Chamber of Commerce. Premium content is still missing from the market and we believe the key opportunity for growth is in China’s next generation broadcasting initiatives, expected to power 200 million digital cable customers with high definition television, internet and 2-way interactive service capability by 2020 according to the Chinese State Administration of Radio, Film and Television.
 
Our Broadband Business

Jinan Parent, the entity that sold its cable broadband business to us, is an emerging cable consolidator and operator in China’s cable broadband market.   Jinan Broadband, which is 49% owned by Jinan Parent and 51% owned by our WFOE, is operated in accordance with a cooperation agreement and one or more operating agreements, including the an exclusive service agreement.  Jinan Broadband operates out of its base in Shandong where it has an exclusive cable broadband deployment partnership and exclusive service agreement with Networks Center, the only cable TV operator in Jinan.  Pursuant to the exclusive service agreement, Jinan Broadband, Jinan Parent and Networks Center cooperate and provide each other with technical services related to their respective broadband, cable and Internet content-based businesses.
 
Currently, the only broadband services available in the Jinan region are through cable and high speed internet lines, as satellite internet cable connections are not currently available in Jinan, China.  We believe that we compete on the basis of more favorable rates and our ability to provide a variety of interactive media services through a partnership with Networks Center.  Finally, cable enjoys a high household penetration rate in urban areas and our internet service is competitively fast and reliable.  (See www.jinan.gov.cn).  The broadband internet business in China has limited competition, since we were granted an exclusive license and right to do so via cable in the Jinan region.  We anticipate building our PPV/VOD business in conjunction with this business.

 
Our Publishing Business

Shandong Publishing, which is 50% owned by Shandong Broadcast and Modern Movie and 50% owned by Jinan Zhongkuan, an entity controlled by us through a series of contractual arrangements.  Through Shandong Publishing, our publishing business includes the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services.  Our cooperation agreement with Shandong Broadcast and Modern Movie also provides that these businesses will be operated primarily by employees contracted to Shandong Publishing through secondment by Shandong Broadcast and Modern Movie.
 
In addition to being the exclusive provincial television programming guide publishing group in the Shandong province, Shandong Publishing has:

 
·
a combined subscription basis of approximately 225,000 subscribers;
 
·
five publishing assets focused on different entertainment readership segments;

Following is a description of some of our publications:

 
·
Shandong Broadcast and TV Weekly (Newspaper). Established in 1954, Shandong Broadcast & TV Weekly is a provincial TV programming guide & general entertainment newspaper.  Published on a weekly basis, it has maintained 85,000 average copies in circulation per week.   Target readership of Shandong Broadcast & TV Weekly consists primarily of middle-age to senior readers in the Shandong region.

 
·
TV Weekly Magazine.  TV Weekly Magazine is a national PRC magazine title, ranked among China’s top 5 TV Guide & general entertainment magazines.  Published on a weekly basis, this magazine’s average circulation is 40,000 copies in the Shandong region.  The unique national publishing title encourages TV Weekly to expand its target market to neighboring regions in northern China.

 
·
Modern Movie Times Magazine (Bi-Weekly).  Modern Movie Time Magazine is published jointly by Shandong TV Drama and Movie Production Center and Shandong TV Station.  Ranked among the top 100 magazine for 5 consecutive years in China, it’s among the most popular magazines in Northern China.  Modern Movie Times Magazine reached 100,000 copies in circulation on a bi-weekly basis in 2010.

 
·
Music Review and Korea Drama (monthly). These are two smaller publications that were acquired in 2009.  Circulation in each of these magazines is small.  They are currently distributed in larger cities.  We feel that there is good growth potential for both publications as we integrate them into our distribution and content channels.

Our Industry
 
Until 2005, there were over 2,000 independent cable operators in the PRC.  While SARFT has advocated for national consolidation of cable networks, the consolidation has primarily occurred at the provincial level.  The 30 provinces are highly variable in their consolidation efforts and processes.  
 
