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TABLE OF CONTENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Filed pursuant to 424(b)(4)
Registration No. 333-170657

Prospectus

11,740,000 American Depositary Shares

LOGO

Bona Film Group Limited

Representing 5,870,000 Ordinary Shares

        This is an initial public offering of American depositary shares, or ADSs, of Bona Film Group Limited. We are offering 11,740,000 ADSs. Each two ADSs represent one ordinary share.

        The initial public offering price is $8.50 per ADS. Currently, no public market exists for the ADSs or the ordinary shares. Our ADSs have been approved for listing on the Nasdaq Global Market under the symbol "BONA."

        Investing in our ADSs involves a high degree of risk. See "Risk Factors" beginning on page 15.

 
  Per ADS   Total  

Initial public offering price

  $ 8.500   $ 99,790,000  

Underwriting discount

  $ 0.595   $ 6,985,300  

Proceeds, before expenses, to us

  $ 7.905   $ 92,804,700  

        The underwriters have an option to purchase up to an additional 1,761,000 ADSs from the selling shareholders to cover over-allotments, at the public offering price within 30 days from the date of this prospectus. We will not receive any of the proceeds from the sale of the ADSs by the selling shareholders.

        The ADSs will be ready for delivery on or about December 14, 2010.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.


BofA Merrill Lynch

 

 

 

J.P. Morgan

 

 

CICC

 

 

Piper Jaffray

 

 

 

Cowen and Company

The date of this prospectus is December 8, 2010.


LOGO



TABLE OF CONTENTS

 
  Page

Prospectus Summary

  1

The Offering

  10

Risk Factors

  15

Forward-Looking Statements

  49

Use of Proceeds

  50

Dividend Policy

  51

Capitalization

  52

Dilution

  53

Exchange Rate Information

  55

Enforceability of Civil Liabilities

  56

Our Corporate Structure

  58

Selected Condensed Consolidated Financial Data

  62

Management's Discussion and Analysis of Financial Condition and Results of Operations

  65

Unaudited Pro Forma Condensed Consolidated Financial Data

  113

Our Industry

  119

Business

  128

Regulation

  149

Management

  160

Principal and Selling Shareholders

  167

Related Party Transactions

  169

Description of Share Capital

  174

Description of American Depositary Shares

  184

Shares Eligible for Future Sale

  194

Taxation

  196

Underwriting

  203

Expenses Relating to this Offering

  210

Legal Matters

  211

Experts

  211

Where You Can Find Additional Information

  211

Index to Consolidated Financial Statements

  F-1

   

        You should rely only on the information contained in this document or which we have referred to you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document is current only as of the date of this document.

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PROSPECTUS SUMMARY

        The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and related notes appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in our ADSs discussed under "Risk Factors" before deciding whether to buy our ADSs.


Bona Film Group Limited

Our Business

        We are the largest privately owned film distributor in China. We are the leading distributor of domestic films among all privately owned film distributors in China in terms of number of films distributed and total box office receipts in 2009, according to a report we commissioned from EntGroup International Consulting (Beijing) Co. Ltd., or EntGroup, a third-party PRC consulting and market research firm focusing on media markets and a member of the ComInsight Group. In 2007, 2008 and 2009, films that we distributed or invested in accounted for 44.1%, 40.0% and 44.1%, respectively, of the total box office receipts for the 20 highest grossing domestic films in China, helping to establish us as a leading player in the fast growing Chinese film market. A small number of our films, typically ones that are released during the peak season, account for a substantial portion of our net revenues each year. Our remaining films generate lower net revenues but generally have lower costs for the acquisition of distribution rights or production. Our top five films each year in 2007, 2008 and 2009 accounted for 50.6%, 63.5% and 67.9% of our net revenues in those years, respectively. Since our inception in November 2003, we have distributed 139 films (including 29 films internationally), and we generally distribute between 16 and 20 films theatrically each year.

        We believe that our brand name and reputation in the Chinese film industry, our experience in distribution and marketing, our collaborations with other domestic and international film industry players, and our management's access to industry participants enable us to identify and secure distribution rights for promising film projects. We also selectively invest in film production projects by funding a portion of the film production budget in order to augment the supply of desirable film projects that we can distribute, while at the same time gaining title to or economic benefits associated with the copyright for those films.

        We distribute films through virtually all of the theater circuits in China. We are able to gain distribution rights to a wider selection of films through joint distribution arrangements with industry participants such as the state-owned China Film Group Corporation. We have also distributed 17 Chinese films (including Hong Kong films) internationally since 2008, from which we generated nil, US$2.0 million and US$5.2 million in net revenues in 2008, 2009 and the nine months ended September 30, 2010, respectively. Although our international film distribution business has not historically made a significant contribution to our results of operations, it has accounted for an increasing proportion of our net revenues. We believe that we are well positioned to take advantage of the increasing popularity of Chinese films abroad, given our track record of international distribution and the distribution arrangements we have established with film distributors in markets including Korea, Japan and Southeast Asia. We have also expanded into non-theatrical distribution channels, including home video products, digital distribution and television. As films continue to generate an increasing proportion of our revenues from non-theatrical sources, we expect to continue to develop new and existing relationships to maximize the value of our distribution business and our film portfolio.

        In addition to film distribution and production operations, we own and operate six movie theaters in commercial districts and residential areas in several major cities in China. Our movie theaters are affiliated with leading theater circuits in China and provide our audiences with modern facilities. Theater circuits are mandated by PRC laws and regulations to negotiate the terms of arrangements for the exhibition of films and provide film prints to movie theaters. Consistent with industry practice in

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China, these theater circuits charge an industry standard rate for their services, and we as film distributors are responsible for making and delivering film prints of both digital and traditional films to them. Our movie theater business, which we acquired in April 2010, generated net losses of US$0.8 million and US$1.9 million in 2008 and 2009, respectively, and net loss of US$0.1 million for the period from April 23 to September 30, 2010. We paid consideration in the form of 5,810,320 newly issued ordinary shares with a fair value of US$4.50 per share, or US$26.1 million in the aggregate, as of the acquisition date and the settlement of US$5.3 million that Mr. Dong Yu owed to us. The ordinary shares paid to Mr. Dong Yu would have a current value of US$98.8 million, at the initial public offering price of US$8.50 per ADS. Our talent agency business leverages our relationships in the film and entertainment industry and enables us to source desirable films for distribution, gives us additional insight into the film projects that are being contemplated and developed, and provides another source for promising film opportunities. We also leverage our films and movie theater operations to attract advertising customers. We also believe that our movie theaters under the "Bona" brand, our ability to sell advertising in the films we exhibit and our representation of artists through our talent agency add to the strength of our business and assist in building a brand which we believe is synonymous with high quality films in China.

        We generated net revenues of US$22.4 million, US$23.4 million and US$38.4 million in 2007, 2008 and 2009, respectively, representing a compound annual growth rate, or CAGR, of 30.9%. Our net income was US$2.0 million, US$0.4 million and US$5.5 million in 2007, 2008 and 2009, respectively. For the nine months ended September 30, 2010, we generated net revenues of US$35.0 million and net loss of US$7.4 million. Our net income in 2007, 2008 and 2009 included a gain of US$31,000, a loss of US$2.0 million and a gain of US$0.1 million, respectively, from changes in fair value of derivatives. Our net loss for the nine months ended September 30, 2010 included a loss of US$14.5 million from changes in fair value of derivatives. Excluding share-based compensation, changes in fair value of warrants and changes in fair value of derivatives, our non-GAAP net income for 2007, 2008 and 2009 was US$2.0 million, US$2.7 million and US$5.4 million, respectively, representing a CAGR of 65.2%. For the nine months ended September 30, 2010, our non-GAAP net income was US$7.4 million. For a reconciliation of our non-GAAP net income to the U.S. GAAP net income, see footnote (1) to our summary consolidated statement of operations data included elsewhere in this prospectus. The redemption terms of the Series A and Series B preferred shares were amended in August 2010, and as a result, we have ceased to recognize derivative liabilities and change in fair value of derivatives from the date of such amendment.

Our Industry

        The PRC film industry has been experiencing strong and consistent growth for the past few years. According to EntGroup, total box office for urban Chinese movie theaters grew at a CAGR of 32.0% from 2005 to 2009, compared to a CAGR of 4.7% for the United States and 6.7% for the entire world over the same period. In absolute terms, total box office for urban Chinese movie theaters has grown from RMB2.1 billion in 2005 (US$313.9 million) to RMB6.2 billion (US$926.7 million) in 2009 and is projected by EntGroup to reach RMB21.0 billion (US$3.1 billion) by 2012, representing a three-year CAGR of 50.2%. This growth has been driven primarily by strong increases in viewership, which in turn has been fueled by the increase in the number of modern movie theaters and the improvement in film quality and variety in China. Total admission for urban Chinese movie theaters has increased from 73 million in 2005 to 200 million in 2009, while the average ticket price increased moderately from RMB30.0 (US$4.5) in 2005 to RMB31.0 (US$4.6) in 2009, according to EntGroup.

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        The following table sets forth the box office, admission, per capita admission and average ticket price for and number of urban Chinese movie theaters for the periods indicated:

 
  For the year ended December 31,  
 
  2005   2006   2007   2008   2009   2010E   2011E   2012E  

China box office

                                                 
 

RMB billions

    2.1     2.6     3.3     4.3     6.2     10.3     14.9     21.0  
 

US$ millions

    313.9     388.6     493     642.7     926.7     1,539     2,227     3,138  

Admission (millions)

    73     89     130     170     200     258     330     430  

Per capita admission

    0.13     0.15     0.22     0.28     0.32     0.40     0.51     0.64  

Average ticket price

                                                 
 

RMB

    30.0     21.2     24.4     27.6     31.0     31.9     32.8     33.7  
 

US$

    4.5     3.2     3.6     4.1     4.6     4.8     4.9     5.0  

Number of urban movie theaters

    1,243     1,326     1,427     1,545     1,687     1,870     2,100     2,400  

Source: EntGroup.

        State-owned enterprises have historically dominated and have in recent years continued to play a prominent role in the PRC film industry. The top three state-owned film distributors, China Film Group Corporation, Huaxia Film Distribution Co., Ltd. and Shanghai Film Group, together accounted for between 36.3% and 43.7% of the total box office for domestic films between 2007 and 2009, according to EntGroup. Moreover, two state-owned film distributors have the exclusive right to distribute the limited number of foreign films, mainly Hollywood blockbusters, that may be exhibited in China on a box office sharing basis. Privately owned film distributors have increasingly captured a sizeable share of the market for distribution of domestic films. Our company and Huayi Brothers are the top two privately owned film distributors; our company accounted for 16.5%, 17.1% and 17.3% of the total domestic films' box office in 2007, 2008 and 2009, and Huayi Brothers accounted for 6.4%, 19.4% and 13.2% during those same years, according to EntGroup. State-owned enterprises may consider non-commercial interests in operating their business and may from time to time support the production and distribution of films that promote themes and initiatives supported by the PRC government. Privately owned companies, such as our company, generally have greater flexibility in operating their business on a commercial basis, including in selecting the films they produce or distribute.

        Apart from box office, revenues from non-theatrical channels, overseas distribution and movie related advertising also contribute to the total film industry revenues in China.

        Revenues from non-theatrical channels such as television royalties, new media and home video products although still relatively low in China, are expected to increase in the future and are forecast to reach RMB2.6 billion (US$388.6 million) by 2012, according to EntGroup.

        Increasing appreciation of Chinese culture and films have considerably raised the profile of Chinese domestic films in the overseas market. According to EntGroup, total film exporting revenues are expected to grow from RMB2.8 billion (US$418.5 million) in 2009 to RMB4.1 billion (US$612.8 million) by 2012, representing a three-year CAGR of 14.1%. The top markets for Chinese movies include Hong Kong, Taiwan, Southeast Asia and other overseas markets with large Chinese populations.

        The market size for film-related advertising in China, which includes in-film and pre-screening advertising, is forecast to grow from approximately RMB520 million (US$77.7 million) to approximately RMB2,180 million (US$325.8 million) between 2009 and 2012, representing a three-year CAGR of 61.2%, according to EntGroup. In-film advertisement is increasingly welcomed by studios as an alternative film financing source.

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        Underlying this growth in the Chinese film industry are other market and economic factors that we believe provide a foundation for continued future growth including:

    sustained economic growth, continued urbanization and higher disposable income;

    a favorable regulatory environment;

    an increasing number of modern multiplex movie theaters;

    potential for higher film penetration due to China's early-stage film industry; and

    increasing quantity of Chinese films that have been achieving growing global recognition.

Our Competitive Strengths

        We believe that the following strengths give us a competitive advantage and set us apart from our competitors:

    the largest privately owned film distributor in China;

    extensive presence across the film industry value chain enhancing our core distribution business;

    strong distribution capability through multiple channels;

    scale of operations enabling us to increase commercial upside with prudent risk management policy; and

    management team and professionals with proven track record in the Chinese film industry and high-profile international private equity shareholders.

Our Strategies

        We plan to implement the following strategies:

    continue to leverage our distribution scale to strengthen our presence across the entire film industry value chain and reinforce our position as a leading film distributor in China;

    continue to expand our international film distribution business;

    continue to develop complementary businesses and new platforms for film distribution;

    expand into new entertainment formats, enhance our content offerings and build a strong licensing business for our top film franchises; and

    become the film distributor and producer of choice for China's leading creative talent and continue to leverage our management team's film and entertainment industry connections in China.

Our Challenges

        We face risks and uncertainties relating to:

    our dependence upon the success of a limited number of film releases and factors in the film industry that are difficult to predict;

    the risks inherent in producing and distributing films;

    our ability to adapt to and successfully exploit non-theatrical distribution channels;

    our ability to retain and attract our senior management and key personnel;

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    economic conditions and trends in China, including adverse economic conditions that may result in declines in the film industry;

    government controls and regulations in the film, television, talent agency and advertising industries; and

    our corporate structure based on a series of contractual arrangements in order to comply with applicable PRC laws and regulations.

        Please see "Risk Factors" and other information included in this prospectus for a detailed discussion of these risks and uncertainties.

Corporate Structure

        In anticipation of this initial public offering, we incorporated Bona Film Group Limited in the Cayman Islands as a listing vehicle on July 8, 2010. Bona Film Group Limited became our ultimate holding company when it issued one preferred or ordinary share to existing shareholders of Bona International Film Group Limited on November 10, 2010, in exchange for every 16 of the respective preferred or ordinary shares that these shareholders held in Bona International Film Group Limited. Bona International Film Group Limited was incorporated in the British Virgin Islands on December 13, 2006, to facilitate investments by financial investors and as part of our reorganization conducted in 2007.

        In April 2010, we entered into a series of transactions to acquire Beijing Bona International Cineplex Investment and Management Co., Ltd. and Beijing Bona Youtang Cineplex Management Co., Ltd., two companies that focus on the movie theater business in China. These companies were beneficially owned by Mr. Dong Yu, our chairman and chief executive officer, and his immediate family member. The total consideration comprised 5,810,320 newly issued ordinary shares and the settlement of US$5.3 million that Mr. Dong Yu owed to us.

        We operate our businesses in China through our affiliated consolidated entities and their subsidiaries due to PRC regulations that prohibit or restrict foreign investments in the film, television and talent agency industries and impose qualifications for foreign investors in the advertising industry. We have three affiliated consolidated entities in China that operate our businesses in China, each of which is an entity duly formed under PRC law. We are subject to various risks relating to our corporate structure. For example, there are uncertainties regarding the interpretation and application of the relevant PRC laws, rules and regulations. If a PRC government authority determines that our corporate structure, the contractual arrangements underlying our corporate structure or the reorganization we undertook to establish our current corporate structure violate any applicable PRC laws, rules or regulations, the contractual arrangements may become invalid or unenforceable, and we could be subject to strict penalties and be required to obtain additional governmental approvals from the PRC regulatory authorities. In addition, the contractual arrangements may not be as effective in providing operational control or enabling us to derive economic benefits as ownership of controlling equity interests. See "Risk Factors—Risks Relating to Our Corporate Structure" and "—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system could limit the protections available to you and us."

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        The following diagram illustrates our shareholding and corporate structure and our significant subsidiaries and affiliated consolidated entities immediately after the completion of this offering (assuming no exercise of the underwriters' over-allotment option). See "Our Corporate Structure" for more information.

GRAPHIC


(A)
Refers to Sequoia Capital China I L.P., Sequoia Capital China Partners Fund I L.P., Sequoia Capital China Principals Fund I L.P. and their affiliates, collectively.
(B)
Refers to Matrix Partners China I L.P., Matrix Partners China I-A L.P., and their affiliates, collectively.
(1)
The regulatory registration of the transfer of the 60% of the equity interests of Shanghai Bona Yinxing Cinema Development Co., Ltd. from Beijing Baichuan Film Distribution Co., Ltd. to Beijing Bona International Cineplex Investment and Management Co., Ltd. is in process.

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Corporate Information

        Our principal executive offices are located at 11/F, Guan Hu Garden 3, 105 Yao Jia Yuan Road, Chaoyang District, Beijing 100025, People's Republic of China. Our telephone number at this address is (86) 10 5928 3663 and our fax number is (86) 10 5928 3383. Our registered office in the Cayman Islands is located at the offices of Codan Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands. Our agent for service of process in the United States is Law Debenture Corporate Services Inc., located at 400 Madison Avenue, 4th Floor, New York, New York 10017.

        Investors should contact us for any inquiries through the address and telephone number of our principal executive offices. Our principal website is www.bonafilm.cn. The information contained on our website is not a part of this prospectus.

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Conventions Which Apply to This Prospectus

        Except where the context otherwise requires and for purposes of this prospectus only:

    "ADSs" refers to our American depositary shares, each two of which represent one ordinary share, and "ADRs" refers to the American depositary receipts that may evidence our ADSs;

    "affiliated consolidated entities" refer to Beijing Baichuan Film Distribution Co., Ltd., Beijing Bona Film and Culture Communication Co., Ltd. and Beijing Bona Advertising Co., Ltd., all of which are companies organized under PRC law. Substantially all of our operations in China are conducted by our affiliated consolidated entities or their subsidiaries, in which we do not own any equity interest, through our contractual arrangements. We treat the affiliated consolidated entities as variable interest entities and have consolidated their financial results in our financial statements in accordance with generally accepted accounting principles in the United States, or U.S. GAAP;

    "Bona New World" refers to Beijing Bona New World Media Technology Co., Ltd., our PRC subsidiary;

    "China" or "PRC" refers to the People's Republic of China, excluding, for the purposes of this prospectus only, Taiwan, Hong Kong and Macau;

    "Matrix Partners China Funds" refers to Matrix Partners China I L.P., Matrix Partners China I-A L.P., and their affiliates, collectively;

    "our films" refers to films (i) for which we have acquired the distribution rights, whether as the principal distributor or as a participating distributor, (ii) to which we own all or a portion of the copyright, or (iii) in which we have the right to receive a share of the net revenues;

    "preferred shares" refers to our Series A preferred shares or Series B preferred shares;

    "RMB" or "Renminbi" refers to the legal currency of China; "$," "dollars," "US$" and "U.S. dollars" refer to the legal currency of the United States;

    "Series A preferred shares" refers to our Series A convertible redeemable preferred shares, par value US$0.0005 per share;

    "Series B-1 preferred shares" refers to our Series B-1 convertible redeemable preferred shares, par value US$0.0005 per share; "Series B-2 preferred shares" refers to our Series B-2 convertible redeemable preferred shares, par value US$0.0005 per share; "Series B-3 preferred shares" refers to our Series B-3 convertible redeemable preferred shares, par value US$0.0005 per share; and "Series B preferred shares" refers to our Series B-1 preferred shares, Series B-2 preferred shares or Series B-3 preferred shares;

    "Sequoia Funds" refers to Sequoia Capital China I L.P., Sequoia Capital China Partners Fund I L.P., Sequoia Capital China Principals Fund I L.P. and their affiliates, collectively;

    "shares" or "ordinary shares" refers to our ordinary shares, par value US$0.0005 per share; and

    "we," "us," "our company" and "our" refer to Bona Film Group Limited, a Cayman Islands company, and its predecessor entities and subsidiaries, and, unless the context otherwise requires, our affiliated consolidated entities in China.

        Unless otherwise indicated, information in this prospectus:

    assumes that the underwriters do not exercise their option to purchase additional ADSs;

    reflects (i) the stock split on March 24, 2010 of each issued and unissued ordinary share and preferred share, which had a par value of US$0.01 per share in the authorized share capital of

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      Bona International Film Group Limited into 100 shares of par value of US$0.0001 per share and (ii) the 16 to 1 share exchange of preferred and ordinary shares of Bona International Film Group Limited for preferred and ordinary shares of our company completed on November 10, 2010; and

    reflects the conversion of all outstanding convertible redeemable preferred shares to ordinary shares at a conversion ratio of one Series A preferred share to approximately 1.8421 ordinary shares and one Series B preferred share to one ordinary share upon the closing of this offering.

        This prospectus contains statistical data that we obtained from various government and private publications. We have not independently verified the data in these reports. Statistical data in these publications also include projections based on a number of assumptions. If any one or more of the assumptions underlying the statistical data turns out to be incorrect, actual results may differ from the projections based on these assumptions. In particular, this prospectus contains statistical data extracted from a report issued by EntGroup International Consulting (Beijing) Co. Ltd., or EntGroup, a PRC consulting and market research firm and a member company of the ComInsight Group. The report is titled China Film Industry Review, 2010 and was commissioned by us for a fee that is more than nominal.

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THE OFFERING


Offering price

 

The initial public offering price is US$8.50 per ADS.

ADSs offered by us

 

11,740,000 ADSs.

Ordinary shares outstanding immediately after this offering

 

29,349,481 ordinary shares.

 

 

The number of ordinary shares that will be outstanding immediately after this offering:

 

•       excludes ordinary shares issuable upon the exercise of options to purchase our ordinary shares outstanding as of the date of this prospectus; and

 

•       excludes ordinary shares reserved for future issuance under our 2010 share incentive plan.


The ADSs

 

Each two ADSs represent one ordinary share, par value US$0.0005 per share.

 

•       The depositary will hold the ordinary shares underlying your ADSs. You will have the rights as provided in the deposit agreement between us, the depositary and holders and beneficial owners of our ADSs from time to time.

 

•       If we declare dividends on our ordinary shares, the depositary will pay you the cash dividends and other distributions it receives on our ordinary shares, after deducting its fees and expenses.

 

•       You may surrender your ADSs to the depositary in exchange for the ordinary shares underlying your ADSs. The depositary will charge you fees for any exchange. The depositary may refuse to accept for surrender ADSs only in the case of (i) temporary delays caused by closing our transfer books or those of the depositary or the deposit of our ordinary shares in connection with voting at a shareholders' meeting or the payment of dividends, (ii) the payment of fees, taxes and similar charges and (iii) compliance with any laws or governmental regulations relating to depositary receipts or to the withdrawal of deposited securities. Subject thereto, in the case of surrender of a number of ADSs representing other than a whole number of our ordinary shares, the depositary will cause ownership of the appropriate whole number of our ordinary shares to be delivered in accordance with the terms of the deposit agreement and will, at the discretion of the depositary, either (i) issue and deliver to the person surrendering such ADSs a new ADS representing any remaining fractional ordinary share or (ii) sell or cause to be sold the fractional ordinary shares represented by the ADSs surrendered and remit the proceeds of such sale (net of applicable fees and charges of, and expenses


 

 

 

10


    incurred by, the depositary and taxes and/or governmental charges) to the person surrendering the ADS.

 

•       Voting instructions may be given only in respect of a number of ADSs representing an integral number of our ordinary shares or other deposited securities.

 

•       We may amend or terminate the deposit agreement without your consent. If an amendment becomes effective and you continue to hold your ADSs, you will be bound by the deposit agreement as amended.


 

 

To better understand the terms of the ADSs, you should carefully read the section of this prospectus entitled "Description of American Depositary Shares." You should also read the deposit agreement, which is filed as an exhibit to the registration statement that includes this prospectus.

Over-allotment option

 

The selling shareholders have granted to the underwriters an option, which is exercisable within 30 days from the date of this prospectus, to purchase a maximum of 1,761,000 additional ADSs.

Reserved ADSs

 

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 939,200 ADSs offered by this prospectus for sale to some of our directors, officers, employees, business associates and related persons. See "Underwriting—Reserved ADSs" for additional information.

Use of proceeds

 

Our net proceeds from this offering are expected to be approximately US$89.3 million, at the initial public offering price of US$8.50 per ADS after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.

 

 

We intend to use our net proceeds from this offering for:

 

•       possible acquisitions, including of movie theaters to further build up and strengthen our national film exhibition network, although we are not currently negotiating and have not entered into any agreements for any such acquisitions;

 

•       acquisition of film distribution rights including investment in film productions to secure film distribution rights; and


 

 

general corporate purposes, including funding possible acquisitions of complementary businesses, although we are not currently negotiating any such acquisitions. See "Use of Proceeds" for additional information.

 

 

We will not receive any of the proceeds from the sales of the ADSs by the selling shareholders.

Lock-up

 

We have agreed with the underwriters to a lock-up of shares for a period of 180 days after the date of this prospectus. In addition, our executive officers, directors and our existing shareholders and holders of our stock options have also

 

 

 

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    agreed with the underwriters to a lock-up of shares for a period of 180 days after the date of this prospectus. See "Underwriting."

Listing

 

Our ADSs have been approved for listing on the Nasdaq Global Market under the symbol "BONA." The ADSs or ordinary shares will not be listed on any other exchange or traded on any other automated quotation system.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of risks you should carefully consider before investing in our ADSs.

Depositary

 

Deutsche Bank Trust Company Americas.

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Summary Consolidated Financial Data

        The following summary consolidated statement of operations data for the years ended December 31, 2007, 2008 and 2009 and the consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements included elsewhere in this prospectus, which have been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm. The report of Deloitte Touche Tohmatsu CPA Ltd. on those audited consolidated financial statements is included elsewhere in this prospectus. The summary consolidated balance sheet data as of December 31, 2007 have been derived from our audited financial statements not included in this prospectus. The summary consolidated statement of operations data for the nine months ended September 30, 2009 and 2010 and the summary consolidated balance sheet data as of September 30, 2010 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements.

        You should read the summary consolidated financial data in conjunction with our consolidated financial statements and the related notes included elsewhere in this prospectus and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.

 
  For the year ended December 31,   For the nine months ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Consolidated Statement of Operations Data

                               

Net revenues

    22,398,483     23,396,442     38,372,551     15,458,918     34,984,968  

Cost of revenue

    12,916,429     12,706,866     19,888,461     7,869,256     17,300,682  

Operating expenses

    7,192,395     6,979,288     12,922,235     6,810,991     11,771,958  

Government subsidy

                    88,147  
                       

Operating income

    2,289,659     3,710,288     5,561,855     778,671     6,000,475  

Other income (loss):

                               
 

Changes in fair value of warrants

    (183 )   (306,050 )   119,451     119,451      
 

Changes in fair value of derivatives

    31,000     (1,994,000 )   90,000     393,000     (14,528,000 )
 

Other

    (261,061 )   308,238     (145,767 )   5,368     1,241,986  
                       

Net income (loss)(1)

    2,002,401     440,955     5,459,665     1,453,596     (7,368,313 )
                       

Net income (loss) attributable to the non-controlling interests

    367,939     199,225     (168,429 )   (295,698 )   (107,655 )

Deemed dividend on Series A and Series B convertible redeemable preferred shares

    381,073     873,652     1,394,985     916,023     1,603,266  

Undistributed earnings allocated to holders of participating Series A and Series B convertible redeemable preferred shares

    254,303         1,947,831     354,536      
                       

Net income (loss) attributable to holders of ordinary shares of Bona Film Group Limited

    999,086     (631,922 )   2,285,278     478,735     (8,863,924 )
                       

Net income (loss) per ordinary share:

                               
 

Basic

    0.10     (0.07 )   0.27     0.05     (0.77 )
 

Diluted

    0.10     (0.07 )   0.27     0.05     (0.77 )

Shares used in computation of net income per ordinary share:

                               
 

Basic

    9,542,114     9,051,563     8,453,842     9,052,396     11,555,326  
 

Diluted

    9,542,114     9,051,563     8,518,402     9,052,719     11,555,326  

(1)
As a supplement to net income, we use a non-GAAP financial measure of net income that is adjusted from results based on U.S. GAAP to exclude share-based compensation, changes in fair value of warrants and changes in fair value of derivatives. This non-GAAP financial measure is provided as additional information to help our investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of our current financial performance and prospects for the future. This non-GAAP financial measure should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to U.S. GAAP results. In addition, our definition of non-GAAP net income may be different from the definitions used by other companies, and therefore comparability may be limited.

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    The following table sets forth the reconciliation of our non-GAAP net income to our U.S. GAAP net income.

   
  Year Ended December 31,   Nine Months Ended
September 30,
 
   
  2007   2008   2009   2009   2010  
   
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 
 

Net income (loss)

    2,002,401     440,955     5,459,665     1,453,596     (7,368,313 )
 

Adjustment for share-based compensation

            132,902     114,780     226,688  
 

Adjustment for changes in fair value of warrants

    183     306,050     (119,451 )   (119,451 )    
 

Adjustment for changes in fair value of derivatives

    (31,000 )   1,994,000     (90,000 )   (393,000 )   14,528,000  
                         
 

Adjusted net income (non-GAAP)

    1,971,584     2,741,005     5,383,116     1,055,925     7,386,375  
                         

 

 
  As of December 31,   As of September 30,  
 
  2007   2008   2009   2010  
 
  (US$)
  (US$)
  (US$)
  (US$)
  Pro forma
as adjusted(1)
(US$)

 

Consolidated Balance Sheet Data

                               

Cash

    6,663,011     4,771,897     7,418,213     12,132,514     101,837,214  

Accounts receivable, net of allowance for doubtful accounts

    4,347,569     4,673,515     19,491,100     8,081,160     8,081,160  

Total current assets

    11,350,873     13,567,290     33,940,357     42,117,177     42,117,177  

Distribution rights

    6,300,851     3,847,906     5,550,394     1,234,100     1,234,100  

Production costs

        3,785,691     19,528,560     47,551,727     47,551,727  
                       

Total assets

    20,007,342     24,923,695     67,028,414     136,344,773     226,049,473  

Accounts payable

    5,766,634     4,237,192     8,902,182     12,777,509     12,777,509  

Bank borrowing

            6,590,317     9,538,568     9,538,568  

Other borrowings

            6,089,373     4,562,329     4,562,329  

Current film participation liabilities

        351,154     8,337,483     8,912,040     8,912,040  

Non-current film participation liabilities

        994,938     1,562,304     1,815,762     1,815,762  

Derivatives

    698,000     2,692,000     2,903,000          
                       

Total liabilities

    11,090,113     15,681,869     46,859,438     70,136,759     70,136,759  

Net assets

    8,917,229     9,241,826     20,168,976     66,208,014     155,912,714  

Series A convertible redeemable preferred shares

    7,560,727     8,434,379     9,727,866     10,543,176      

Series B convertible redeemable preferred shares

            9,074,270     14,386,112      
                       

Total equity

    1,356,502     807,447     1,366,840     41,278,726     155,912,714  
                       

(1)
Our consolidated balance sheet data as of September 30, 2010 is presented on a pro forma as adjusted basis to reflect (i) the automatic conversion of all of our outstanding Series A and Series B preferred shares into 9,540,433 ordinary shares immediately upon the closing of this offering, (ii) the issuance and sale of 5,870,000 ordinary shares in the form of ADSs by us in this offering, at the initial public offering price of US$8.50 per ADS, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and (iii) the subsequent payment of ordinary shares subscription receivable of US$400,000 in November 2010.

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RISK FACTORS

You should consider carefully all of the information in this prospectus, including the risks and uncertainties described below and our consolidated financial statements and related notes, before making an investment in our ADSs. Any of the following risks and uncertainties could have a material adverse effect on our business, results of operations, financial condition and prospects. The market price of our ADSs could decline as a result of any of these risks and uncertainties, and you may lose all or part of your investment.

Risks Relating to Our Business and Industry

Our success is largely dependent on a limited number of film releases each year and factors in the film industry that are difficult to predict, and accordingly our results of operations may vary widely from period to period.

        Our top five films each year in 2007, 2008 and 2009 accounted for 50.6%, 63.5% and 67.9% of our net revenues in those years, respectively. We generally distribute between 16 and 20 films theatrically each year. Because we distribute a limited number of films, the success or failure of a small number of these films could have a significant impact on our results of operations in both the year of release and in the future.

        In general, the economic success of a film is largely determined by the appeal of the film to a broad audience and by the effectiveness of the marketing of the film. We cannot precisely predict the economic success of any of the films we distribute or invest in because a film's acceptance by the public cannot be predicted with certainty. If we do not accurately judge audience acceptance of a film in selecting the films we acquire the distribution rights for or invest in or if we do not market the film effectively, we may not recoup our costs or realize our anticipated profits. In addition, the economic success of a film also depends upon the public's acceptance of competing films, the availability of alternative forms of entertainment and leisure-time activities, general economic conditions and other tangible and intangible factors, all of which can change and none of which can be predicted with certainty. Accordingly, our revenues and results of operations may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods.

Due to the risks inherent in producing and distributing films, we may be unable to recoup advances paid for or investments in films.

        Our most significant costs and cash expenditures relate to acquiring film distribution rights and, more recently, investing in films for which we also secure distribution rights. Many of our agreements to acquire distribution rights require up-front payments. We determine the amount of the payments or investment we are willing to make based on our estimate of the economic success of the film. Although these estimates are based on our knowledge of industry trends, market conditions and the market potential of the film, actual results may ultimately differ from our estimates.

        The production and distribution of films are subject to a number of uncertainties, including delays and increased expenditures due to creative differences among key cast members and other key creative personnel or other disruptions or events beyond our control. Risks such as illness, disability or death of star performers, technical complications with special effects or other aspects of production, shortages of necessary equipment, damage to film negatives, master tapes and recordings or adverse weather conditions may cause cost overruns and delay or frustrate completion of a production.

        If a film production in which we have invested incurs substantial budget overruns, we may be required to seek additional financing from outside sources to complete production. Such financing may not be available on terms acceptable to us, and failure to complete a film due to the lack of such financing could have a material adverse effect on our business, results of operations and financial condition. In addition, we may not be able to recoup our investment as a result of increased costs from

15


budget overruns. Increased costs may delay the release of a film to a less favorable time, which could hurt its box office performance and thus our revenues from the distribution of the film and its overall financial success.

        If a film fails to perform to our original estimates or expectations, we may (i) fail to realize the expected economic return from a film, (ii) fail to recoup advances we paid or investments we made or (iii) record accelerated amortization and/or fair value write downs of capitalized film production costs or distribution rights. Any of these events may adversely impact our business, results of operations and financial condition.

The production and distribution of films is a lengthy and capital-intensive process, and our capacity to generate cash or obtain financing on favorable terms may be insufficient to meet our anticipated cash requirements.

        The costs to develop, produce and distribute a film are substantial. In 2007, 2008 and 2009, for example, our cost of revenues amounted to US$12.9 million, US$12.7 million and US$19.9 million and accounted for 57.7%, 54.3% and 51.8% of our net revenues, respectively. For the year ended December 31, 2010, we expect our commitments to fund production and distribution costs will be approximately US$35.3 million. We are required to fund our costs for film-related activities and other commitments with cash retained from operations including the proceeds of films that are generating revenue from theatrical and non-theatrical channels, as well as from bank and other borrowing and participation by other investors. If our films fail to perform, we may be forced to seek substantial sources of outside financing. Such financing may not be available in sufficient amounts for us to continue to make substantial investments in the production of new films or may be available only on terms that are disadvantageous to us, either of which could have a material adverse effect on our growth or our business.

        We believe that as a common industry practice, film producers often agree to pledge their interests in the copyrights in a film as collateral for loans to finance the production of that film. We have agreed and may in the future agree to use our interests in film copyrights to secure loans for productions of films. If we are unable to repay such loans, the lenders may foreclose on the collateral securing such loans and take possession of the pledged copyright, which in turn could adversely affect our ability to distribute the corresponding films.

        Moreover, the costs of producing and distributing films have increased in recent years and may further increase in the future, which may make it more difficult for a film we distribute or have invested in to generate a profit or compete against other films. As a result, we may be required to continue to expand internationally and into other distribution channels such as home video products, digital distribution and television for revenue in order for a film to be profitable to us, and there can be no assurance that any such expansion would be successful and that revenues from such sources would be sufficient to offset increases in the cost of film production and distribution.

        In addition, investment in the construction or acquisition and operation of movie theaters also requires large amounts of capital. In the future, we may expand our movie theater operations through the acquisition of or direct investment in the construction of movie theaters, which will require us to commit significant amounts of capital. There can be no assurance that the expansion of our movie theater operations will be successful or that revenues from these operations will be sufficient to recoup our investment in them.

We depend substantially on the continuing efforts of our senior executives and key personnel, and our business and prospects may be severely disrupted if we lose their services.

        Our future success depends on the continued services of the key members of our management team, in particular, the continued service of Mr. Dong Yu, our founder, chairman and chief executive

16



officer, Ms. Nansun Shi, our director, Mr. Jeffrey Chan, our director and chief operating officer, Mr. Hao Zhang, the general manager of our domestic distribution business and Mr. Liang Xu, our chief financial officer. In addition, our ability to attract and retain other key personnel is a critical aspect of our competitiveness. We face competition for personnel from other film distribution and production companies and other organizations. Competition for these individuals could require us to offer higher compensation and other benefits in order to attract and retain them, which would increase our operating expenses and, in turn, could materially and adversely affect our results of operations and financial condition. We may be unable to attract or retain the personnel required to achieve our business objectives, and failure to do so could severely disrupt our business and prospects. In addition, as we expect to continue to expand our operations and expand the scope of our services, we will need to continue attracting and retaining experienced management in the relevant businesses. The process of hiring suitable qualified personnel is also often lengthy. If our recruitment and retention efforts are unsuccessful in the future, it may be more difficult for us to execute our business strategy. In addition, the loss of any of our key employees could adversely affect our services as well as our marketing efforts or adversely impact the perception of us by our clients, media and investors. Our business may also be severely disrupted as our senior executives may have to divert their attention to recruiting replacements for key personnel.

        We do not maintain key-person insurance for members of our management team. If we lose the services of any senior management, we may not be able to locate suitable or qualified replacements, and we may incur additional expenses to recruit and train new personnel, which could severely disrupt our business and prospects. Further, if any of our executive officers joins a competitor or forms a competing company, we may lose a significant number of our clients, which would have an adverse effect on our business and revenues. Although certain of our executive officers, including Mr. Dong Yu, have entered into a confidentiality and non-competition agreement with us regarding their employment, disputes may arise between our executive officers and us, and, in light of uncertainties associated with the PRC legal system, these agreements may not be enforced in accordance with their terms.

Accounting practices used in our industry may accentuate fluctuations in operating results. In addition to the cyclical nature of the film industry, our accounting practices (which are standard for the industry) may accentuate fluctuations in our operating results.

        In accordance with U.S. GAAP, we amortize film costs using the "individual-film-forecast" method. Under this accounting method, we amortize film costs for each film based on the following ratio:

                        Revenue earned by title in the current period                        
Estimated total future revenues that will be earned by title

        We regularly review our revenue estimates on a title-by-title basis and revise them when necessary. Our review will generally take into account estimated future revenues from international distribution, non-theatrical channels and other potential revenues that a film may generate. This review may result in a change in the rate of amortization and/or a write-down of the film asset to its estimated fair value. Results of operations in future years depend upon our amortization of our film costs. Periodic adjustments in amortization rates may significantly affect these results. In addition, we are required to expense film advertising costs as incurred. Any fluctuations we experience in our operating results as a result of these accounting practices could also cause corresponding fluctuations in the trading price of our ADSs and negatively affect the value of your investment in our ADSs.