 SARFT has taken various steps to implement a separation scheme to achieve economies of scale in the value-added service and cable operation sector.  First, SARFT has been separating cable network assets from broadcasting assets and currently allows state-owned-enterprises to hold up to 49% in the cable network infrastructure assets.  Second, SARFT is separating the value-added services segment from the network infrastructure which tends to increase private investments.
 
Due to its highly-regulated nature, we believe that the radio and broadcasting industry does not have the same financial resources as the deregulated telecom industry in China, and that the priorities and goals of this industry are different from the telecom industry.
 
We believe that SARFT and its broadcasters are currently focusing on increasing subscription revenues by converting Chinese television viewers from “analog” service to “digital” (pay TV) service.  The digitalization efforts include providing set-top-boxes free of charge as part of a digital television service bundling initiative.   Due to the lack of financial resources, we believe that the rollout of cable broadband services and other value-added services has moved lower on SARFT’s priority list.
 
 
Our Competition
 
Pay-Per-View and Video-On-Demand Business
 
We currently have no competitors in China that offer PPV and VOD services. Although we can provide no assurances that other companies will not enter the market of providing such services, we believe that we will have a competitive advantage over any new market entrant as a result of our ongoing operational experience.
 
Broadband Business
 
We believe that local telecom carriers that offer non-cable internet services, such as DSL, represent our primary broadband internet segment competition in the PRC.  An example is China Netcom, a telecom carrier in the Shandong province of China.  Many of our competitors also have resources and capital resources that exceed our own.
 
Local telecom carriers are actively marketing broadband services on national, provincial, as well as local levels in China.  Telecom carriers own “last mile access” to urban households in the form of fixed phone lines.  We believe, however,  cable operators have a competitive advantage by owning last mile connections in the form of cable lines that have a larger bandwidth relative to phone lines.  In urban areas that we target, a large number of households have both fixed phone line and cable television access.  Many of these homes currently have telecom based internet access.
 
Cable operators in China must purchase internet connection bandwidth from the local telecom carriers.  Since the local telecom carriers are not required to pay for internet connection bandwidth, which increases their profit margins relative to cable broadband service providers.  This affords them a potential price advantage, but to date their prices remain in line with our prices.
 
We believe, however, that the ability for cable operators to bundle cable broadband with digital Set-top boxes combined with the quality and versatility of cable based broadband services, provides a competitive advantage.  For example, voice over internet protocol telephony service (known as “VOIP”) can be provided over cable lines with limited added costs to us or the end user.  We do not have plans to provide value added services such as VOIP to our customers in the near future. Instead, we plan to pursue expansion opportunities by increasing the number of geographical regions in which we are licensed to operate.
 
Publishing Business
 
There are approximately 17 entertainment newspapers and numerous entertainment magazines in Shandong province and throughout China.  Competition in this sector is very strong.  Management hopes to gain a competitive advantage and additional revenue by focusing on advertising by leveraging our advertising business.  We will also attempt to deliver publication content electronically through our broadband division.
 
Our Growth Strategy
 
We intend to implement the following strategic plans to take advantage of industry opportunities and expand our business:
 
   
Pay-Per-View and Video-On-Demand Services. Through our recently announced acquisition of Sinotop HK., and its VIE, Sinotop Beijing, which is a party to a joint venture consisting of partnerships with two major PRC companies, we have received an exclusive and national license to deploy PPV/VOD services onto cable TV networks throughout China. Currently we have access to the largest movie library in China and we plan to acquire content from entertainment companies and studios in the U.S. and other parts of the world to deliver an integrated solution for enhanced premium content through cable providers. There are over 175 million cable television households in China and we plan to capitalize on the revenue opportunities as the government continues to mandate the switch from analog to digital cable by 2015.
 
   
Focus on Additional Delivery Platforms. Once we build an extensive entertainment content library and establish our reputation within the cable television industry, we plan to expand the distribution of our content over multiple delivery platforms including internet, mobile, IPTV and satellite to expand out product offerings and diversifying our revenue streams.
 