We face risks relating to the international distribution of our films and related products.

        In 2009, we derived approximately 0.9% of our net revenues from the exploitation of our films in territories outside of China. As we expand the distribution of our films overseas, our business will be

17



increasingly subject to risks inherent in international trade, many of which are beyond our control. These risks include:

    fluctuating foreign exchange rates. For a more detailed discussion of the potential effects of fluctuating foreign exchange rates, please see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosure about Market Risk—Foreign Exchange Risk" elsewhere in this prospectus;

    laws and policies affecting trade, investment and taxes, including laws and policies relating to the repatriation of funds and withholding taxes and changes in these laws;

    differing cultural tastes and attitudes, including varied censorship laws;

    differing degrees of protection for intellectual property;

    financial instability and increased market concentration of buyers in foreign markets;

    the instability of foreign economies and governments; and

    war and acts of terrorism.

        Events or developments related to these and other risks associated with international trade could adversely affect our revenues from non-PRC sources, which could have a material adverse effect on our business, financial condition and results of operations.

We may not successfully expand into existing or emerging non-theatrical distribution channels.

        A substantial portion of net revenues from the films we distribute or have invested in have historically been generated from our share of box office receipts, with only a small portion of our revenues generated from non-theatrical distribution channels, such as home video products, digital distribution and television. We are continuing to expand our distribution business into non-theatrical distribution channels through strategic collaborations with third parties. Historically, the box office success of a film has been a key factor in predicting revenue from non-theatrical distribution channels. While non-theatrical distribution channels may provide a stable, long-term source of revenues, we can make no assurances that the historical correlation between box office success and success on other distribution channels will be maintained in the future. In addition, we can make no assurances that the prices for films on non-theatrical distribution channels, such as home video entertainment, can be maintained at current levels due to market or other factors.

        Moreover, the film industry may undergo significant changes such as a result of emerging non-theatrical distribution channels resulting from technological developments. Due to shifting consumer tastes, we cannot accurately predict the overall effect that emerging distribution channels may have on the potential revenue from and profitability of the films we distribute or invest in. For example, the availability of Blu-ray discs and high-quality home entertainment systems may reduce the demand to see films in the theaters. Moreover, a material reduction in the length of time between the theatrical release of a film and the availability of the film on non-theatrical distribution channels could significantly dilute the consumer appeal of in-theater film offerings. In addition, we cannot assure you that consumers will continue to use existing non-theatrical distribution channels for their home entertainment or that new distribution channels, such as video-on-demand, will be accepted by the public.

        If emerging non-theatrical distribution channels films are accepted by the public, we cannot assure you that we will be successful in exploiting such channels or that such channels will provide commercially feasible business models. Moreover, to the extent that emerging non-theatrical distribution channels gain popular acceptance, it is possible that demand for existing distribution channels, such as DVD and other home video products, Internet and other digital distribution, in-flight

18



entertainment and television, will decrease, which could adversely affect our ability to generate revenues from existing distribution channels. In addition, emerging distribution channels may prove to be less profitable than existing distribution channels. If we are unable to successfully expand into non-theatrical distribution channels or adapt to emerging distribution channels our business, results of operations or financial condition could be materially adversely affected.

Our business depends on our relationships with theater circuits.

        Under PRC regulations, we are required to distribute films through theater circuits, which negotiate the terms of arrangements for the exhibition of films and provide film prints to movie theater operators. As a result, our film distribution business depends on maintaining relationships with theater circuits. There can be no assurance that we will be able to maintain these relationships and that theater circuits will continue to enter into arrangements with us on favorable terms or at all. In addition, any deterioration in our relationships with the theater circuits could require us to enter into arrangements with alternative theater circuits. If alternative theater circuits do not provide us with comparable services at favorable terms or at all, we may not be able to maintain the scale or quality of our film distribution services, which in turn could materially and adversely affect our business and results of operations.

We have limited experience in operating movie theaters as part of our overall business and may not successfully integrate our movie theater business into our existing operations.

        Prior to the acquisition of our movie theater business in April 2010, we have not operated movie theaters as part of our overall business. In addition, the movie theater business we acquired had generated net losses in the amounts of US$0.8 million and US$1.9 million in 2008 and 2009, respectively, and net loss of US$0.1 million for the period from April 23 to September 30, 2010. While we believe that the acquisition of our movie theater business will further strengthen our relationships with theater circuits and our capabilities along the film industry value chain in China, we may not be able to realize intended benefits from our acquisition or otherwise successfully operate our movie theaters as a result of numerous factors, some of which are beyond our control. These factors include, among other things:

    increased competition in the movie theater business and from non-theatrical distribution channels;

    diversion of financial or management resources from our other business; and

    demands of audiences for facilities and features that enhance the movie-going experience.

        If our movie theater business is not successful or does not produce its intended benefits, our business, results of operations, financial condition and prospects could be materially and adversely affected.

Movie theaters in China are subject to a range of regulatory requirements, including regulations relating to advertising, hygiene and food licensing. Our movie theaters sell unpackaged foods without the requisite permits to do so. The failure of our movie theaters to comply with applicable regulations may subject us to fines and penalties, including the suspension of our movie theater operations.

        Operation of movie theaters subjects us to additional regulatory requirements, including complying with pre-screening film advertising regulations and obtaining and maintaining licenses to exhibit movies and sell concessions.

        Each movie theater is required to obtain a public facility hygiene permit. Movie theaters selling food or beverages to their audiences must also obtain certain food hygiene permits and comply with hygiene and food safety related requirements. Pursuant to the Food Safety Law of the PRC, which took

19



effect from June 1, 2009, sale of food or beverages requires a Food Distribution Permit issued by the relevant administration for industry and commerce, and catering services require a Catering Service Permit issued by the relevant food and drug administration authorities. Our movie theaters sell both packaged and unpackaged foods while they have obtained a permit to sell only packaged foods. Failure to obtain a public facility hygiene permit may result in fines of up to RMB3,000. Failure to obtain food hygiene permits may result in penalties, including confiscation of food, income and equipment, and fines of five to ten times the value of the food sold if the value exceeds RMB10,000 or fines from RMB2,000 to RMB50,000 if the value of the food sold is below RMB10,000. Moreover, each movie theater is required to undergo fire control acceptance inspections by the local public security bureau after the completion of its construction and obtain an approval to commence operations from the local public security bureau prior to being opened to the public. Although all our movie theaters have passed the required fire protection acceptance inspections, one of our movie theaters has not obtained approval for fire protection necessary to commence operations. Failure to obtain the required approvals for fire protection may result in penalties, including suspension of the use or operation of the movie theater and fines from RMB30,000 to RMB300,000.

        In addition, while all of our movie theaters maintain the film exhibition licenses required for exhibiting films, they have not obtained the requisite certificates for technical qualification of exhibition equipment required to exhibit digital films. However, if the lack of certificates is deemed by relevant PRC regulatory authorities to constitute the exhibition of films without the applicable approval, they may impose penalties on us, including confiscation of the relevant films, equipment or income, suspension of operations and fines of five to ten times of the violator's income if such income exceeds RMB50,000 or fines from RMB200,000 to RMB500,000 if such income is below RMB50,000.

        If we fail to obtain any of the business permits or licenses required for the operation of our business, we may be ordered to cease the applicable activities, have our income from such activities or tools, equipment, raw materials, products and other property that are used for such activities confiscated and be subject to fines of up to RMB500,000.

Our movie theater business has substantial lease obligations, which could impair our financial condition.

        Our movie theater business, which we acquired in April 2010, has substantial lease obligations. For 2009, the total rent expense in our movie theater business was approximately US$2.1 million. As of December 31, 2009, our movie theater business had lease obligations totaling approximately US$54.4 million throughout the term of the leases which range from 10 to 20 years. If we are unable to meet our lease obligations, we could be forced to restructure our obligations and seek additional funding from other sources, or sell assets. We may be unable to restructure our lease obligations and obtain additional funding or sell assets on satisfactory terms or at all. As a result, inability to meet our lease obligations could cause us to default on those lease obligations. Many of our lease agreements contain restrictive covenants that limit our ability to take specific actions or require us not to allow specific events to occur. Under the lease agreements, our movie theaters have agreed to use the premises for theater-related operations, to maintain the premises in accordance with the provisions of the leases, to comply with regulatory requirements relating to matters such as sanitary standards, fire protection and public security, to pay the lease payments on time and not to sub-lease the premises without the prior consent of the lessor. If our movie theaters were to breach any of these obligations, subject in some cases to a materiality threshold or an opportunity to cure, the lessor could terminate the lease agreement and require our theaters to hand over the leased premises and pay all outstanding expenses and damages. If we violate the restrictive covenants, we would be in default under that lease, which could, in turn, result in defaults under other leases. Any such defaults could materially impair our financial condition and liquidity. If any of these lease agreements are terminated, our movie theater business, financial condition and results of operations will be materially and adversely affected. Moreover, if our movie theater business does not generate sufficient revenues to service our payment

20



obligations under these leases, our financial condition and results of operations could be materially and adversely affected. In addition, there may be defects in the titles to some of the properties that our landlords lease to us, as a result of which our rights under the lease agreements may be materially adversely affected.

Our advertising operations are sensitive to changes in economic conditions and advertising trends.

        Demand for advertising on the films we distribute, and the resulting advertising spending by advertisers, are particularly sensitive to changes in general economic conditions. For example, advertising expenditures typically decrease during periods of economic downturn. Advertisers may reduce their spending to advertise through us for a number of reasons, including:

    a general decline in economic conditions;

    a decline in economic conditions in the particular cities where we conduct business;

    a decision to shift advertising expenditures to other available advertising media; and

    a decline in advertising spending in general.

        A decrease in demand for advertising media in general, and for advertising in the films we distribute in particular, could materially and adversely affect our ability to generate advertising revenues from our films, and could have a material and adverse effect on our financial condition and results of operations.

If advertisers or the viewing public do not accept, or lose interest in, pre-screening or in-film advertising, our revenues may be negatively affected and our business may not expand or be successful.

        The market for pre-screening and in-film advertising in China is relatively new and its potential is uncertain. We compete for advertising revenues with many forms of more established advertising media. Our success depends on the acceptance of pre-screening and in-film advertising by advertisers and their continuing interest in this medium as part of their advertising strategies. Our success also depends on the viewing public's continued receptiveness towards our advertising model. Advertisers may elect not to use our services if they believe that viewers are not receptive to our advertising model or that our advertising services do not provide sufficient value as an effective advertising medium. Likewise, if viewers find some element of our advertising model, such as the length of the advertising segments prior to a film or product placement in films, to be disruptive or intrusive, film producers and movie theater operators may not want advertising. In these events, advertisers may reduce their spending on pre-screening or in-film advertising. If a substantial number of advertisers lose interest in these forms advertising for these or other reasons, our financial condition and results of operations could be materially and adversely affected.

We may not successfully comply with regulations governing the placement of pre-screening advertising.

        PRC regulations specifically applicable to pre-screening and in-film advertising are less extensive than those of other segments of the advertising industry. Currently, only a few regulations have been issued particularly for pre-screening advertising, including the Circular on Strengthening of Administration of Film Pre-screening Advertising, effective on June 25, 2004, and the Circular on Further Regulation of Film Pre-screening Advertising, effective on February 10, 2009. Pursuant to those regulations, consent of the copyright owners of the film is needed for the placement of pre-screening advertisements and film distributors and exhibitors may not delete or replace any pre-screening advertisement without the consent of the copyright owners. There can be no assurance that our advertising clients have always obtained or will always obtain the consent of the copyright owners for the pre-screening advertisements that we have been engaged to place. Our movie theaters, acting as the advertising distributors, may be held jointly liable in the event that our advertising clients fail to obtain

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such consents. In addition, under relevant PRC rules, pre-screening advertisements may only be shown prior to the screening time as stated on tickets. However, consistent with what we believe to be the common practice of movie theaters in China, our movie theaters sometimes show pre-screening advertisements after the screening time stated on tickets but notify the audience of the length of the pre-screening advertisements prior to the showing of the film. There can be no assurance that relevant regulatory authorities will not deem this practice to be in violation of the relevant rules. If the pre-screening advertisements we sell or display are otherwise deemed to be in violation of relevant regulations, we may be issued a public condemnation or, in case of serious violation, we may be prohibited from distributing or exhibiting films or our operations may be suspended, which could materially and adversely affect our business and financial condition.

We may be subject to, and may expend significant resources in defending against, government actions based on the advertising services we provide and advertising content we disseminate.

        PRC advertising laws and regulations require advertisers, advertising operators and advertising distributors, including businesses such as ours, to ensure that the content of the advertisements they prepare or distribute is true to facts, lawful, in compliance with relevant laws and regulations, does not contain any false information or cheat or mislead consumers. Violation of these laws, rules or regulations may result in penalties, including fines of one to five times advertising fees, confiscation of advertising fees, orders to cease dissemination of the advertisements and orders to publish advertisements correcting the misleading information. In circumstances involving serious violations, the PRC government may revoke a violator's business license. In circumstances where the interests of consumers are harmed, the advertisers may bear civil liabilities and the advertising operators and advertising distributors may be held jointly liable. In cases of serious violations, criminal liabilities may be prosecuted.

        As an operator of an advertising medium, we are obligated under PRC laws, rules and regulations to monitor the advertising content for compliance with applicable laws. In addition, we are required to confirm that the advertisers have obtained requisite government approvals including the advertisers' operating qualifications, proof of quality inspection of the advertised products, and government pre-approval of the advertisement contents relating to certain specific types of products and services, such as pharmaceuticals, medical facilities, agricultural chemical and veterinary chemicals. We endeavor to comply with such requirements, including by requesting relevant documents from the advertisers. We employ, and our affiliated consolidated entities are required by the applicable PRC laws, rules and regulations to employ, qualified advertising inspectors who are trained to review advertising content for compliance with applicable PRC laws, rules and regulations. Our reputation will be tarnished and our results of operations may be adversely affected if pre-screening or in-film advertisements shown are provided to us by our advertisers in violation of relevant PRC content laws and regulations, or if the supporting documentation and government approvals provided to us by our advertising clients in connection with such advertising content are not complete or if the advertisements are not content compliant.

Our talent agency business is subject to a range of factors, which may lead to fluctuations in revenues from this business and make it difficult to predict the performance of this aspect of our business.

        The success of our talent agency our business is highly dependent on our ability to attract and retain high-profile movie stars and other artists with high earning potential, our ability to successfully procure lucrative contracts and engagements for the artists we represent, and the box office performance of the films and performances in which the artists we represent appear, among other factors. The earnings of the artists we represent may vary significantly from year to year depending on these and other factors. In addition, we may lose the earnings generated by an artist as a result of the artist suffering injury, disease or death, performing in a country outside the scope of our agreed upon

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representation, or due to other circumstances. Although our agency agreements provide for penalties upon early termination of the contract by the artists we represent, if any such artist terminates his or her contract prior to its agreed upon term, whether to move to another talent agency or for any other reason, we may lose the revenue streams generated by that artist in the future, and the penalty amounts we are entitled to may be substantially less than we would have earned were the contract performed in full. As a result, the revenues generated by our talent agency may fluctuate significantly from period to period, and the results of any one period may not be indicative of the results for any future periods.

Our failure to make adequate contributions to various employee benefit plans as required by PRC regulations may subject us to penalties.

        We are required by PRC laws and regulations to participate in various government sponsored employee benefit plans, including social insurance funds (namely a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance plan) and a housing provident fund and contribute to the plans in amounts equal to certain percentages of salaries, including bonuses and allowances, of our employees up to a maximum amount specified by the local government from time to time at locations where we operate our businesses. Employers who fail to report and pay social insurance funds in accordance with the relevant rules may be ordered to rectify the problem and pay the social insurance funds within a stipulated deadline. According to the Interim Regulation on the Collection and Payment of Social Insurance Premiums, if payment of certain social insurance funds is not made by the stipulated deadline, the relevant authority can charge a late fee payment of 0.2% per day from the original due date and fine the responsible persons of the employer up to RMB10,000. If an employer is found to be concealing the actual number of employees or the total amount of salaries from competent social insurance authorities, the employer may be subject to a fine ranging from one to three times of the amount of salaries concealed. According to relevant PRC laws, for the failure of to register or open housing provident fund accounts for employees, the employer may be required to rectify such breach within certain period and if such breach persists after such period, the employer may be subject to a fine ranging from RMB10,000 to RMB50,000. For the failure of payment of housing provident fund and failure to rectify such breach within certain period prescribed by the relevant authorities, the relevant housing provident fund authorities may apply for a court order requiring employers to make such payment.

        Our PRC subsidiary and affiliated consolidated entities and their subsidiaries have not fully paid the contributions for such plans, as required by applicable PRC regulations.

        As of September 30, 2010, our PRC subsidiary and affiliated consolidated entities and their subsidiaries, excluding those engaged in our movie theater business, owed contributions of RMB1.5 million (US$0.2 million). As of September 30, 2010, our affiliated consolidated entities and their subsidiaries engaged in our movie theater business owed contributions of RMB36,367 (US$5,427). These amounts have been accrued as a liability in our consolidated financial statements. In addition, there can be no assurance that our affiliated consolidated entities did not owe additional contributions prior to their acquisition by us in April 2010.

        If, as a result of our failure to make adequate contributions to employee benefit plans, we are required to pay the outstanding social insurance funds and housing provident fund and are subject to fines or other penalties, our business, financial condition, results of operations and prospects would be adversely affected.

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Failure to manage the expansion of our operations could strain our management, operational, technological and other resources, which could materially and adversely affect our business and prospects.

        We have experienced substantial growth since our inception. We increased our revenue and our net income from US$22.4 million and US$2.0 million, respectively, in 2007 to US$38.4 million and US$5.5 million, respectively, in 2009, and we intend to continue to expand our operations. This expansion has placed, and will continue to place, substantial demands on our managerial, operational, technological and other resources. In particular, the management of our growth will require, among other things:

    our ability to develop and improve our existing administrative and operational systems;

    stringent cost controls and sufficient working capital;

    strengthening of financial and management controls; and

    hiring, training and retaining our personnel.

        As we execute this growth strategy, we may incur substantial costs and expend substantial resources. We may not be able to manage our current or future operations effectively and efficiently or compete effectively in new markets that we may enter. If we are not able to manage our growth successfully, our business and prospects would be materially and adversely affected.

We face substantial competition in all aspects of our business.

        The film industry is fragmented and highly competitive. Our competitors include not only privately owned companies, but also state-owned enterprises, which have historically dominated and have in recent years continued to play a prominent role in the PRC film industry. Moreover, two state-owned film distributors have the exclusive right to distribute the limited number of foreign films, mainly Hollywood blockbusters, that may be exhibited in China on a box office sharing basis.

        The number of films distributed by competitors, particularly films from major Chinese and foreign film studios, may create an oversupply of films in the market and make it more difficult for the films we distribute to succeed or to be successfully exhibited in movie theaters at desirable times. In addition, the supply of films may further increase if the current restrictions limiting number of foreign films that may be imported into China are eased or eliminated. Oversupply may become most pronounced during peak release times, such as holidays and the summer release season, when theater attendance is traditionally highest. Although we seek to release our films during peak release times, we may not be able to release all of our films during those times and, therefore, may potentially receive lower gross box-office receipts. In addition, a significant number of the movie theaters in China typically are committed at any one time to only 10 to 15 films distributed nationally, including U.S. and other foreign-produced films. As a result, we must identify and compete for the distribution of the most promising films. If our competitors increase the number of films available for distribution while the number of movie theaters remains unchanged, it could be more difficult for us to release our films during optimal release periods or to obtain the most desirable screen allocations and times. In addition, production or other delays that might cause us to alter our distribution schedule and any such change could adversely impact a film's financial performance.

        Movie theaters operated by national theater circuits and by small independent exhibitors compete with our movie theaters, particularly with respect to attracting patrons and developing new theater sites. Moviegoers are generally not brand conscious and usually choose a theater based on its location, the films showing there and the quality of its facilities. If other movie theater operators choose to build and operate theaters in the markets where our movie theaters are located, the performance of our movie theaters in these markets may be significantly and negatively impacted. The foregoing could have a material adverse effect on our business, results of operations and financial condition.

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The film industry is regulated extensively in China, and our production, distribution and exhibition of films are subject to various PRC laws, rules and regulations.

        In accordance with the Regulations on Administration of Films which became effective on February 1, 2002 and the Interim Provisions on Business Access Qualification for Film Enterprises which became effective on November 10, 2004, production, distribution, import and exhibition of films are subject to licenses issued by the State Administration of Radio, Film and Television, or the SARFT, and/or its local counterparts. A Film Production License or a Film Production License (Single Film) is required for production of films in China. If a PRC producer cooperates with a foreign producer to produce a film, an additional License for Sino-foreign Cooperation in Film Production must be obtained. A film distribution company in China must obtain a Film Distribution License and only entities approved by the SARFT may be engaged in import of foreign films. Movie theaters must obtain a Film Exhibition License for exhibition of films and a Certificate for Digital Film Exhibition Equipment and Technology for exhibition of digital films. In addition, other aspects of the film industry, including the contents of films and scripts, the foreign investment in the industry, the exhibition time for different types of films by movie theaters, and the distributions of films through the Internet or other media, are also subject to detailed and extensive regulations.

        If we are found to be in violation of these laws, rules or regulations, PRC governmental authorities could impose penalties on us, including fines of five to ten times income or up to RMB500,000, confiscation of relevant films, equipment or income and suspension of operations. In circumstances of serious violations, the PRC government may revoke a violator's license and criminal liabilities may be prosecuted.

The production and distribution of television programs is regulated extensively in China, and our production and distribution of television plays are subject to various PRC laws, rules and regulations.

        In accordance with the Administrative Regulations on Radio and Television effective on September 1, 1997, the Administrative Regulations on the Production and Operation of Radio and Television Program effective on August 20, 2004, the Administrative Regulations on Content of Television Plays effective on July 1, 2010 which superseded and replaced the Administrative Regulations on the Examination of Television Plays effective on October 20, 2004 and its supplementary regulations, and other regulations issued based on the foregoing regulations, television plays can only be produced by entities that hold either a Film Production License or a License for the Production and Operation of Radio and Television Program or by qualified broadcasters. Licenses for the Production and Operation of Radio and Television Program are issued to entities which meet requirements set forth in the Administrative Regulations on the Production and Operation of Radio and Television Program and pass the examination of the SARFT or its provincial counterparts. In addition to the Film Production License or the Operating License for the Production of Radio and Television Program, the television play producers must obtain either a Multiple Television Play Production License or a Single Television Play Production License for the shooting and production of television plays. The Multiple Television Play Production License has an effective term of two years and may be applied to all television plays produced by the holder during the effective term. The Single Television Play Production License only applies to the specific television play, as indicated in such license.

        Under the Administrative Regulations on Content of Television Plays effective on July 1, 2010, filing with and announcement by the SARFT or its provincial counterparts are required before production of any television play. Television plays will be subject to censorship by the SARFT or its provincial counterparts, which will issue a Television Play Distribution License for television plays passing their examination. No television play may be distributed or broadcasted without a Television Play Distribution License. However, the SARFT may, according to public interest require editing of or terminate distribution or broadcasting of television plays which have been granted with a Television Play Distribution License.

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        If we are found to be in violation of these laws, rules or regulations, this violation may result in penalties, including fines from RMB10,000 to RMB50,000, confiscation of income or equipment and orders to cease operations. In circumstances of serious violations, the PRC government may revoke a violator's license and criminal liabilities may be prosecuted.

Our talent agency business is subject to various PRC laws, rules and regulations

        In accordance with the Administrative Regulation on the Commercial Performance effective on September 1, 2005 and last amended on July 22, 2008, and its implementing rules effective on October 1, 2009, the Broker Administrative Measures effective on August 28, 2004, a brokerage company, including talent agency, must specify the manner and the category of the brokerage business conducted by it in its business license and file relevant information of the brokers engaged by it with the local administration for industry and commerce. In addition, talent agencies engaged in (i) organization, production or promotion of commercial performance, (ii) agency or brokerage for commercial performance, which refers to on-site public performances for profit, or (iii) agency or promotion of artists must obtain a Commercial Performance License from the competent culture authorities at provincial level, and must have at least three professional performance brokers. Our affiliated consolidated entity Beijing Bona Film and Culture Communication Co., Ltd. has obtained a Commercial Performance License with an effective term until December 31, 2011. Beijing Bona Film and Culture Communication Co., Ltd., Zhejiang Bona Film and Television Production Co., Ltd. Beijing Bona Xingyi Culture Agency Co., Ltd. and Beijing Bona Meitao Culture and Media Co., Ltd. have also filed the agency certificates and other information of relevant brokers with the local administration for industry and commerce. There is uncertainty whether Zhejiang Bona Film and Television Production Co., Ltd., Beijing Bona Xingyi Culture Agency Co., Ltd., and Beijing Bona Meitao Culture and Media Co., Ltd., whose representations of artists are not in connection with on-site art performances for the public, are required to obtain a Commercial Performance License from the relevant culture authorities. If Zhejiang Bona Film and Television Production Co., Ltd., Beijing Bona Xingyi Culture Agency Co., Ltd., and Beijing Bona Meitao Culture and Media Co., Ltd. are required to obtain such license, failure to obtain such license may result in penalties, including fines of eight to ten times the violator's income if such income exceeds RMB10,000 or fines from RMB50,000 to RMB100,000 if such income is below RMB10,000, confiscation of income and equipment. Violation of other provisions of those laws may also result in penalties, including fines up to ten times the violator's income or RMB100,000, confiscation of income and orders to cease operations. In circumstances of serious violations, the PRC government may revoke a violator's license and criminal liabilities may be prosecuted. In addition, if we fail to obtain any of the business permits or licenses required for the operation of our business, we may be ordered to cease the applicable activities, have our income from such activities or tools, equipment, raw materials, products and other property that are used for such activities confiscated and be subject to fines of up to RMB500,000.

Several of our PRC affiliated consolidated entities have made interest-free loans to other PRC companies, which are not permitted under PRC law.

        Several of our PRC affiliated consolidated entities have made interest-free RMB-denominated loans to third-party PRC companies totaling RMB32.8 million (US$4.9 million). The affiliates of these PRC companies separately made interest-free, foreign currency-denominated loans to certain of our non-PRC subsidiaries totaling US$4.9 million. PRC law prohibits loans by non-financial enterprises such as our affiliated consolidated entities. If a non-financial enterprise provides a loan to another company in China, it may be subject to fines of one to five times the income earned from providing the loan. In addition, a PRC court may require the principal on the loan to be repaid to the lender, confiscate the interest earned or to be earned by the lender and impose a fine on the borrower that is based on the interest rate that would be charged by a bank for a similar loan.

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We may be subject to, and may expend significant resources in defending against government actions based on the content of the films we produce, distribute or exhibit.

        PRC laws and regulations require producers, including businesses such as ours, and foreign film importers to ensure that the content of the films they produce or imports is in full compliance with applicable laws, rules and regulations and to apply for examination and approval of the content of the films by competent governmental authorities. The requirements on content of films are set forth in the Regulations on Administration of Films which became effective on February 1, 2002, the Provisions on the Filing of Film Scripts (Abstracts) and the Administration of Films which superseded the Interim Provisions on Project Initiation of Film Scripts (Abstracts) and the Examination of Films and became effective on June 22, 2006 and certain other circulars issued by the SARFT. These regulations require producers to examine film scripts or abstracts in accordance with such requirements first and then file them with the SARFT and/or its local counterparts before putting them into production. After completion of film production, producers are required to submit the film to the SARFT and/or its local counterparts for examination and approval. In the case of foreign films, importers must apply for the examination and approval of the films to be imported. Films passing the examination will be granted a License for Public Film Screening and may be distributed, exhibited, imported and exported. Distributors and exhibitors are prohibited from distributing or exhibiting any film without a License for Public Film Screening, nor may such films be imported into or exported out of China. In addition, as to a film for which the License for Public Film Screening has been procured, the SARFT may, under special circumstances, decide to suspend its distribution or public screening or to allow its continued distribution or public screening only after revisions have been made thereto. Violation of these laws, rules or regulations may result in penalties, including fines, confiscation of income, orders to cease distribution or exhibition of the films and fines of five to ten times the violator's income if such income exceeds RMB50,000 or fines from RMB200,000 to RMB500,000 if such income is below RMB50,000. In circumstances of serious violations, the PRC government may revoke a violator's license for its business operations and prosecute the violator for any criminal wrongdoing.

Piracy of films, including digital and Internet piracy, may reduce the gross receipts from the exploitation of our films.

        Film piracy is extensive in many parts of the world and is made easier by technological advances and the conversion of films into digital formats. In particular, unauthorized copying and piracy are prevalent in China and other countries in Asia, whose legal systems may make it difficult for us to enforce our intellectual property rights. As a result, the creation, transmission and sharing of high quality unauthorized copies of films in or prior to theatrical release has proliferated. This proliferation has had and will likely continue to have an adverse effect on our business, because these products reduce the revenue we received from our investment in or the distribution or exhibition of films. Additionally, in order to contain this problem, we may have to implement elaborate and costly security and anti-piracy measures, which could result in significant expenses and losses of revenue. We cannot assure you that even the highest levels of security and anti-piracy measures will prevent piracy.

Failure to protect our intellectual property rights could have a negative impact on our business.

        We believe our brand, trade names, trademarks and other intellectual property are critical to our success. The success of our business depends substantially upon our continued ability to use our brand, trade names and trademarks to increase brand awareness and to further develop our brand. The unauthorized reproduction of our trademarks could diminish the value of our brand and its market acceptance, competitive advantages or goodwill. In addition, our proprietary information, which has not been patented or otherwise registered as our property, is a component of our competitive advantage and our growth strategy.

        Monitoring and preventing the unauthorized use of our intellectual property is difficult. The measures we take to protect our brand, trade names, trademarks and other intellectual property rights

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may not be adequate to prevent their unauthorized use by third parties. In addition, the application of laws governing intellectual property rights in China and abroad is uncertain and evolving, and could involve substantial risks to us. If we are unable to adequately protect our brand, trade names, trademarks and other intellectual property rights, we may lose these rights and our business may suffer materially. Further, unauthorized use of our brand, trade names or trademarks could cause brand confusion among our clients and harm our reputation. If our brand recognition decreases, we may lose clients and fail in our expansion strategies, and our business, results of operations, financial condition and prospects could be materially and adversely affected.

Others may assert intellectual property infringement claims against us.

        One of the risks of the film industry is the possibility that others may claim that the films we distribute or own the film copyright for misappropriate or infringe the intellectual property rights of third parties with respect to their previously developed films, stories, characters, other entertainment or intellectual property. We are likely to receive in the future claims of infringement or misappropriation of other parties' proprietary rights. Any such assertions or claims may materially adversely affect our business, financial condition or results of operations. Irrespective of the validity or the successful assertion of such claims, we could incur significant costs and diversion of resources in defending against them, which could have a material adverse effect on our business, financial condition or results of operations. If any claims or actions are asserted against us, we may seek to settle such claim by obtaining a license from the plaintiff covering the disputed intellectual property rights. We cannot provide any assurances, however, that under such circumstances a license, or any other form of settlement, would be available on reasonable terms or at all.

Our business involves risks of liability claims for media content in both films and advertising, which could adversely affect our business, results of operations and financial condition.

        As a producer and distributor of films and an advertising services company, we may face potential liability for:

    defamation;

    subversion;

    invasion of privacy;

    negligence;

    copyright or trademark infringement (as discussed below); and

    other claims based on the nature and content of the materials distributed.

        These types of claims have been brought, sometimes successfully, against producers and distributors of films and advertising service companies. In addition, if viewers find the content displayed on our advertising network to be offensive, movie theaters may seek to hold us responsible for any claims by audiences or they may terminate their relationships with us. Any imposition of liability could have a material adverse effect on our business, results of operations and financial condition.

A prolonged economic downturn could materially affect our business by reducing consumer spending on movie attendance and other film related expenditures.

        We depend on consumers voluntarily spending discretionary funds on leisure activities. Motion picture theater attendance may be affected by prolonged negative trends in the general economy that adversely affect consumer spending.

        The global financial crisis and economic downturn that unfolded in 2008 and continued in 2009 and 2010 have adversely affected economies and businesses around the world, including those in China.

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In an economic downturn characterized by higher unemployment, lower corporate earnings, lower business investment and lower discretionary spending by consumers, including spending on entertainment such as films, may be materially and adversely affected. The global financial crisis caused a general tightening in the credit markets, lower levels of liquidity, increases in the rates of default and bankruptcy, an unprecedented level of intervention from the governments, decreased consumer confidence, overall slower economic activity and extreme volatility in credit, equity and fixed income markets. While the ultimate outcome of these events cannot be predicted, a decrease in economic activity in China or in other regions of the world in which we do business could adversely affect demand for our films, thus reducing our revenue and earnings. A decline in economic conditions could reduce screenings of and attendance at our film releases. In addition, an increase in price levels generally, could result in a shift in consumer demand away from the entertainment we offer, which could also adversely affect our revenues and, at the same time, increase our costs. Moreover, financial institution failures may cause us to incur increased expenses or make it more difficult either to utilize our existing debt capacity or otherwise obtain financing for our operations or investing activities (including the financing of any future acquisitions). We cannot predict the timing or the duration of this or any other downturn in the economy and we are not immune to the effects of general worldwide economic conditions.

Acquisition is expected to continue to be a part of our growth strategy, and could expose us to significant business risks.

        In April 2010, we acquired our movie theater business through which we own and operate six movie theaters in commercial districts and residential areas in major cities in China to support our film distribution business. To grow our business, we may continue to pursue acquisition opportunities that are complementary to our business. However, we may not be able to identify and secure suitable acquisition opportunities. Our ability to consummate and integrate effectively any future acquisitions on terms that are favorable to us may be limited by the number of factors, such as attractive acquisition targets and, to the extent necessary, our ability to obtain financing on satisfactory terms for larger acquisitions, if at all.

        Moreover, if an acquisition candidate is identified, we may fail to enter into an acquisition or purchase agreement for the candidate on commercially reasonable terms or at all due to the lack of cooperation from counterparties or for other reasons. The negotiation and completion of potential acquisitions, whether or not ultimately consummated, could also require significant diversion of management's time and resources and potential disruption of our existing business. Further, the expected synergies from future acquisitions may not actually materialize. In addition, future acquisitions could result in the incurrence of additional indebtedness, costs and contingent liabilities. Future acquisitions may also expose us to potential risks, including risks associated with:

    the integration of new operations, services and personnel;

    unforeseen or hidden liabilities;

    the diversion of financial or other resources from our existing businesses and technologies;

    our inability to generate sufficient revenue to recover costs and expenses of the acquisitions; and

    potential loss of, or harm to, relationships with employees or customers.

        Any of the above risks could significantly impair our ability to manage our business and materially and adversely affect our business, results of operations and financial condition.

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We do not maintain business liability or disruption, litigation or property insurance, and any business liability or disruption, litigation or property damage we experience might result in substantial costs to us and the diversion of our resources.

        The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business disruption, business liability or similar business insurance products. We have determined that the risks of disruption or liability from our business, the loss or damage to our property, including our facilities, equipment and office furniture, the cost of obtaining insurance coverage for these risks and the difficulties associated with obtaining such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any business liability, disruption, litigation or property insurance coverage for our operations in China. Any occurrence of an uninsured loss or damage to property, or litigation or business disruption may result in substantial costs to us and the diversion of our resources, which could have an adverse effect on our operating results.

In the course of preparing our consolidated financial statements, we have identified material weaknesses and other control deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company and the market price of our ADSs may be adversely affected.

        We will be subject to reporting obligations under the U.S. securities laws after this offering. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. Prior to this offering, we have been a private company and have had limited accounting personnel and other resources with which to address our internal control over financial reporting. We and our independent registered public accounting firm, in connection with the preparation and external audit of our consolidated financial statements as of and for the fiscal year ended December 31, 2009, identified certain material weaknesses and other control deficiencies, each as defined in the U.S. Public Company Accounting Oversight Board Standard AU Section 325, Communications About Control Deficiencies in an Audit of Financial Statements, or AU325, in our internal control over financial reporting as of December 31, 2009. As defined in AU325, a "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis, and a "significant deficiency" is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.

        The material weaknesses identified primarily related to (i) insufficient accounting personnel with appropriate knowledge of U.S. GAAP and (ii) lack of a comprehensive accounting policies and procedures manual in accordance with U.S. GAAP. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other control deficiencies in our internal control over financial reporting as we and they will be required to do once we become a public company. In light of the number of material weaknesses and other control deficiencies that were identified as a result of the limited procedures performed, we believe it is possible that, had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.

        Following the identification of these material weaknesses and other control deficiencies, we have taken measures and plan to continue to take measures to remedy these weaknesses and deficiencies. However, the implementation of these measures may not fully address these material weaknesses and

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other control deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct these material weaknesses and other control deficiencies or our failure to discover and address any other control deficiencies could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ADSs, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinder our ability to prevent fraud.

        Upon completion of this offering, we will become subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act will require that we include a report from management on the effectiveness of our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2011. In addition, beginning at the same time, our independent registered public accounting firm must report on the effectiveness of our internal control over financial reporting. If we fail to remedy the problems identified above, our management and our independent registered public accounting firm may conclude that our internal control over financial reporting is not effective. This could adversely impact the market price of our ADSs due to a loss of investor confidence in the reliability of our reporting processes. We will need to incur significant costs and use significant management and other resources in order to comply with Section 404 of the Sarbanes-Oxley Act.

We will incur increased costs as a result of being a public company.

        As a public company, we will incur significant accounting, legal and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act, as well as rules subsequently implemented by the SEC and Nasdaq, have detailed requirements concerning corporate governance practices of public companies, including Section 404 of the Sarbanes-Oxley Act relating to internal controls over financial reporting. We expect these and other rules and regulations applicable to public companies to increase our accounting, legal and financial compliance costs and to make certain corporate activities more time-consuming and costly. As we have never been a public company before, we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

The discontinuation or withdrawal of any of the preferential tax treatments, government subsidies or tax concessions we have enjoyed or currently available to us in the PRC could materially and adversely affect our results of operations and financial condition.

        Under PRC laws and regulations, currently, we enjoy preferential tax benefits afforded to the cultural industry and motion picture enterprises. Pursuant to applicable PRC regulations, cultural enterprises established between January 1, 2004 and December 31, 2008 are exempted from enterprise income tax for three years after establishment or for a period from its establishment to December 31, 2010, whichever ends earlier. Zhejiang Bona Film and Television Production Co., Ltd., which was established on December 5, 2008, has been granted an exemption from enterprise income tax until December 31, 2010.

        In addition to the preferential treatments that we enjoy pursuant to specific tax laws and regulations, some of our affiliated consolidated entities have also enjoyed or been granted special tax treatment by local tax authorities which may not be entirely consistent with relevant tax laws and regulations and may therefore be challenged by higher level tax authorities. For example, Beijing Bona Advertising Co., Ltd. and Beijing Bona Film and Culture Communication Co., Ltd. received approval from the local tax authority that provided a special concession income tax rate of 33% of their deemed profit, which was deemed to be 10% of their revenues for the year 2007. This concession was applicable only for 2007. Beijing Bona Advertising Co., Ltd. received approval from the relevant local tax authority that provided a special concession income tax rate of 25% of its deemed profit, which was

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deemed to be 6% of its revenues for year 2009. This concession was applicable only for 2009. Deemed profit may be lower than the actual profit, as a result of which we may have paid less taxes than we would have been required to pay had we not received the relevant approvals from the local tax authorities. In addition, in 2007, Beijing Baichuan Film Distribution Co., Ltd.'s share of box office revenues in the PRC was exempted from income tax by the relevant local tax authority based on its interpretation of the Notice on Preferential Policies regarding Corporate Income by Publication and Cultural Industry issued in 2007 by the PRC Ministry of Finance and General Taxation Bureau, which did not explicitly exempt such revenues from income tax. This concession was applicable only for 2007. Without our preferential tax holidays and concessions, we would have had to pay approximately an additional US$1.1 million in PRC taxes in 2007 and an additional US$1.4 million in 2009.