   
 Deployment of Value-added Services. To augment our product offerings and create other revenue sources, we work with strategic partners to deploy value-added services to our cable broadband customers.  Value-added services  will become a focus of revenue generation.

 
Our Customers
 
As of June 23, 2011, Jinan Broadband had approximately 60,000 cable internet subscribers.  Shandong Publishing had, in aggregate amongst its various titles, a reader base of approximately 225,000 persons.  At present, we do not have any customers for our PPV and VOD business.
 
All of our customers are in the PRC.
 
Intellectual Property
 
We are not a party to any royalty agreements, labor contracts or franchise agreements, and other than our right to own and operate Jinan Broadband, we do not currently own any trademarks.   We intend to apply for trademarks for the regions in which we operate, such as with respect to Jinan Broadband.
 
Our Employees

As of June 23, 2011, we had a total of 213 full-time employees. The following table sets forth the number of our employees by function at June 23, 2011.

Function
 
Number of
Employees
 
Sales and Marketing
   
24
 
Technical
   
44
 
Research and Development
   
11
 
Operating
   
100
 
Financial
   
15
 
Administrative
   
19
 
TOTAL
   
213
 

Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.
 
We are required under PRC law to make contributions to employee benefit plans at specified percentages of after-tax profit.  In addition, we are required by the PRC law to cover employees in China with various types of social insurance.  We believe that we are in material compliance with the relevant PRC laws.

Seasonality
 
Our operating results and operating cash flows historically have not been subject to seasonal variations. This pattern may change, however, as a result of new market opportunities or new product introductions.
 
Regulation
 
General Regulation of Businesses
 
Our PRC based operating subsidiaries and VIEs are regulated by the national and local laws of the PRC. The radio and television broadcasting industries and news print media are highly regulated in China.  Local broadcasters including national, provincial and municipal radio and television broadcasters are 100% state-owned assets.  SARFT regulates the radio and television broadcasting industry.  In China, the radio and television broadcasting industries are designed to serve the needs of government programming first, and to make profits next.  The SARFT interest group controls broadcasting assets and broadcasting contents in China.
 
 
The MII plays a similar role to SARFT in the telecom industry.  As China’s telecom industry is much more deregulated than the broadcasting industry.  While China’s telecom industry has substantial financial backing, SARFT, and its regulator, the Propaganda Ministry under China’s Communist Party Central Committee, never relinquished ultimate regulatory control over content and broadcasting control.
 
The major internet regulatory barrier for cable operators to migrate into multiple-system operators and to be able to offer telecom services is the license barrier.  Few independent cable operators in China acquired full and proper broadband connection licenses from MII.  The licenses, while awarded by MII, are given on very-fragmented regional market levels.  With cable operators holding the last mile to access end users, SARFT cable operators pose a competitive threat to local telecom carriers.  While internet connection licenses are deregulated to even the local private sector, MII still tries to utilize the license barrier to fence off threats from cable operators that falls under the SARFT interest group.
 
We are required to obtain government approval from the Ministry of Commerce of the People’s Republic of China, or MOFCOM, and other government agencies in China that approve transactions such as our acquisition of Jinan Broadband.  Additionally, foreign ownership of business and assets in China is not permitted without specific government approval.  For this reason, we acquired only 51% of Jinan Broadband, with the remaining 49% owned by Jinan Parent and its affiliates.  Similarly, Shandong Publishing was acquired through WFOE which owns 50% of the joint venture with the remaining 50% owned by Shandong Broadcast and Modern Movie.  AdNet was acquired under a trustee relationship.  Sinotop Beijing was acquired through out acquisition of Sinotop Hong Kong, which controls Sinotop Beijing through a series of contractual agreements.   We use revenue sharing and voting control agreements among the parties so as to obtain equitable and legal ownership of our subsidiaries.
 