        Distribution revenues earned by film distributors from theater exhibitions are exempted from business tax from January 1, 2004 to December 31, 2013. Currently, distribution revenues obtained by our affiliated consolidated entities, Beijing Baichuan Film Distribution Co., Ltd. and Zhejiang Bona Film and Television Production Co., Ltd., are exempted from business tax from 2004 to 2013.

        If the PRC government phases out preferential tax benefits, if we no longer qualify as a cultural industry and motion picture enterprise in the future, if the rules or policies under which we enjoy preferential tax treatments are abolished or altered, if the tax authorities' interpretation of such rules change or if these approvals by local tax authorities of special concession income taxes rates are challenged by the relevant higher level tax authorities and withdrawn in the future, we could be subject to the standard statutory income tax rate and our effective income tax rate would increase. We also cannot assure you that we will be able to continue to receive subsidies from the government. Loss of these preferential tax treatments and subsidies could have material and adverse effects on our results of operations and financial condition.

Risks Relating to Our Corporate Structure

If the PRC government determines that the agreements that establish the structure for operating our China business otherwise do not comply with applicable PRC laws, rules and regulations, we could be subject to severe penalties.

        Foreign investment in the businesses we operate, including film production, distribution and exhibition, television production and talent agency services, is currently prohibited or restricted in China. As a Cayman Islands corporation, we are restricted or prohibited from directly owning all the equity interests in PRC companies engaged in these businesses. In addition, foreign investment in the advertising industry requires the foreign investor to possess certain qualifications that we do not have. See "Regulation." As a result, our business in China is operated by our affiliated consolidated entities and their subsidiaries through contractual arrangements with our PRC subsidiary. Each of our affiliated consolidated entities and their subsidiaries is currently owned by PRC citizens and/or PRC companies and holds the relevant licenses and permits to provide film production, distribution or exhibition, television production, talent agency or advertising services in China. The shareholders of our affiliated consolidated entities are set forth in "Our Corporate Structure." We have been and expect to continue to be dependent on affiliated consolidated entities and their subsidiaries to operate our film production, distribution and exhibition, television production, talent agency and advertising businesses. We do not have any equity interest in any of the affiliated consolidated entities but control their operations and receive substantially all the economic benefits and bear substantially all the economic risks through a series of contractual arrangements. For more information regarding these contractual arrangements, see "Our Corporate Structure."

        There are uncertainties regarding the interpretation and application of current and future PRC laws, rules and regulations, including but not limited to the laws, rules and regulations governing the validity and enforcement of our contractual arrangements with the affiliated consolidated entities and

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the laws, rules and regulations setting forth the prohibitions or restrictions on foreign investments in the film, television production, talent agency services and qualification requirements for foreign investments in advertising industries. Although we have been advised by our PRC counsel, Han Kun Law Offices, that the structure for operating our business in China (including our corporate structure and contractual arrangements with the affiliated consolidated entities) complies, and immediately after the completion of this offering will continue to comply, with all applicable PRC laws, rules and regulations, and does not violate, breach, contravene or otherwise conflict with any applicable PRC laws, rules or regulations, we cannot assure you that the PRC regulatory authorities will take the same view.

        If we, any of the affiliated consolidated entities or any of their current or future subsidiaries are found to be in violation of any existing or future PRC laws or regulations or fail to obtain or maintain any of the required permits or approvals, the relevant PRC regulatory authorities would have broad discretion in dealing with such violations, including:

    revoking the business licenses or other licenses or permits of such entities;

    discontinuing or restricting the conduct of any transactions between our PRC subsidiary and affiliated consolidated entities;

    imposing fines, confiscating the income of the affiliated consolidated entities or our income, confiscating our films or equipment, or imposing other requirements with which we or our PRC subsidiary and affiliated consolidated entities may not be able to comply;

    requiring us or our PRC subsidiary and affiliated consolidated entities to restructure our ownership structure or operations; or

    restricting or prohibiting our use of the proceeds of this offering to finance our business and operations in China.

        The imposition of any of these penalties could result in a material and adverse effect on our ability to conduct our business and our financial condition and results of operations.

We rely on contractual arrangements with our affiliated consolidated entities in China and their respective shareholders for our business operations, which may not be as effective in providing operational control or enabling us to derive economic benefits as ownership of controlling equity interests.

        We rely on and expect to continue to rely on contractual arrangements with our affiliated consolidated entities in China and their respective shareholders to operate our film production, distribution and exhibition, television production, talent agency and advertising businesses. These contractual arrangements may not be as effective in providing us with control over the affiliated consolidated entities and enabling us to derive economic benefits from the operations of the affiliated consolidated entities as ownership of controlling equity interests would be. If we had direct ownership of the affiliated consolidated entities, we would be able to exercise our rights as a shareholder to (i) effect changes in the board of directors of those entities, which in turn could effect changes, subject to any applicable fiduciary obligations, at the management level, and (ii) derive economic benefits from the operations of those entities by causing them to declare and pay dividends. However, under the current contractual arrangements, as a legal matter, if any of the affiliated consolidated entities or any of their shareholders fails to perform its, his or her respective obligations under these contractual arrangements, we may have to incur substantial costs and resources to enforce such arrangements, and rely on legal remedies available under PRC laws, including seeking specific performance or injunctive relief, and claiming damages, which we cannot assure you will be effective. For example, if shareholders of an affiliated consolidated entity were to refuse to transfer their equity interests in such affiliated consolidated entity to us or our designated persons when we exercise the purchase option pursuant to

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these contractual arrangements, we may have to take a legal action to compel them to fulfill their contractual obligations.

        If (i) the relevant PRC authorities invalidate these contractual arrangements for violation of PRC laws, rules and regulations, (ii) any affiliated consolidated entity or its shareholders terminate the contractual arrangements or (iii) any affiliated consolidated entity or its shareholders fail to perform their obligations under these contractual arrangements, our business operations in China would be adversely and materially affected, and the value of your ADSs would substantially decrease. Further, if we fail to renew these contractual arrangements upon their expiration, we would not be able to continue our business operations unless the then-current PRC law allowed us to directly operate the relevant businesses in China.

        In addition, if any of our affiliated consolidated entities or all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of our affiliated consolidated entities undergoes a voluntary or involuntary liquidation proceeding, its shareholders or unrelated third-party creditors may claim rights to some or all of its assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, our ability to generate revenue and the market price of your ADSs.

        All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. The legal environment in the PRC is not as developed as in some other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event we are unable to enforce these contractual arrangements, we may not be able to exert effective control over our operating entities, and our ability to conduct our business may be negatively affected.

The shareholders of the affiliated consolidated entities may have potential conflicts of interest with us.

        The shareholders of the affiliated consolidated entities are individuals who are PRC citizens or companies. Their interests as shareholders of the affiliated consolidated entities and the interests of our company may conflict. Although the shareholders of our affiliated consolidated entities are also members of our board of directors and accordingly owe us a duty of loyalty and care under Cayman Islands law, the potential exists for conflicts of interests between their duties to us and their ownership interests in our affiliated consolidated entities. These individuals may breach or cause the affiliated consolidated entities to breach or refuse to renew the existing contractual arrangements, which will have an adverse effect on our ability to effectively control the affiliated consolidated entities and receive economic benefits from them. For example, the shareholders may be able to cause our agreements with those entities to be performed in a manner adverse to us by, among other things, failing to remit payments to us on a timely basis or operating the entities in a way that causes harm to our business. In addition, if we need to remove them from their positions as shareholders of these entities, they may not agree to such removal and we may need to divert attention and resources to enforcing our rights under the voting trust and equity purchase option agreements and equity pledge agreements. We cannot assure you that when conflicts of interest arise, any or all of these individuals will act in the best interests of our company or that any conflict of interest will be resolved in our favor. Currently, we do not have existing arrangements to address potential conflicts of interest between these shareholders and our company. We rely on shareholders who are also directors of our company to abide by the laws of the Cayman Islands and China, both of which provide that directors owe a fiduciary duty to the company, which requires them to act in good faith and in the best interests of the company and not to use their positions for personal gain. If we cannot resolve any conflicts of interest or disputes between us and the shareholders of the affiliated consolidated entities, we would have to rely on legal proceedings, the outcome of which is uncertain and which could be disruptive to our business.

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The contractual arrangements with the affiliated consolidated entities and other transactions among our PRC subsidiary, the affiliated consolidated entities and their subsidiaries may be subject to scrutiny by the PRC tax authorities and may result in a finding that we owe additional taxes or are ineligible for tax exemption, or both, which could substantially increase our taxes owed and thereby reduce our net income.

        Under applicable PRC laws, rules and regulations, arrangements and transactions between related parties may be subject to audits or challenges by the PRC tax authorities. If any of the transactions that have been entered into between our wholly owned subsidiary in China and our affiliated consolidated entities and other transactions among our PRC subsidiary, the affiliated consolidated entities and their subsidiaries are determined by the PRC tax authorities not to be on an arm's length basis, or are found to result in an impermissible reduction in taxes under applicable PRC laws, rules and regulations, the PRC tax authorities may adjust the profits and losses of such affiliated consolidated entity and assess more taxes on it. In addition, the PRC tax authorities may impose late payment fees and other penalties to such affiliated consolidated entity for under-paid taxes. Our net income may be adversely and materially affected if the tax liabilities of any of the affiliated consolidated entities increase or if it is found to be subject to late payment fees or other penalties.

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

        We are a holding company, and we may rely on dividends and other distributions on equity paid by Bona New World, our PRC subsidiary, for our cash requirements, including the funds necessary to service any debt we may incur. If Bona New World incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements Bona New World currently has in place with the affiliated consolidated entities in a manner that would materially and adversely affect the ability of Bona New World to pay dividends and other distributions to us. Further, relevant PRC laws, rules and regulations permit payments of dividends by Bona New World only out of its retained earnings, if any, determined in accordance with accounting standards and regulations of China. Under PRC laws, rules and regulations, Bona New World is also required to set aside a portion of its net income each year to reserve funds and staff incentive and welfare funds. Bona New World must set aside at least 10% of after-tax income each year to reserve funds prior to payment of dividends until the cumulative fund reaches 50% of the registered capital. As for staff incentive and welfare funds, the contribution percentage is to be decided by Bona New World on its own discretion. As a result of these PRC laws, rules and regulations, Bona New World is restricted from transferring a portion of its net assets to us in the form of dividends. As of December 31, 2009, Bona New World's restricted reserves totaled US$6.9 million. These restricted reserves are not distributable as cash dividends. Any limitation on the ability of our operating subsidiary to pay dividends to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends or otherwise fund and conduct our business.

Risks Relating to Doing Business in China

Adverse changes in political and economic policies of the PRC government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and materially and adversely affect our competitive position.

        Since substantially all of our business operations are conducted in China, our business, financial condition, results of operations and prospects are affected significantly by economic, political and legal

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developments in China. The Chinese economy differs from the economies of most developed countries in many respects, including:

    the degree of government involvement;

    the level of development;

    the growth rate;

    the control of foreign exchange;

    access to financing; and

    the allocation of resources.

        While the Chinese economy has grown significantly in the past 30 years, the growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented various measures to encourage economic growth and guide the allocation of resources. Some of these measures may benefit the overall Chinese economy but also have a negative effect on our operations. For example, our results of operations and financial condition may be materially and adversely affected by government control over capital investments or changes in tax regulations that are applicable to us.

        The Chinese economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has in recent years implemented measures emphasizing reliance on market forces, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of the productive assets in China is still owned by the PRC government. The PRC government also exercises significant control over China's economic growth through the allocation of resources, controlling payment of foreign currency-denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. From late 2003 to mid-2008, the PRC government implemented a number of measures, such as increasing the People's Bank of China's statutory deposit reserve ratio and imposing commercial bank lending guidelines, that had the effect of slowing the growth of credit. In response to the recent global and Chinese economic downturn, the PRC government promulgated several measures aimed at expanding credit and stimulating economic growth. Beginning in September 2008, the People's Bank of China decreased the statutory deposit reserve ratio and lowered benchmark interest rates several times in response to the global downturn. However, since January 2010, the People's Bank of China has begun to increase the statutory reserve ratio again in response to rapid domestic growth, which may have a negative impact on the Chinese economy. It is unclear whether PRC economic policies will be effective in sustaining stable economic growth in the future. In addition, other economic measures, as well as future actions and policies of the PRC government, could also materially affect our liquidity and access to capital and our ability to operate our business.

Uncertainties with respect to the PRC legal system could limit the protections available to you and us.

        The PRC legal system is a civil law system based on written statutes. Unlike in the common law system, prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. We conduct substantially all of our business through our subsidiary and affiliated consolidated entities and their subsidiaries established 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 us. For example, we may have to resort to administrative and court proceedings to enforce the legal protection that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion in interpreting and implementing

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statutory and contractual terms, it may be more difficult to evaluate the outcome of Chinese administrative and court proceedings and the level of legal protection we enjoy in China than in more developed legal systems. These uncertainties may impede our ability to enforce the contracts we have entered into with our business partners, customers and suppliers. In addition, such uncertainties, including the inability to enforce our contracts, could materially and adversely affect our business and operations. Furthermore, intellectual property rights and confidentiality protections in China may not be as effective as in the United States or other countries. Moreover, we cannot predict the effect of future developments in the PRC legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. These uncertainties could limit the legal protections available to us and other foreign investors, including you.

You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing original actions in China, based on United States or other foreign laws, against us, our management or the experts named in this prospectus.

        We conduct substantially all of our operations in China and substantially all of our assets are located in China. In addition, a majority of our senior executive officers reside within China. As a result, it may not be possible to effect service of process within the United States or elsewhere outside China upon our senior executive officers, including with respect to matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, our PRC counsel has advised us that China does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of legal judgments.

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

        In utilizing the proceeds from this offering, we may make loans to our PRC subsidiary and affiliated consolidated entities, or we may make additional capital contributions to our PRC subsidiary. Any loans to our subsidiary or affiliated consolidated entities in China are subject to PRC regulations, including registration and approval requirements. For example, loans by us to our affiliated consolidated entities must be approved by the relevant government authorities and registered with the SAFE or its local counterpart.

        Capital contributions to our PRC subsidiary must be approved by the Ministry of Commerce or its local counterpart. Because our affiliated consolidated entities are domestic PRC enterprises, we are not likely to finance their activities by means of capital contributions due to regulatory issues relating to foreign investment in domestic PRC enterprises, as well as the licensing and other regulatory issues.

        We cannot assure you that we can obtain the required government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by us to our PRC subsidiary or any of the affiliated consolidated entities. If we fail to receive such registrations or approvals, our ability to use the proceeds from this offering and to fund our operations in China would be negatively affected, which would adversely and materially affect our liquidity and our ability to expand our business.

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PRC regulations relating to offshore investment activities by PRC residents may increase our administrative burden and restrict our overseas and cross-border investment activity. If our shareholders fail to make any required applications and filings under such regulations, we may be unable to distribute profits and may become subject to liability under PRC laws.

        SAFE issued a public notice in October 2005, or the SAFE notice, requiring PRC residents to register with the competent local SAFE branch before establishing or controlling any company outside of China for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as an "offshore special purpose company." The SAFE notice further requires amendment to the registration in the event of any significant changes with respect to the offshore special purpose company, including an initial public offering by such company. Our shareholders who are PRC residents, Mr. Dong Yu and Mr. Hai Yu, have registered, and Mr. Zhong Jiang is in the process of registering, with the local SAFE branch for the foreign exchange registrations of overseas investments. Furthermore, Mr. Dong Yu, Mr. Hai Yu and Mr. Zhong Jiang are expected to amend such registrations to reflect recent developments of our company and our PRC subsidiary. Mr. Dong Yu, Mr. Hai Yu and Mr. Zhong Jiang will also amend their registrations after the completion of this offering. However, we cannot assure you that Mr. Dong Yu, Mr. Hai Yu and Mr. Zhong Jiang can successfully amend their foreign exchange registrations with the Beijing office of the SAFE in full compliance with the SAFE notice after this offering. In addition, we may not be fully informed of the identities of all of our beneficial owners who are PRC residents, and we do not have control over our beneficial owners. The failure of our beneficial owner to amend his SAFE registrations in a timely fashion pursuant to the SAFE notice or the failure of future beneficial owners of our company who are PRC residents to comply with the registration procedures set forth in the SAFE notice may subject such beneficial owners to fines and legal sanctions and may also limit our ability to contribute additional capital to our PRC subsidiary, limit the ability of our PRC subsidiary to distribute dividends to our company or otherwise materially and adversely affect our business.

Failure to comply with PRC regulations regarding the registration requirements for employee stock ownership plans or share option plans may subject the PRC plan participants or us to fines and other legal or administrative sanctions.

        Under the applicable PRC regulations, PRC citizens who participate in an employee stock ownership plan or a stock option plan in an overseas publicly-listed company are required to register with the SAFE and complete certain other procedures. These participants should retain a PRC agent, which can be a subsidiary of the overseas listed company in China to handle various foreign exchange matters associated with these plans. In the case of an employee stock ownership plan, an overseas custodian bank should be retained by the PRC agent to hold in trusteeship all overseas assets held by such participants under the employee stock ownership plan. In the case of a stock option plan, a financial institution with stock brokerage qualification in the jurisdiction where the overseas publicly-listed company is listed or a qualified institution designated by the overseas publicly-listed company is required to be retained by the PRC agent to handle matters in connection with the exercise or sale of stock options for the stock option plan participants. The PRC agents or employers should, on behalf of the PRC citizens, apply annually to the SAFE or its competent local branches for a quota for the conversion and/or payment of foreign currencies in connection with the PRC citizens' exercise of the employee stock options. The foreign exchange proceeds received by the PRC citizens from sale of shares under the stock option plans granted by the overseas listed companies must be remitted into the bank accounts in China opened by their employers or PRC agents. We and our PRC citizen employees who participate in an employee stock ownership plan or a stock option plan will be subject to these regulations when our company becomes a publicly-listed company in the United States. If we or our PRC optionees fail to comply with these regulations, we or our PRC optionees may be subject to fines and other legal or administrative sanctions. See "Regulation—Regulations on Employee Stock Option Granted by Offshore Listed Companies."

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The approval of the China Securities Regulatory Commission, or the CSRC, may be required in connection with this offering. Any requirement to obtain prior CSRC approval could delay, or create uncertainties regarding, this offering, and our failure to obtain this approval, if required, could have a material adverse effect on our business, results of operations, reputation and trading price of our ADSs.

        On August 8, 2006, six PRC regulatory authorities, including the CSRC, jointly promulgated the 2006 M&A Rules, which were later amended on June 22, 2009. According to the 2006 M&A Rules, an offshore special purpose vehicle, or SPV, refers to an overseas company controlled directly or indirectly by domestic companies or individuals for purposes of overseas listing of equity interests in domestic companies (defined as enterprises in the PRC other than foreign-invested enterprises). If an SPV purchases, for the purpose of overseas listing, the equity interests of any PRC company that are held by PRC companies or individuals controlling such SPV, then the overseas listing by the SPV must be approved by the CSRC. However, the applicability of the 2006 M&A Rules with respect to CSRC approval is unclear. The CSRC currently has not issued any definitive rule concerning whether offerings like the offering contemplated by our company are subject to the 2006 M&A Rules.

        Our PRC counsel, Han Kun Law Offices, has advised us that the 2006 M&A Rules do not require that we obtain prior CSRC approval for the listing and trading of our ADSs on the Nasdaq Global Market, given that:

    the CSRC approval requirement applies to SPVs that acquired equity interests of any PRC company that are held by PRC companies or individuals controlling such SPV and seek overseas listing; and

    our PRC operating subsidiary was incorporated as a wholly foreign-owned enterprise by means of direct investment rather than by merger or acquisition by our company of the equity interest or assets of any "domestic company" as defined under the 2006 M&A Rules, and no provision in the 2006 M&A Rules classifies the contractual arrangements between our company, our PRC operating subsidiary and any of the affiliated consolidated entities as a type of acquisition transaction falling under the 2006 M&A Rules.

        However, if the CSRC subsequently determines that its prior approval is required, we may face regulatory actions or other sanctions from the CSRC or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on our operations, limit our operating privileges, delay or restrict our sending the proceeds from this offering into China, or take other actions that could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs. The CSRC or other PRC regulatory agencies also may take actions requiring us, or making it advisable for us, to halt this offering before settlement and delivery of the ADSs offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that such settlement and delivery may not occur.

        We cannot predict when the CSRC may promulgate additional rules or other guidance, if at all. If implementing rules or guidance is issued prior to the completion of this offering and consequently we conclude that we are required to obtain CSRC approval, this offering will be delayed until we obtain CSRC approval, which may take several months or longer. Moreover, implementing rules or guidance, to the extent issued, may fail to resolve current ambiguities under the 2006 M&A Rules. Uncertainties or negative publicity regarding the 2006 M&A Rules could have a material adverse effect on the trading price of our ADSs.

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The approval of the Ministry of Commerce may be required in connection with the establishment of our contractual arrangements with the affiliated consolidated entities. Our failure to obtain this approval, if required, could have a material adverse effect on our business, results of operations, reputation and trading price of our ADSs.

        The 2006 M&A Rules also provide that approval by the Ministry of Commerce is required prior to a foreign company acquiring a PRC domestic company where the foreign company and the domestic company have the same de facto controlling persons that are PRC individuals or enterprises. The applicability of the 2006 M&A Rules with respect to the Ministry of Commerce's approval is unclear. If the Ministry of Commerce subsequently determines that its prior approval was required for our contractual arrangements with the affiliated consolidated entities, we may face regulatory actions or other sanctions from the Ministry of Commerce or other PRC regulatory agencies. These regulatory agencies may impose fines and penalties on us and the affiliated consolidated entities, require us to restructure our ownership structure or operations, limit our operations, delay or restrict our sending the proceeds from this offering into China, or take other actions. These regulatory actions could have a material adverse effect on our business, financial condition, results of operations, reputation and prospects, as well as the trading price of our ADSs.

Governmental control of currency conversion may affect the value of your investment.

        The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of foreign currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our income is primarily derived from dividend payments from our PRC subsidiary. Shortages in the availability of foreign currency may restrict the ability of our PRC subsidiary to remit sufficient foreign currency to pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, approval from SAFE or its local branch is required where Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access to foreign currencies for current account transactions in the future. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of our ADSs.

Fluctuations in exchange rates of the Renminbi could materially affect our reported results of operations.

        The exchange rates between the Renminbi and the U.S. dollar, Euro and other foreign currencies is affected by, among other things, changes in China's political and economic conditions. In July 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi was permitted to fluctuate within a band against a basket of certain foreign currencies. As a result, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. For almost two years after July 2008, the Renminbi traded within a very narrow range against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would increase Renminbi exchange rate flexibility. However, it remains unclear how this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant appreciation of the Renminbi against the U.S. dollar.

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        As we may rely on dividends and other fees paid to us by our subsidiary and affiliated consolidated entities in China, any significant revaluation of the Renminbi may materially and adversely affect our cash flows, revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars. To the extent that we need to convert U.S. dollars we received from our initial public offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. In addition, since our functional and reporting currency is the U.S. dollar while the functional currency of our subsidiary and affiliated consolidated entities in China is Renminbi, appreciation or depreciation in the value of the Renminbi relative to the U.S. dollar would have a positive or negative effect on our reported financial results, which may not reflect any underlying change in our business, results of operations or financial condition.

Dividends we receive from our operating subsidiary located in the PRC may be subject to PRC withholding tax.

        The PRC Enterprise Income Tax Law, or the EIT Law, provides that a maximum income tax rate of 20% may be applicable to dividends payable to non-PRC investors that are "non-resident enterprises," to the extent such dividends are derived from sources within the PRC, and the State Council of the PRC has reduced such rate to 10% through the implementation regulations. We are a Cayman Islands holding company and substantially all of our income may be derived from dividends we receive from our subsidiary located in the PRC. Thus, dividends paid to us by our subsidiary in China may be subject to the 10% income tax if we are considered as a "non-resident enterprise" under the EIT Law. If we are required under the EIT Law to pay income tax for any dividends we receive from our subsidiary in China, it would materially and adversely affect the amount of dividends, if any, we may pay to our shareholders and ADS holders.

We may be deemed a PRC resident enterprise under the EIT Law and be subject to the PRC taxation on our worldwide income.

        The EIT Law also provides that enterprises established outside of China whose "de facto management bodies" are located in China are considered "resident enterprises" and are generally subject to the uniform 25% enterprise income tax rate as to their worldwide income. Under the implementation regulations for the EIT Law issued by the PRC State Council, "de facto management body" is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise. Although substantially all of our operational management is currently based in the PRC, it is unclear whether PRC tax authorities would require (or permit) us to be treated as a PRC resident enterprise. If we are treated as a resident enterprise for PRC tax purposes, we will be subject to PRC tax on our worldwide income at the 25% uniform tax rate, which could have an impact on our effective tax rate and an adverse effect on our net income and results of operations.

Dividends payable by us to our foreign investors and gain on the sale of our ADSs or ordinary shares may become subject to taxes under PRC tax laws.

        Under the EIT Law and implementation regulations issued by the State Council, PRC withholding tax at the rate of 10% is applicable to dividends payable to investors that are "non-resident enterprises," which do not have an establishment or place of business in the PRC, or which have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends have their sources within the PRC.

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Similarly, any gain realized on the transfer of ADSs or shares by such investors is also subject to 10% PRC income tax if such gain is regarded as income derived from sources within the PRC. The implementation regulations of the EIT Law set forth that, (i) if the enterprise that distributes dividends is domiciled in the PRC, or (ii) if gains are realized from transferring equity interest of enterprises domiciled in the PRC, then such dividends or capital gains are treated as China-sourced income. It is not clear how "domicile" may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered a PRC "resident enterprise," the dividends we pay with respect to our ordinary shares or ADSs, or the gain you may realize from the transfer of our ordinary shares or ADSs, may be treated as income derived from sources within the PRC and be subject to PRC withholding tax at a rate of 10%. Furthermore, it is unclear in these circumstances whether holders of our ordinary shares or ADSs would be able to claim the benefit of income tax treaties entered into between China and other countries or regions. If we are required under the EIT Law to withhold PRC income tax on dividends payable to our non-PRC investors that are "non-resident enterprises," or if you are required to pay PRC income tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected.

        Furthermore, if we are considered a "resident enterprise" and relevant PRC tax authorities consider dividends we pay with respect to our ADSs or ordinary shares and the gains realized from the transfer of our ADSs or ordinary shares to be income derived from sources within the PRC, such gains earned by non-resident individuals may be subject to PRC withholding tax at a rate of 20%. See "Regulation—Regulations Regarding the Enterprise Income Tax and Dividend Withholding Tax." If we are required under PRC law to withhold PRC income tax on dividends payable to our non-PRC investors that are non-resident individuals or if you are required to pay PRC income tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially and adversely affected.

We may be required to register our operating offices outside of our residence addresses as branch companies under PRC law.

        Under PRC law, a company setting up premises outside its residence address for business operations must register such operating offices with the relevant local industry and commerce bureau at the place where such premises are located as branch companies and shall obtain business licenses for such branches. Our PRC subsidiary and certain affiliated consolidated entities and their subsidiaries have operations at locations outside of their respective residence addresses. If the PRC regulatory authorities determine that we are in violation of relevant laws and regulations, we may be subject to relevant penalties, including fines, confiscation of income, and suspension of operation. If we are subject to these penalties, our business, results of operations, financial condition and prospects could be materially and adversely affected.

Risks Relating to this Offering

There has been no public market for our ordinary shares or ADSs prior to this offering, and you may not be able to resell our ADSs at or above the price you paid, or at all.

        Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. Our ADSs have been approved for listing on the Nasdaq Global Market. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. If an active trading market for our ADSs does not develop after this offering, the market price and liquidity of our ADSs will be materially and adversely affected.

        The initial public offering price for our ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after the initial public offering. An active trading market for our ADSs may not develop and the market price of our ADSs may decline below the initial public offering price.

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The market price for our ADSs may be volatile which could result in a loss to you.

        The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors, including the following:

    announcements of competitive developments;

    regulatory developments in China affecting us, our clients or our competitors;

    announcements regarding litigation or administrative proceedings involving us;

    actual or anticipated fluctuations in our quarterly operating results;

    changes in financial estimates by securities research analysts;

    addition or departure of our executive officers;

    release or expiry of lock-up or other transfer restrictions on our outstanding ordinary shares or ADSs; and

    sales or perceived sales of additional ordinary shares or ADSs.

        In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

Since the initial public offering price is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        If you purchase our ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$6.43 per ADS, representing the difference between our net tangible book value per ADS as of September 30, 2010, after giving effect to this offering at the initial public offering price of US$8.50 per ADS. In addition, you may experience further dilution to the extent that our ordinary shares are issued upon the exercise of share options. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon completion of this offering.

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

        Sales of our ADSs or ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Upon completion of this offering, we will have 29,349,481 ordinary shares outstanding, including 5,870,000 ordinary shares represented by 11,740,000 ADSs. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale upon the expiration of certain lock-up arrangements entered into between us, the underwriters and other shareholders as further described under "Underwriting" and "Shares Eligible for Future Sale." In addition, ordinary shares that certain option holders will receive when they exercise their share options will not be available for sale until the expiration of any relevant lock-up periods, subject to volume and other restrictions that may be applicable under Rule 144 and Rule 701 under the Securities Act. We cannot predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.

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        In addition, certain of our shareholders or their transferees and assignees will have the right to cause us to register the sale of their shares under the Securities Act upon the occurrence of certain circumstances. See "Description of Share Capital." Registration of these shares under the Securities Act would result in these shares becoming freely tradable without restriction under the Securities Act immediately upon the effectiveness of the registration. Sales of these registered shares in the public market could cause the price of our ADSs to decline.

Anti-takeover provisions in our memorandum and articles of association may discourage a third party from offering to acquire our company, which could limit your opportunity to sell your ADSs at a premium.

        Our second amended and restated memorandum and articles of association that will become effective upon completion of this offering include provisions that could limit the ability of others to acquire control of us or modify our structure. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of us in a tender offer or similar transaction.

        For example, our board of directors will have the authority, without further action by our shareholders, to issue preference shares in one or more series and to fix the powers and rights of these shares, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preference shares could thus be issued quickly with terms calculated to delay or prevent a change in control or make removal of management more difficult. In addition, if our board of directors issues preference shares, the market price of our ordinary shares may fall and the voting and other rights of the holders of our ordinary shares may be adversely affected.

Our founder, chairman and chief executive officer, Mr. Dong Yu, as the single largest holder of our outstanding share capital, has substantial influence over our company and his interests may not be aligned with your interests.

        As of the date of this prospectus, Mr. Dong Yu, our founder, chairman and chief executive officer, through Skillgreat Limited, beneficially owned 45.8% of our outstanding share capital, and he will own approximately 36.7% of our outstanding share capital upon completion of this offering, assuming no exercise of the underwriters' over-allotment option. Consequently, Mr. Yu has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors, declaration of dividends and other significant corporate actions. This concentration of ownership may discourage, delay or prevent a change in control of our company, which could deprive you of an opportunity to receive a premium for your ADSs as part of a sale of our company and may reduce the price of our ADSs.

Our founder, chairman, chief executive officer and the largest holder of our outstanding share capital, Mr. Dong Yu, has provided a personal guarantee using his personal property, including his equity interest in our company, to secure the obligations of Beijing Bona Film and Culture Communication Co., Ltd. under a credit facility. A default under the credit facility could result in the sale by court order of Mr. Dong Yu's property, including his equity interest in us, and the resultant sale of those shares. A sale of such equity interest whether by court order or otherwise would likely cause a significant drop in the price of our ADSs. Moreover, Mr. Dong Yu, who could thereafter have a substantially smaller or no equity interest in our company, could have substantially less or no personal stake or interest in the commercial success of our company.

        On September 15, 2010, our affiliated consolidated entity, Beijing Bona Film and Culture Communication Co., Ltd. entered into an agreement with the Bank of Beijing under which the Bank of Beijing has agreed to extend a line of credit of RMB100 million to Beijing Bona Film and Culture Communication Co., Ltd. for one year from the date of the agreement. We may draw upon the line of

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credit for one year from the date of the agreement and each loan will be payable within 12 months of the drawdown.

        In order to procure this line of credit, two of Beijing Bona Film and Culture Communications Co., Ltd.'s subsidiaries, Beijing Bona International Cineplex Investment and Management Co., Ltd. and Zhejiang Bona Film and Television production Co., Ltd., as well as Mr. Dong Yu, our founder, chairman, chief executive officer and the largest holder of our outstanding share capital, have agreed to guarantee the loans. The guarantees provided by the two subsidiaries and Mr. Yu cover the full amount of the loans, interest, and any damages and related costs. Under the personal guarantees provided by the two subsidiaries and Mr. Yu and pursuant to the PRC Guaranty Law, the two subsidiaries and Mr. Yu have agreed to perform the obligations under the agreement in the event that Beijing Bona Film and Culture Communication Co., Ltd. is unable to perform its obligations. In the event that the guarantee is enforced against Mr. Yu, he could be obliged to use his personal property, including the equity interest in our company that he holds through Skillgreat Limited, to fulfill his obligations under the agreement. As of the date of this prospectus, Mr. Yu, through Skillgreat Limited, beneficially owned 45.8% of our outstanding share capital, and he will beneficially own approximately 36.7% of our outstanding share capital upon completion of this offering, assuming no exercise of the underwriters' over-allotment option.

        A failure or delay by Beijing Bona Film and Culture Communication Co., Ltd. to meet its payment obligations promptly under the agreement or the failure by Beijing Bona Film and Culture Communication Co., Ltd. under the agreement to perform their guarantee obligations could result in the sale or other disposition of some or all of Mr. Yu's personal property, including his equity interest in us. A sale of a portion or all of Mr. Yu's equity interest whether voluntary or as a result of a court order would likely cause a significant drop in the price of our ADSs and could adversely affect our business operations, our relationships in the film industry and the marketability and of our ADSs and substantially reduce Mr. Yu's beneficial ownership interest.

        If Mr. Yu's beneficial ownership in us is substantially reduced or eliminated, he would have little or no stake or interest in the business operations of our company, and he could leave the company or not perform his duties as diligently as he otherwise might have.

We may be classified as a passive foreign investment company, or PFIC, which could result in adverse United States federal income tax consequences to U.S. investors.

        Based upon the past and projected composition of our income and valuation of our assets, including any goodwill, we do not believe we were a passive foreign investment company, or PFIC, for our taxable year ending December 31, 2009 and we do not expect to become one for the current year or in the future, although there can be no assurance in this regard. If, however, we were a PFIC, such characterization could result in adverse United States federal income tax consequences to you if you are a U.S. investor. For example, if we are a PFIC, our U.S. investors may become subject to increased tax liabilities under United States federal income tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, we will be classified as a PFIC for United States federal income tax purposes if either: (i) 75% or more of our gross income in a taxable year is passive income, or (ii) the average percentage of our assets by value in a taxable year which produce or are held for the production of passive income (which includes cash) is at least 50%. The calculation of the value of our assets will be based, in part, on the then market value of our ADSs, which is subject to change. We cannot assure you that we were not a PFIC for 2009 or that we will not be a PFIC for this or any future taxable year. Moreover, the determination of our PFIC status is based on an annual determination that cannot be made until the close of a taxable year and involves extensive factual investigation. This investigation includes ascertaining the fair market value of all of our assets on a quarterly basis and the character of each

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item of income we earn, which cannot be completed until the close of a taxable year, and therefore, our U.S. counsel expresses no opinion with respect to our PFIC status. See "Taxation—United States Federal Income Tax Consequences—Passive Foreign Investment Company."

As a foreign private issuer, we are permitted to, and we may, rely on exemptions from certain Nasdaq corporate governance standards applicable to U.S. issuers. This may afford less protection to holders of our ordinary shares and ADSs.

        The Nasdaq Listing Rules in general require listed companies to have, among other things, a nominating committee consisting solely of independent directors. As a foreign private issuer, we are permitted to, and we may, follow home country corporate governance practices instead of certain requirements of the Nasdaq Listing Rules, including, among others, the implementation of a nominating committee. The corporate governance practice in our home country, the Cayman Islands, does not require, for example, the implementation of a nominating committee. We may rely upon the relevant home country exemption in lieu of certain corporate governance practices, such as foregoing the establishment of a nominating committee. As a result, the level of independent oversight over management of our company may afford less protection to holders of our ordinary shares and ADSs.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less protection of your shareholder rights than you would under U.S. law.

        Our corporate affairs are governed by our memorandum and articles of association as amended and restated from time to time, the Cayman Islands Companies Law (as amended) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. Furthermore, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States. As a result, public shareholders may have more difficulties in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as shareholders of a Delaware company.

Judgments obtained against us by our shareholders may not be enforceable.

        We are a Cayman Islands company and substantially all of our assets are located outside of the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult for you to effect service of process within the United States upon these persons. It may also be difficult for you to enforce in U.S. courts judgments obtained in U.S. courts based on the civil liability provisions of the U.S. federal securities laws against us and our officers and directors. Moreover, there is uncertainty as to whether the courts of the Cayman Islands or the PRC would recognize or enforce judgments of United States courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. In addition, there is

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uncertainty as to whether such Cayman Islands or PRC courts would be competent to hear original actions brought in the Cayman Islands or the PRC against us or such persons predicated upon the securities laws of the United States or any state.

We have not determined a specific use for a portion of our net proceeds from this offering and we may use these proceeds in ways with which you may not agree.

        We have not determined a specific use for a portion of our net proceeds of this offering. Our management will have considerable discretion in the application of these proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether the proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our profitability or increase our ADS price. The net proceeds from this offering may also be placed in investments that do not produce income or lose value.

Holders of ADSs must act through the depositary to exercise their rights as shareholders of our company.

        Holders of our ADSs do not have the same rights of our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement for the ADSs. Under our second amended and restated memorandum and articles of association that will become effective upon completion of this offering, the minimum notice period required to convene a general meeting is seven days. When a general meeting is convened, you may not receive sufficient notice of a shareholders' meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.

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

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

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

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

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

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

        The effect of this discretionary proxy is that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

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

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deems it advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings and you may not receive cash dividends if it is impractical to make them available to you.

        We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary will not make rights available to you unless either both the rights and any related securities are registered under the Securities Act, or the distribution of them to ADS holders is exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

        In addition, the depositary has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive any such distribution.

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FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

        You can identify these forward-looking statements by words or phrases such as "aim," "anticipate," "believe," "estimate," "expect," "intend," "likely to," "may," "plan," "will" or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include:

    our growth strategies;

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

    expected changes in our revenues and certain cost or expense items;

    our ability to manage the expansion of our operations; and

    changes in general economic and business conditions in China.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement that includes this prospectus with the understanding that our actual future results may be materially different from what we expect. You should not rely upon forward-looking statements as predictions of future events.

        Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds from this offering of approximately US$89.3 million, after deducting underwriting discounts and commissions and the estimated offering expenses payable by us. These estimates are based upon the initial public offering price of US$8.50 per ADS. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

        We intend to use the net proceeds from this offering for the following purposes:

    approximately US$40 million for possible acquisitions, which may include movie theaters to further build up and strengthen our national film exhibition network, although we are not currently negotiating and have not entered into any agreements for any such acquisitions; and

    approximately US$25 million for the aquisition of film distribution rights including investment in film productions to secure film distribution rights, although particular amounts for particular films have not been determined and will not be determined prior to the completion of this offering.