Licenses and Permits
 
Jinan Broadband
 
Through the cooperation agreement with Jinan Parent and Networks Center, we enjoy the benefits of licenses that Jinan Parent holds that allow us to roll out cable broadband services as well as to provide value-added services of radio and TV content in Shandong province, including:
 
Description
 
License/Permit
Internet Multi-media Content Transmission
 
License No. 1502005
Radio & Television Program Transmission & Operation Business
 
Permit Shandong No. 1552013
Radio & TV Program Production & Operation License
 
Shandong No. 46
PR China Value-added Telecom Service License
 
Shandong No. B2-20050002
PR China Value-added Telecom Service License
 
Shandong B2-20051013
 
Shandong Publishing
 
Shandong Publishing holds the following licenses:
 
Description
 
License/Permit
PRC Newspaper Publication License for Shandong Broadcast & TV Weekly
 
National Unified Publication CN 37-0014
PRC Magazine Publication License for View Weekly
 
Ruqichu Nor:1384
PRC Magazine Publication License for Modern Movie & TV Biweekly
 
Ruqichu No:1318
Advertising License for Shandong Broadcast & TV Weekly
 
3700004000093
Advertising License for View Weekly
 
3700004000186
Advertising License for Modern Movie & TV Biweekly
 
3700004000124
 
AdNet
 
AdNet, holds an ICP license issued by the Ministry of Commerce of the PRC.  AdNet, among other things, is authorized to operate and provide content and advertising throughout the PRC in internet Cafés.
 
 
Through our acquisition of Sinotop Beijing, we will operate a comprehensive end-to-end solution PPV and VOD platform and attempt to build alliances with some of the leading media operators in China.
 
Taxation
 
On March 16, 2007, the National People’s Congress of China passed the EIT Law, and on November 28, 2007, the State Council of China passed its implementing rules which took effect on January 1, 2008. The EIT Law and its implementing rules impose a unified earned income tax, or EIT, rate of 25.0% on all domestic-invested enterprises and foreign invested enterprises, or FIEs, unless they qualify under certain limited exceptions.  As a result, our PRC operating subsidiaries and VIEs are subject to an earned income tax of 25.0%.  Before the implementation of the EIT Law, FIEs established in the PRC, unless granted preferential tax treatments by the PRC government, were generally subject to an EIT rate of 33.0%, which included a 30.0% state income tax and a 3.0% local income tax.
 
In addition to the changes to the current tax structure, under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a resident enterprise and will normally be subject to an EIT of 25% on its global income. The implementing rules define the term “de facto management bodies” as “an establishment that exercises, in substance, overall management and control over the production, business, personnel, accounting, etc., of a Chinese enterprise.” If the PRC tax authorities subsequently determine that we should be classified as a resident enterprise, then our organization’s global income will be subject to PRC income tax of 25%.  For detailed discussion of PRC tax issues related to resident enterprise status, see “Risk Factors – Risks Related to Doing Business in China – Under the New Enterprise Income Tax Law, we may be classified as a “resident enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC stockholders.”
 
Foreign Currency Exchange
 
All of our sales revenue and expenses are denominated in RMB.  Under the PRC foreign currency exchange regulations applicable to us, RMB is convertible for current account items, including the distribution of dividends, interest payments, trade and service-related foreign exchange transactions. Currently, our PRC operating subsidiaries may purchase foreign currencies for settlement of current account transactions, including payments of dividends to us, without the approval of SAFE, by complying with certain procedural requirements.  Conversion of RMB for capital account items, such as direct investment, loan, security investment and repatriation of investment, however, is still subject to the approval of SAFE.  In particular, if our PRC operating subsidiaries borrow foreign currency through loans from us or other foreign lenders, these loans must be registered with SAFE, and if we finance the subsidiaries by means of additional capital contributions, these capital contributions must be approved by certain government authorities, including the MOFCOM, or their respective local branches.  These limitations could affect our PRC operating subsidiaries’ ability to obtain foreign exchange through debt or equity financing.
 