        We may also use the remaining portion of the net proceeds we receive from this offering for other general corporate purposes and for potential acquisitions, although we are not currently negotiating any acquisition transactions.

        The foregoing represents our current intentions to use and allocate the net proceeds of this offering based upon our present plans and business conditions. Our management, however, will have significant flexibility and discretion to apply the net proceeds of this offering. If an unforeseen event occurs or business conditions change, we may use the proceeds of this offering differently than as described in this prospectus.

        Pending use of the net proceeds, we intend to hold our net proceeds in demand deposits or invest them in interest-bearing government securities.

        In utilizing the proceeds from this offering, as an offshore holding company, we are permitted under PRC laws and regulations to provide funding to our PRC operating subsidiary only through loans or capital contributions and to our affiliated consolidated entities only through loans. Subject to satisfaction of applicable government registration and approval requirements, we may extend inter-company loans to our operating subsidiary and affiliated consolidated entities in China or make additional capital contributions to our operating subsidiary in China to fund their capital expenditures or working capital. We cannot assure you that we will be able to obtain these government registrations or approvals on a timely basis, if at all. See "Risk Factors—Risks Relating to Doing Business in China—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from using the proceeds from this offering to make loans or additional capital contributions to our PRC subsidiary and affiliated consolidated entities."

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DIVIDEND POLICY

        Our board of directors has complete discretion as to whether to distribute 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 our board of directors may deem relevant.

        In 2007, one of our affiliated consolidated entities declared a dividend of US$0.2 million to a non-controlling shareholder, which dividend remains outstanding. In 2008, our affiliated consolidated entities declared a dividend of US$0.3 million to Mr. Dong Yu, our chairman and chief executive officer, which was paid in 2008, and US$0.2 million to a non-controlling shareholder, which remains outstanding. We have no present plan to declare and pay any dividends on our ordinary shares or ADSs in the near future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

        We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiary in China, which in turn relies on the payments received from our affiliated consolidated entities in China pursuant to the contractual arrangements that established our corporate structure. Current PRC laws, rules and regulations permit our PRC subsidiary to pay dividends to us only out of its accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, our subsidiary in China is required to set aside a certain amount of its accumulated after-tax profits each year to fund statutory reserves. These reserves may not be distributed as cash dividends. Further, if our subsidiary in China incurs debt on its own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us.

        If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

51



CAPITALIZATION

        The following table sets forth our capitalization as of September 30, 2010:

    on an actual basis; and

    on a pro forma basis to reflect the conversion of all of our outstanding Series A and Series B preferred shares into 9,540,433 ordinary shares immediately upon the completion of this offering;

    on a pro forma as adjusted basis to reflect (i) the conversion of all of our outstanding Series A and Series B preferred shares into 9,540,433 ordinary shares immediately upon the completion of this offering, and (ii) the sale of 5,870,000 ordinary shares in the form of ADSs by us (each two ADSs representing one ordinary share) in this offering at the initial public offering price of US$8.50 per ADS, after deducting the estimated underwriting discounts and commissions and offering expenses payable by us, and (iii) the subsequent payment of ordinary shares subscription receivable of US$400,000 in November 2010.

        You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations."

 
  As of September 30, 2010  
 
  Actual   Pro forma   Pro forma
as adjusted
 
 
  (US$)
  (US$)
  (US$)
 
 

Bank borrowings—current

    9,538,568     9,538,568     9,538,568  
 

Other borrowings—current

    4,562,329     4,562,329     4,562,329  
 

Bank borrowings—noncurrent

    10,192,356     10,192,356     10,192,356  
 

Film participation liabilities—noncurrent

    1,815,762     1,815,762     1,815,762  

Series A convertible redeemable preferred shares, US$0.0005 par value, 15,000,000 total preferred shares authorized, 3,175,631 shares issued and outstanding

    10,543,176          

Series B convertible redeemable preferred shares, US$0.0005 par value, 15,000,000 total preferred shares authorized, 3,690,577 shares issued and outstanding

    14,386,112          

Equity:

                   

Ordinary shares, US$0.0005 par value, 85,000,000 shares authorized, 13,939,048 shares issued and outstanding, 23,479,481 shares issued and outstanding on a pro forma basis, and 29,349,481 shares issued and outstanding on a pro forma as adjusted basis

    6,969     11,740     14,675  

Ordinary shares subscription receivable

    (400,000 )   (400,000 )    

Additional paid-in capital

    50,357,664     75,282,181     164,583,946  

Statutory reserve

    1,748,455     1,748,455     1,748,455  

Accumulated deficit

    (14,425,268 )   (14,425,268 )   (14,425,268 )

Accumulated other comprehensive income

    1,441,097     1,441,097     1,441,097  
               

Total Bona Film Group Limited shareholders' equity

    38,728,917     63,658,205     153,362,905  
               

Noncontrolling interests

    2,549,809     2,549,809     2,549,809  
               

Total equity

    41,278,726     66,208,014     155,912,714  
               

Total

    92,317,029     92,317,029     182,021,729  
               

52



DILUTION

        If you invest in our ADSs, your investment will be diluted for each ADS you purchase to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Net tangible book value represents the amount of our total consolidated tangible assets less the amount of our total consolidated liabilities, noncontrolling interests and our Series A and Series B preferred shares. The total consolidated tangible assets are the total assets net of goodwill, acquired intangible assets, and distribution rights.

        Our net tangible book value as of September 30, 2010 was positive at approximately US$7.0 million, or positive at US$0.50 per ordinary share and positive at US$0.25 per ADS as of that date.

        Pro forma net tangible book value is determined by adjusting net tangible book value as of September 30, 2010 per share to give effect to:

    (1)
    the conversion of all outstanding Series A and Series B preferred shares into ordinary shares upon the completion of this offering; and

    (2)
    our sale of the 11,740,000 ADSs offered in this offering at the initial public offering price of US$8.50 per ADS, with estimated net proceeds of US$89.3 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

    (3)
    the subsequent payment of ordinary shares subscription receivable of US$400,000 in November 2010.

        Our pro forma net tangible book value as of September 30, 2010 would have been US$121.7 million, or US$4.14 per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, and US$2.07 per ADS.

        This represents an immediate increase in pro forma net tangible book value of US$2.78 per ordinary share, or US$1.39 per ADS, to existing shareholders and an immediate dilution in pro forma net tangible book value of US$12.86 per ordinary share, or US$6.43 per ADS, to new investors in this offering.

        The following table illustrates such per ordinary share and ADS dilution:

 
  Per ordinary
share
  Per ADS  

Net tangible book value as of September 30, 2010

  US$ 0.50   US$ 0.25  

Increase in net tangible book value per share attributable to conversion of our Series A and Series B preferred shares

  US$ 0.86   US$ 0.43  
           

Pro forma net tangible book value after giving effect to the conversion of our Series A and Series B preferred shares

  US$ 1.36   US$ 0.68  

Increase in net tangible book value attributable to the payment of subscription receivable received in November 2010 and this offering

  US$ 2.78   US$ 1.39  
           

Pro forma net tangible book value after giving effect to the conversion of our Series A and Series B preferred shares, the payment of subscription receivable received in November 2010 and this offering

  US$ 4.14   US$ 2.07  

Initial public offering price

  US$ 17.00   US$ 8.50  
           

Amount of dilution to new investors in this offering

  US$ 12.86   US$ 6.43  
           

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        The following table summarizes the number of ordinary shares purchased from us as of September 30, 2010, the total consideration paid to us and the average price per ordinary share and ADS paid by existing investors and by new investors purchasing ordinary shares evidenced by ADSs in this offering at the initial public offering price of US$8.50 per ADS before deducting underwriting discounts and commissions and estimated offering expenses payable by us.

 
  Ordinary Shares
Purchased
   
   
   
   
 
  Total Consideration    
   
 
  Average
Price Per
Ordinary
  Average
Price Per
ADSs
 
  Number   Percent   Amount   Percent

Existing shareholders

    23,479,481     80.0%   US$ 71,698,912     41.8%   US$ 3.05   US$1.53

New investors

    5,870,000     20.0%   US$ 99,790,000     58.2%   US$ 17.00   US$8.50
                           
 

Total

    29,349,481     100.0%   US$ 171,488,912     100.0%          
                           

        The foregoing discussion and tables assumes no exercise of any outstanding share options. As of the date of this prospectus, there were 1,184,039 ordinary shares issuable upon exercise of outstanding stock options at a weighted average exercise price of US$4.77 per share, and there were 4,226,611 ordinary shares available for future issuance upon the exercise of future grants under our 2010 share incentive plan. To the extent that any of these options are exercised, there will be further dilution to new investors.

54



EXCHANGE RATE INFORMATION

        Our functional and reporting currency is the U.S. dollar. Monetary assets and liabilities denominated in currencies other than the U.S. dollar are translated into the U.S. dollar at the exchange rates at the balance sheet date. Transactions in currencies other than the U.S. dollars during the year are converted into U.S. dollars at the applicable exchange rates prevailing at the first day of the month when the transactions occurred.

        A number of RMB-denominated figures used in this prospectus are accompanied with U.S. dollar translations. These translations are based on the exchange rate in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York on September 30, 2010, which was RMB6.6905 to US$1.00. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The PRC government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign currencies and through restrictions on foreign trade.

        The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The exchange rate of Renminbi per US dollar as set forth in the H.10 statistical release of the Federal Reserve Board was RMB6.6628 to US$1.00 as of December 3, 2010.

 
  Exchange Rate  
Period
  Period End   Average(1)   Low   High  
 
  (RMB per US$1.00)
 

2005

    8.0702     8.1826     8.2765     8.0702  

2006

    7.8041     7.9579     8.0702     7.8041  

2007

    7.2946     7.6072     7.8127     7.2946  

2008

    6.8225     6.9477     7.2946     6.7800  

2009

    6.8259     6.8307     6.8470     6.8176  

2010

                         
 

through September 30

    6.6905     6.7680     6.8102     6.6869  
 

June

    6.7815     6.8184     6.8323     6.7815  
 

July

    6.7735     6.7762     6.7707     6.7709  
 

August

    6.8069     6.7873     6.8069     6.7670  
 

September

    6.6905     6.7396     6.8102     6.6869  
 

October

    6.6705     6.6675     6.6912     6.6397  
 

November

    6.6670     6.6558     6.6892     6.6330  
 

December (through December 3)

    6.6628     6.6622     6.6630     6.6609  

(1)
Source: the Federal Reserve Bank of New York.
(2)
Annual averages are calculated from month-end rates. Averages for other periods are calculated using the average of the daily rates during the relevant period.

        In July 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi was permitted to fluctuate within a band against a basket of certain foreign currencies. As a result, the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in RMB exchange rates and achieve policy goals. For almost two years after July 2008, the RMB traded within a very narrow range against the U.S. dollar, remaining within 1% of its July 2008 high. As a consequence, the RMB fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. In June 2010, the PRC government announced that it would increase RMB exchange rate flexibility. However, it remains unclear how this flexibility might be implemented. There remains significant international pressure on the PRC government to adopt a substantial liberalization of its currency policy, which could result in a further and more significant appreciation in the value of the Renminbi against the U.S. dollar.

55



ENFORCEABILITY OF CIVIL LIABILITIES

        We were incorporated in the Cayman Islands in order to enjoy some advantages associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    an effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors; and

    Cayman Islands companies may not have standing to sue before the federal courts of the United States.

        Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be subject to arbitration.

        Substantially all of our operations are conducted in China, and substantially all of our assets are located in China. Most of our officers and directors are nationals and residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed Law Debenture Corporate Services Inc., 400 Madison Avenue, 4th Floor, NY, NY 10171, U.S.A., as our agent upon whom process may be served in any action brought against us under the securities laws of the United States.

        Conyers Dill & Pearman, our counsel as to Cayman Islands law, and Han Kun Law Offices, our counsel as to PRC law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands and China, respectively, would:

    recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

    entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        Conyers Dill & Pearman has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation provided that (a) such federal or state courts of the United States had proper jurisdiction over the parties subject to such judgment; (b) such federal or state courts of the United States did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the

56



enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands.

        Han Kun Law Offices has further advised us that the recognition and enforcement of foreign judgments are provided for under PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of PRC Civil Procedures Law based either on treaties between China and the country or region where the judgment is made or on principle of reciprocity between jurisdictions, provided that the foreign judgments do not violate the basic principles of laws of the PRC or its sovereignty, security, or social and public interest.

57



OUR CORPORATE STRUCTURE

Our History

        Our affiliated consolidated entity, Beijing Baichuan Film Distribution Co., Ltd., is a PRC company whose primary business was the distribution of films and related activities and which was established in 2003. To facilitate investments by financial investors and as part of the reorganization we subsequently conducted in 2007, we incorporated Bona International Film Group Limited in the British Virgin Islands on December 13, 2006, which became the parent company of Bona New World, our wholly owned subsidiary in the PRC. In anticipation of this initial public offering, we incorporated Bona Film Group Limited in the Cayman Islands as a listing vehicle on July 8, 2010. Bona Film Group Limited became our ultimate holding company when it issued one preferred or ordinary share to existing shareholders of Bona International Film Group Limited on November 10, 2010, in exchange for every 16 of the respective preferred or ordinary shares that these shareholders held in Bona International Film Group Limited.

        Our principal executive offices are located at 11/F, Guan Hu Garden 3, 105 Yao Jia Yuan Road, Chaoyang District, Beijing 100025, People's Republic of China, and our phone number is (86) 10 5928 3663.

        We currently conduct substantially all of our operations through our subsidiaries in the PRC and Hong Kong and our affiliated consolidated entities and their subsidiaries in the PRC.

        We operate our businesses in China through our affiliated consolidated entities due to PRC regulations that prohibit or restrict foreign investments in the film, television program and talent agency industries and impose qualifications for foreign investors in the advertising industry. We have three affiliated consolidated entities in China that operate our businesses in China, each of which is an entity duly formed under PRC law. All of the outstanding equity interests in our affiliated consolidated entities are held by Mr. Dong Yu, his brother Mr. Hai Yu or another affiliated consolidated entity, with the exception of Beijing Bona Advertising Co., Ltd., 3% of the outstanding equity interest of which is held by a third party individual.

        In July 2007, Bona New World, our PRC subsidiary, entered into a series of contractual arrangements with each of the affiliated consolidated entities and their respective shareholders (other than with Poly Film Investment Co., Ltd., an unaffiliated third party that had then held 10% of the equity interest in Beijing Baichuan Film Distribution Co., Ltd.) to govern our relationships with the affiliated consolidated entities. These contractual arrangements allow us to effectively control the affiliated consolidated entities and to derive substantially all of the economic benefits from them. See "—Contractual Arrangements with Our Affiliated Consolidated Entities" below. Accordingly, we treat these companies as variable interest entities and have consolidated their historical financial results in our financial statements in accordance with U.S. GAAP.

        In April 2010, we entered into a series of transactions to acquire Beijing Bona International Cineplex Investment and Management Co., Ltd. and Beijing Bona Youtang Cineplex Management Co., Ltd., two companies that focus on the movie theater business in the PRC. These companies were beneficially owned by Mr. Dong Yu, our chairman and chief executive officer, and his immediate family member. The total consideration comprised 5,810,320 newly issued ordinary shares and the settlement of US$5.3 million that Mr. Dong Yu owed to us.

58


Our Corporate Structure

        The following diagram illustrates our shareholding and corporate structure immediately after the completion of this offering (assuming no exercise of the underwriters' over-allotment option):

GRAPHIC


(A)
Refers to Sequoia Capital China I L.P., Sequoia Capital China Partners Fund I L.P., Sequoia Capital China Principals Fund I L.P. and their affiliates, collectively.
(B)
Refers to Matrix Partners China I L.P., Matrix Partners China I-A L.P., and their affiliates, collectively.
(1)
The regulatory registration of the transfer of the 60% of the equity interests of Shanghai Bona Yinxing Cinema Development Co., Ltd. from Beijing Baichuan Film Distribution Co., Ltd. to Beijing Bona International Cineplex Investment and Management Co., Ltd. is in process.

Contractual Arrangements with Our Affiliated Consolidated Entities

        Foreign investment in the film and entertainment industries is currently prohibited or restricted in China. As a Cayman Islands corporation, we do not qualify to conduct these businesses under PRC regulations. In addition, foreign investment in the advertising industry requires the foreign investor to possess certain qualifications, which we do not have. See "Regulation." As a result, our business in China is operated through contractual arrangements with our affiliated consolidated entities. These contractual arrangements enable us to exercise effective control over these entities and receive

59



substantially all of the economic benefits from them, except with respect to Beijing Baichuan Film Distribution Co., Ltd., for which we receive 90% of its net profit before tax. These agreements are effective until either the dissolution of either Bona New World or the affiliated consolidated entity, the affiliated consolidated entity being no longer liable to us under the agreement, or the termination of other contractual arrangements, as described under "—Agreements that Transfer Economic Benefit to Us" and "—Agreements that Provide Us with Effective Control."

    Agreements that Transfer Economic Benefits to Us

        Exclusive Technology and Consulting Service Agreements.    Under the exclusive technology and consulting service agreements between Bona New World and each of the affiliated consolidated entities, Bona New World provides technology and consulting services to the affiliated consolidated entities, in exchange for a service fee to Bona New World that is no less than 100% of their net profit before tax, except that the service fee with respect to Beijing Baichuan Film Distribution Co., Ltd. is no less than 90% of its net profit before tax. The service fee is payable at such time as agreed between Bona New World and the affiliated consolidated entity and approved by the board of such affiliated consolidated entity. The term of each exclusive technology and consulting service agreement is from the effective date until the dissolution of either Bona New World or the affiliated consolidated entity.

    Agreements that Provide Us with Effective Control

        Voting Trust and Equity Purchase Option Agreements.    The shareholders of each affiliated consolidated entity have signed voting trust and equity purchase option agreements, pursuant to which the shareholders have granted Bona New World, or a person designated by Bona New World, the right to exercise all of the voting rights of the shareholders of the affiliated consolidated entity. We have an exclusive option to purchase, or to designate other persons to purchase, to the extent permitted by applicable PRC laws, rules and regulations, up to 100% of the equity interest in the affiliated consolidated entities from the shareholders. The purchase price for the entire equity interest is to be calculated based on the net value of the affiliated consolidated entity or the minimum price permitted by applicable PRC laws, rules and regulations, whichever is higher. Each affiliated consolidated entity covenants that without prior consent of Bona International Film Group Limited, it will not distribute any dividends. The term of each voting trust and equity purchase option agreement is from the effective date until termination of the corresponding exclusive technology and consulting service agreement.

        Equity Pledge Agreements.    Bona New World has entered into an equity pledge agreement with the shareholders of each affiliated consolidated entity. Under each equity pledge agreement, the shareholders have pledged their respective equity interests in the affiliated consolidated entity to Bona New World (other than 10% of the outstanding equity interests of Beijing Baichuan, which was purchased by Beijing Bona Film and Culture Communications Co., Ltd. in December 2010 from an unaffiliated third party, Poly Film Investment Co., Ltd.) to secure the obligations of the affiliated consolidated entity under its exclusive technology and consulting service agreement with Bona New World. In addition, the shareholders have agreed not to transfer, sell, pledge, or create any encumbrance on their equity interests in the affiliated consolidated entity except for a transfer in accordance with the voting trust and equity purchase option agreement or between shareholders which does not affect the validity of the equity pledge. The term of each equity pledge agreement is from the effective date until the affiliated consolidated entity is no longer liable under the exclusive technology and consulting service agreement.