Dividend Distributions
 
Our revenues are earned by our PRC subsidiaries.  However, PRC regulations restrict the ability of our PRC subsidiaries to make dividends and other payments to their offshore parent company.  PRC legal restrictions permit payments of dividend by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations.  Each of our PRC subsidiaries is also required under PRC laws and regulations to allocate at least 10% of our annual after-tax profits determined in accordance with PRC GAAP to a statutory general reserve fund until the amounts in such fund reaches 50% of its registered capital.  These reserves are not distributable as cash dividends. Our PRC subsidiaries have the discretion to allocate a portion of their after-tax profits to staff welfare and bonus funds, which may not be distributed to equity owners except in the event of liquidation.
 
In addition, under the New EIT law, the Notice of the State Administration of Taxation on Negotiated Reduction of Dividends and Interest Rates, or Notice 112, which was issued on January 29, 2008, and the Notice of the State Administration of Taxation Regarding Interpretation and Recognition of Beneficial Owners under Tax Treaties, or Notice 601, which became effective on October 27, 2009, dividends from our PRC operating subsidiaries paid to us through our subsidiaries may be subject to a withholding tax at a rate of 10%. Furthermore, the ultimate tax rate will be determined by treaty between the PRC and the tax residence of the holder of the PRC subsidiary.  Dividends declared and paid from before January 1, 2008 on distributable profits are grandfathered under the EIT Law and are not subject to withholding tax.
 
The Company intends on reinvesting profits, if any, and does not intend on making cash distributions of dividends in the near future.
 
 
 
Our principal executive offices are located at 27 Union Square West, Suite 502, New York, New York 10003.  We do not currently have a lease agreement for the use of this office space.  We pay $10,000 per month for the use of this space.

For a period of time we maintained office space at 1900 Ninth Street, 3rd Floor, Boulder, Colorado 80302, under a lease with Maxim Financial Corporation.  Pursuant to our agreement with Maxim Financial Corporation, it has waived its past fees owed by CB Cayman since July of 2006 and all future rental fees of the Company through December 31, 2007. We did not pay any rent to Maxim Financial Corporation in 2008, 2009 or 2010, but have accrued $66,000 related to this agreement as of December 31, 2010.  We no longer lease space and we are currently in negotiations with Maxim Financial Corporation regarding this outstanding amount.

The principal address of Zhong Hai Video is Suite 2603-2607, Building AB, Office Park, 10 Jintong West Road, Chaoyang District, Beijing 100020 China.  We paid approximately $42,000 for rent in 2010.

The principal address of Jinan Broadband is c/o Jinan Guangdian Jiahe Digital TV Co. Ltd., No. 32, Jing Shi Yi Road, Jinan Shandong 250014, Tel: (86531)-85652255.  We paid approximately $71,000 for rent at its facilities in Jinan in 2010.
 
The principal address of Shandong Publishing is Qing Nian Dong Lu No. 26, Lixia District, Jinan City.  We paid approximately $88,000 for rent in 2010.

We believe that all our properties have been adequately maintained, are generally in good condition, and are suitable and adequate for our business.
 
 
From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business.  However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.  We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
 
MANAGEMENT
 
Directors and Executive Officers

The following table sets forth the name and position of each of our current executive officers and directors.
 
NAME
 
AGE
 
POSITION
Shane McMahon
 
40
 
Chairman and Chief Executive Officer
Marc Urbach
 
37
 
President, Chief Financial Officer and Director
Weicheng Liu
 
53
 
Senior Executive Officer and Director
James Cassano
 
63
 
Director

Shane McMahon.  Mr. McMahon has served as our Chairman and Chief Executive Officer since July 30, 2010.  Prior to joining us, from 2000 to December 31, 2009, Mr. McMahon served in various executive level positions with World Wrestling Entertainment, Inc. (NYSE: WWE).  Mr. McMahon has significant marketing and promotion experience and has been instrumental in exploiting pay-per-view programming on a global basis.  Mr. McMahon also sits on the Boards of Directors of Glaucus Limited, a company organized under the laws of Ireland, DKRM Holding Limited (formerly known as Nephele Limited), a company organized under the laws of Ireland, ISM Group Limited, a company organized under the laws of England and Wales, International Sports Management Limited, a company organized under the laws of England and Wales, International Cricket Management Limited, a company organized under the laws of England and Wales, and Global Power of Literacy, a New York not-for-profit corporation.  Mr. McMahon’s extensive executive experience led us to the conclusion that he should serve as a director of our Company, in light of our business and structure.

 
Marc Urbach. Mr. Urbach has over twelve years of accounting, finance, and operations experience in both large and small companies.  He was the Executive Vice President and Chief Financial Officer of Profile Home Inc., a privately held importer and distributor of home furnishings from September 2004 until February 2008. He additionally served on the board and was part owner of Tri-state Trading LLC, a related import company during that same time period. Mr. Urbach was a Director of Finance at Mercer Inc., a Marsh & McLennan Company from 2002 to 2004. He was a Finance Manger at Small World Media from 2000 until 2002 and held a similar position at The Walt Disney Company from 1998 to 2000. He started his career at Arthur Andersen LLP as a senior auditor from 1995 to 1998. Mr. Urbach received his Bachelor of Science in Accounting from Babson College in 1995.

Weicheng Liu. Mr. Liu was appointed as a Senior Executive Officer and as a member of our board of directors on July 30, 2010.  Prior to joining us, Mr. Liu founded Sinotop Beijing and served as its sole officer and director until his resignation on July 30, 2010.  Mr. Liu is currently the Chairman and CEO of Codent Networks (Shanghai ) Co. Ltd., a mobile software company in China founded by Mr. Liu, and has served in that position since 2003.  Overall, Mr. Liu has almost twenty years of experience in the telecommunications and network technology industries.  Mr. Liu received a degree in engineering physics from Tsinghua University and a Ph.D. from the University of Waterloo.  Mr. Liu’s extensive industry experience, as noted above, along with his management experience of Sinotop Beijing, let us to the conclusion that he should serve as a director of our Company, in light of our business and structure.

James S. Cassano. Mr. Cassano was appointed as director of the Company effective as of January 11, 2008.  Mr. Cassano has served as executive vice president, chief financial officer, secretary and director of Jaguar Acquisition Corporation a Delaware corporation (OTCBB: JGAC), a blank check company, since its formation in June 2005.  Mr. Cassano has served as a managing director of Katalyst LLC, a company which provides certain administrative services to Jaguar Acquisition Corporation, since January 2005.  In June 1998, Mr. Cassano founded New Forum Publishers, an electronic publisher of educational material for secondary schools, and served as its chairman of the board and chief executive officer until it was sold to Apex Learning, Inc., a company controlled by Warburg Pincus, in August 2003. He remained with Apex until November 2003 in transition as vice president business development and served as a consultant to the company through February 2004.  In June 1995, Mr. Cassano co-founded Advantix, Inc., a high volume electronic ticketing software and transaction services company which handled event related client and customer payments, that was re-named Tickets.com and went public through an IPO in 1999. From March 1987 to June 1995, Mr. Cassano served as senior vice president and chief financial officer of the Hill Group, Inc., a privately-held engineering and consulting organization, and from February 1986 to March 1987, Mr. Cassano served as vice president of investments and acquisitions for Safeguard Scientifics, Inc., a public venture development company. From May 1973 to February 1986, Mr. Cassano served as partner and director of strategic management services (Europe) for the strategic management group of Hay Associates. Mr. Cassano received a B.S. in Aeronautics and Astronautics from Purdue University and an M.B.A. from Wharton Graduate School at the University of Pennsylvania.  Mr. Cassano’s extensive executive experience, as noted above, along with his educational background, led us to the conclusion that he should serve as a director of our Company, in light of our business and structure.
 
There are no agreements or understandings for any of our executive officers or director to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person.

Directors are elected until their successors are duly elected and qualified.

Family Relationships

There is no family relationship among any of our officers or directors.

Involvement in Certain Legal Proceedings

To the best of our knowledge, none of our directors or executive officers has, during the past ten years:

 
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);
 
 
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;