        We have been advised by our PRC legal counsel, Han Kun Law Offices, that the structure for operating our business in China (including our corporate structure and our contractual arrangements with our affiliated consolidated entities) complies, and immediately after the completion of this offering will continue to comply, with all applicable PRC laws, rules and regulations, and does not violate any

60



applicable PRC laws, rules or regulations. However, there are uncertainties regarding the interpretation and application of the relevant PRC laws, rules and regulations. Accordingly, there can be no assurance that the PRC regulatory authorities will not take a view that is contrary to the opinion of our PRC legal counsel. Our PRC legal counsel has further advised that if a PRC government authority determines that our corporate structure, the contractual arrangements or the reorganization to establish our current corporate structure violates any applicable PRC laws, rules or regulations, the contractual arrangements may become invalid or unenforceable, and we could be subject to severe penalties and required to obtain additional governmental approvals from the PRC regulatory authorities. See "Risk Factors—Risks Relating to Our Corporate Structure—If the PRC government determines that the agreements that establish the structure for operating our China business otherwise do not comply with applicable PRC laws, rules and regulations, we could be subject to severe penalties" and "—Risks Relating to Doing Business in China—Uncertainties with respect to the PRC legal system could limit the protections available to you and us."

Our Contractual Arrangement with Cinema Popular Limited

        In October 2008, we entered into an agreement with Hurry Up Limited, the holder of the remaining 50% equity interest of Cinema Popular Limited, under the terms of which we control the board of directors of Cinema Popular Limited and absorb all of the expected losses of Cinema Popular Limited. Hurry Up Limited is controlled by Peter Chan, a producer and director of Chinese films. Accordingly, we treat Cinema Popular Limited as a variable interest entity and have consolidated its historical financial results in our financial statements in accordance with U.S. GAAP.

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SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA

        The following selected condensed consolidated statement of operations data for the three years ended December 31, 2007, 2008 and 2009, and the selected condensed consolidated balance sheet data as of December 31, 2008 and 2009 have been derived from our audited consolidated financial statements which are included elsewhere in this prospectus and have been audited by Deloitte Touche Tohmatsu CPA Ltd., an independent registered public accounting firm. The summary consolidated balance sheet data as of December 31, 2007 have been derived from our audited financial statements not included in this prospectus. Selected consolidated financial data as of and for the years ended December 31, 2005 and 2006 have been omitted, as such information is not available on a basis that is consistent with the consolidated financial data included in this prospectus and cannot be provided on a U.S. GAAP basis without unreasonable effort or expense. The selected consolidated statement of operations data for the nine months ended September 30, 2009 and 2010 and the selected consolidated balance sheet data as of September 30, 2010 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus and have been prepared on the same basis as our audited consolidated financial statements.

        You should read the selected consolidated financial data in conjunction with those financial statements and the related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with U.S. GAAP. Our historical results do not necessarily indicate our results expected for any future periods.

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  For the year ended December 31,   For the nine months ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  US$   % of
revenues
  US$   % of
revenues
  US$   % of
revenues
  US$   % of
revenues
  US$   % of
revenues
 

Net revenues

    22,398,483     100 %   23,396,442     100.0 %   38,372,551     100.0 %   15,458,918     100.0 %   34,984,968     100.0 %

Cost of revenue

    12,916,429     57.7 %   12,706,866     54.3 %   19,888,461     51.8 %   7,869,256     50.9 %   17,300,682     49.5 %
                                           

Operating expenses:

                                                             
 

Film participation expense

                    1,244,848     3.2 %   356,406     2.3 %   739,222     2.1 %
 

Sales and marketing

    6,035,673     26.9 %   5,013,812     21.4 %   8,887,971     23.2 %   3,995,075     25.8 %   4,918,384     14.1 %
 

General and administrative expenses

    1,156,722     5.2 %   1,965,476     8.4 %   2,789,416     7.3 %   2,459,510     15.9 %   6,114,352     17.5 %
                                           

Total operating expenses

    7,192,395     32.1 %   6,979,288     29.8 %   12,922,235     33.7 %   6,810,991     44.1 %   11,771,958     33.6 %
                                           

Government subsidy

                                    88,147     0.3 %
                                           

Operating income

    2,289,659     10.2 %   3,710,288     15.9 %   5,561,855     14.5 %   778,671     5.0 %   6,000,475     17.2 %

Other income (loss):

                                                             
 

Changes in fair value of warrants

    (183 )   (0.0 )%   (306,050 )   (1.3 )%   119,451     0.3 %   119,451     0.8 %        
 

Changes in fair value of derivatives

    31,000     0.1 %   (1,994,000 )   (8.5 )%   90,000     0.2 %   393,000     2.5 %   (14,528,000 )   (41.5 )%
 

Other

    (261,061 )   (1.2 )%   308,238     1.3 %   (145,767 )   (0.4 )%   5,368     0.0 %   1,241,986     3.6 %
                                           

Income before income tax provision and equity in earnings (loss) of affiliated companies

    2,059,415     9.2 %   1,718,476     7.3 %   5,625,539     14.7 %   1,296,490     8.4 %   (7,285,539 )   (20.8 )%

Provision for income taxes

    57,014     0.3 %   1,071,610     4.6 %   338,647     0.9 %   53,264     0.3 %   92,037     0.3 %

Equity in earnings (loss) of affiliated companies

            (205,911 )   (0.9 )%   172,773     0.5 %   210,370     1.4 %   9,263     0.0 %
                                           

Net income (loss)(1)

    2,002,401     8.9 %   440,955     1.9 %   5,459,665     14.2 %   1,453,596     9.4 %   (7,368,313 )   (21.1 )%
                                           

Net income (loss) attributable to the non-controlling interests

    367,939     1.6 %   199,225     0.9 %   (168,429 )   (0.4 )%   (295,698 )   (1.9 )%   (107,655 )   (0.3 )%

Deemed dividend on Series A and Series B convertible redeemable preferred shares

    381,073     1.7 %   873,652     3.7 %   1,394,985     3.6 %   916,023     5.9 %   1,603,266     4.6 %

Undistributed earnings allocated to holders of participating Series A and Series B convertible redeemable preferred shares

    254,303     1.1 %           1,947,831     5.1 %   354,536     2.3 %        
                                           

Net income (loss) attributable to holders of ordinary shares of Bona Film Group Limited

    999,086     4.5 %   (631,922 )   (2.7 )%   2,285,278     6.0 %   478,735     3.1 %   (8,863,924 )   (25.3 )%
                                                     

Net income per ordinary share:

                                                             
 

Basic

    0.10           (0.07 )         0.27           0.05           (0.77 )      
 

Diluted

    0.10           (0.07 )         0.27           0.05           (0.77 )      

Shares used in computation of net income per ordinary share:

                                                             
 

Basic

    9,542,114           9,051,563           8,453,842           9,052,396           11,555,326        
 

Diluted

    9,542,114           9,051,563           8,518,402           9,052,719           11,555,326        

Net income per Series A preferred shares—Basic

    0.48           0.28           0.81           0.33           0.26        

Net income per Series B preferred shares—Basic

    N/A           N/A           0.57           0.28           0.25        

(1)
As a supplement to net income, we use a non-GAAP financial measure of net income that is adjusted from results based on U.S. GAAP to exclude share-based compensation, changes in fair value of warrants and changes in fair value of derivatives. This non-GAAP financial measure is provided as additional information to help our investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of our current financial performance and prospects for the future. The non-GAAP financial measure should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to

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    U.S. GAAP results. In addition, our definition of non-GAAP net income may be different from the definitions used by other companies, and therefore comparability may be limited.

        The following table sets forth the reconciliation of our non-GAAP net income to our U.S. GAAP net income.

 
  Year Ended December 31,   Nine Months Ended
September 30,
 
 
  2007   2008   2009   2009   2010  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Net income (loss)

    2,002,401     440,955     5,459,665     1,453,596     (7,368,313 )

Adjustment for share-based compensation

            132,902     114,780     226,688  

Adjustment for changes in fair value of warrants

    183     306,050     (119,451 )   (119,451 )    

Adjustment for changes in fair value of derivatives

    (31,000 )   1,994,000     (90,000 )   (393,000 )   14,528,000  

Adjusted net income (non-GAAP)

    1,971,584     2,741,005     5,383,116     1,055,925     7,386,375  

 
  As of December 31,   As of September 30,  
 
  2007   2008   2009   2010  
 
  (US$)
  (US$)
  (US$)
  (US$)
  Pro forma
as adjusted(1)

 

Consolidated Balance Sheet Data

                               

Cash

    6,663,011     4,771,897     7,418,213     12,132,514     101,837,214  

Accounts receivable, net of allowance for doubtful accounts

    4,347,569     4,673,515     19,491,100     8,081,160     8,081,160  

Total current assets

    11,350,873     13,567,290     33,940,357     42,117,177     42,117,177  

Distribution rights

    6,300,851     3,847,906     5,550,394     1,234,100     1,234,100  

Production costs

        3,785,691     19,528,560     47,551,727     47,551,727  
                       

Total assets

    20,007,342     24,923,695     67,028,414     136,344,773     226,049,473  

Accounts payable

    5,766,634     4,237,192     8,902,182     12,777,509     12,777,509  

Bank borrowing—current

            6,590,317     9,538,568     9,538,568  

Other borrowings

            6,089,373     4,562,329     4,562,329  

Current film participation liabilities

        351,154     8,337,483     8,912,040     8,912,040  

Non-current film participation liabilities

        994,938     1,562,304     1,815,762     1,815,762  

Derivatives

    698,000     2,692,000     2,903,000          
                       

Total liabilities

    11,090,113     15,681,869     46,859,438     70,136,759     70,136,759  

Net assets

    8,917,229     9,241,826     20,168,976     66,208,014     155,912,714  

Series A convertible redeemable preferred shares

   
7,560,727
   
8,434,379
   
9,727,866
   
10,543,176
   
 

Series B convertible redeemable preferred shares

            9,074,270     14,386,112      
                       

Total equity

    1,356,502     807,447     1,366,840     41,278,726     155,912,714  
                       

(1)
Our consolidated balance sheet data as of September 30, 2010 is presented on a pro forma as adjusted basis to reflect (i) the conversion of all of our outstanding Series A and Series B preferred shares into 9,540,433 ordinary shares immediately upon the closing of this offering, and (ii) the issuance and sale of 5,870,000 ordinary shares in the form of ADSs by us in this offering, at the initial public offering price of US$8.50 per ADS, after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, and (iii) the subsequent payment of ordinary shares subscription receivable of US$400,000 in November 2010.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial condition and results of operations in conjunction with the section entitled "Selected Condensed Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are the largest privately owned film distributor in China. We are the leading distributor of domestic films among all privately owned film distributors in China in terms of number of films distributed and total box office receipts in 2009, according to a report we commissioned from EntGroup. In 2007, 2008 and 2009, films that we distributed or invested in accounted for 44.1%, 40.0% and 44.1%, respectively, of the total box office receipts for the 20 highest grossing domestic films in China, helping to establish us as a leading player in the fast growing Chinese film market. A small number of our films, typically ones that are released during the peak season, account for a substantial portion of our net revenues each year. Our remaining films generate lower net revenues but generally have lower costs for the acquisition of distribution rights or production. Our top five films each year in 2007, 2008 and 2009 accounted for 50.6%, 63.5% and 67.9% of our net revenues in those years, respectively. Since our inception in November 2003, we have distributed 139 films (including 29 films internationally), and we generally distribute between 16 and 20 films theatrically each year.

        We distribute films through virtually all of the theater circuits in China. We are able to gain distribution rights to a wider selection of films through joint distribution arrangements with industry participants such as the state-owned China Film Group Corporation. We have also distributed 17 Chinese films (including Hong Kong films) internationally since 2008, from which we generated nil, US$2.0 million and US$5.2 million in net revenues in 2008, 2009 and the nine months ended September 30, 2010, respectively. Although our international film distribution business has not historically made a significant contribution to our results of operations, it has accounted for an increasing proportion of our net revenues. We believe that we are also well positioned to take advantage of the increasing popularity of Chinese films abroad, given our track record of having international distribution and the distribution arrangements we have established with film distributors in markets including Korea, Japan and Southeast Asia. We have also expanded into non-theatrical distribution channels, including home video products, digital distribution and television. As films continue to generate an increasing proportion of our revenues from non-theatrical sources, we expect to continue to develop new and existing relationships to maximize the value of our distribution business and our film portfolio.

        In addition to our film distribution and production operations, we own and operate six movie theaters in commercial districts and residential areas in several major cities in China. Our movie theaters are affiliated with leading theater circuits in China and provide our audiences with modern facilities. Theater circuits are mandated by PRC laws and regulations to negotiate the terms of arrangements for the exhibition of films and provide film prints to movie theaters. Consistent with industry practice in China, these theater circuits charge an industry standard rate for their services, and we as film distributors are responsible for making and delivering film prints of both digital and traditional films to them. Our movie theater business, which we acquired in April 2010, generated net losses of US$0.8 million and US$1.9 million in 2008 and 2009, respectively, and net loss of US$0.1 million for the period from April 23 to September 30, 2010. We paid consideration in the form of 5,810,320 newly issued ordinary shares with a fair value of US$4.50 per share, or US$26.1 million in the aggregate, as of the acquisition date and the settlement of US$5.3 million that Mr. Dong Yu owed to us. The ordinary shares paid to Mr. Dong Yu would have a current value of US$98.8 million, at the

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initial public offering price of US$8.50 per ADS. Our talent agency business leverages our relationships in the film and entertainment industry and enables us to source desirable films for distribution, gives us additional insight into the film projects that are being contemplated and developed, and provides another source for promising film opportunities. We leverage our films and movie theater operations to attract advertising customers. We also believe that our movie theaters under the "Bona" brand, our ability to sell advertising in the films we exhibit and our representation of artists through our talent agency add to the strength of our business and assist in building a brand which we believe is synonymous with high quality filmed entertainment in China.

        We generated net revenues of US$22.4 million, US$23.4 million and US$38.4 million in 2007, 2008 and 2009, respectively, representing a CAGR of 30.9%. Our net income was US$2.0 million, US$0.4 million and US$5.5 million in 2007, 2008 and 2009, respectively. For the nine months ended September 30, 2010, we generated net revenues of US$35.0 million and net loss of US$7.4 million. Our net income in 2007, 2008 and 2009 included a gain of US$31,000, a loss of US$2.0 million and a gain of US$0.1 million, respectively, from changes in fair value of derivatives. Our net loss for the nine months ended September 30, 2010 included a loss of US$14.5 million from changes in fair value of derivatives. Excluding share-based compensation, changes in fair value of warrants and changes in fair value of derivatives, our non-GAAP net income for 2007, 2008 and 2009 was US$2.0 million, US$2.7 million and US$5.4 million, respectively, representing a CAGR of 65.2%. For the nine months ended September 30, 2010, our non-GAAP net income was US$7.4 million. For a reconciliation of our non-GAAP net income to the U.S. GAAP net income, see footnote (1) to our summary consolidated statement of operations data included elsewhere in this prospectus. The redemption terms of the Series A and Series B preferred shares were amended in August 2010, and as a result, we have ceased to recognize derivative liabilities and change in fair value of derivatives from the date of such amendment.

Factors Affecting Our Results of Operations

        Our business, results of operations and financial condition are significantly affected by a number of factors, many of which are beyond our control. We expect our future growth to be affected by a number of factors and trends, including:

Our Ability to Identify and Secure Distribution Rights for Films on Favorable Terms

        We must identify promising films from among the many films that are produced in China and overseas each year and secure distribution rights for these films on terms that offer us attractive returns, including securing distribution rights through investment in the production of the film. In exceptional instances, we may participate in the financing of a film without acquiring distribution rights or copyright. We believe that our brand name and reputation in the Chinese film industry, our experience in film distribution and marketing in China, our collaborations with other domestic and international film industry players, and our management's access to key industry participants and relationships with industry talent and artists enable us to identify and secure distribution rights for or invest in promising film projects.

        The decision to distribute or invest in the production of a film, or both, is made by our senior management, supported by analysis of factors such as a film's expected critical reception and marketability, as well as the cost to acquire the distribution right or to finance the film production, the estimated distribution and marketing expenses required to bring the film to its widest possible target audience, and ancillary market potential of the film after its theatrical release. We typically negotiate with film producers on a film-by-film basis to determine the cost of the distribution rights or the film production. If we do not accurately judge the commercial viability of a film, or if the commercial arrangement through which we agree to distribute and/or invest in the production of the film turns out not to be appropriate to the film's market potential or is otherwise not favorable, we may not recoup the cost we incurred to acquire the distribution right, to finance film production or to distribute and market the film, or alternatively, we may fail to capture the potential benefits from the commercial

66



success of the film. In particular, the type of arrangements we enter into may affect our ability to profitably exploit the film. For example, our ability to profit from film with similar box office performances may vary considerably depending on whether we enter into (i) a buy-off distribution arrangement, in which we pay a fixed amount to producer upfront to acquire the distribution rights with no obligation to share box office proceeds with the producer, (ii) a commission-based distribution arrangement, in which we do not pay any fixed amount to the producer, but instead share a proportion of the box office proceeds with the producer, or (iii) a minimum guarantee distribution in which case we would receive a higher proportion of the box office proceeds, subject to paying the producer the amount of any shortfalls from a minimum amount. In each case, we strive to align the key terms of our distribution agreements to the estimated box office potential of each film.

The Box Office Success of Our Films

        The commercial success of a film is largely determined by its box office success, which is a key factor in estimating revenue from other distribution channels. Box office success is largely determined by the appeal of the film to a broad audience—whether owing to its storyline or the participation in the film of well-known directors and actors—and by effective marketing of the film and depends primarily upon its acceptance by the public and similar unpredictable factors. The box office success of a film also depends upon the release period of the film, the length of time that the film is in theaters, the release schedule of potentially competing films and other factors. A film's commercial success at the box office is also contingent upon its being exhibited on a sufficiently large number of screens at movie theaters to meet demand.

        If we are unable to accurately judge audience acceptance of films or to effectively market the films we distribute, the economic success of the film will be in doubt, which could result in costs not being recouped or anticipated profits not being realized. Moreover, a particular feature film may not generate enough revenue to offset its distribution and marketing costs, in which case we may incur a loss for such film. In addition, we generally distribute a limited number of films per year, historically approximately 16 to 20 films. As a result, a small number of films could account for a significant impact on our results of operations in both the year of release and in the future. Historically, our net revenues have been largely dependent on the commercial success of a relatively small number of films. For instance, our top five films each year in 2007, 2008 and 2009 based on our net revenues accounted for 50.6%, 63.5% and 67.9% of our net revenues in those years, respectively. Accordingly, our results of operations are highly contingent upon our ability to identify and secure distribution rights to a small number of films with high commercial potential.

        The potential box office appeal of a film, a film's genre and the length and timing of its release period, among other factors, may also affect the revenue we can derive from ancillary sources such as advertising services and distribution overseas and to non-theatrical channels.

Our Ability to Secure Funding for Films on Favorable Terms and Effectively Control Costs

        Film production and, to a lesser extent, film distribution, are capital intensive activities. We fund the acquisition of distribution rights of films and investment in film production through cash flow from our operations, debt financing and syndication to other investors and film producers. The type of financing we use will affect the economic return we are able to derive from each film. Principal and interest payments on loans and film participation expenses paid to other investors in order to fund film productions affect our profitability and results of operations.

        We manage the risks associated with committing to capital intensive film production projects in a number of ways. We seek to limit the percentage of our investment in films to no more than 50% of the production cost. We may also syndicate our investment in film production to other investors who share the investment risk. When we act as the lead investor in a film, we include in the total estimated production budget of the film an administration fee from participating investors to cover costs we incur to manage the production process of the film.

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        We manage the risks associated with the distribution of films by aligning the key terms of our distribution agreements to the estimated box-office potential of each film. We generally seek arrangements where we are reimbursed by film producers for the expenses we incur in the marketing and promotion of their films, and agree to waive such reimbursements only in limited circumstances. We have also maintained good relationships with leading theater circuits not only through our film distribution business as a supplier, but also through our movie theater business as a customer. We believe that theater circuits value a relationship with us as we offer them access to our pipeline of 16 to 20 films annually in a variety of genres as well as a share of revenues from our movie theaters, which in turn enhances our ability to negotiate desirable exhibition schedules and screen runs as well as prominent positions in marketing and publicity campaigns for our films. In addition, through our interactions with theater circuits as both a supplier and customer, we believe we gain better insight into the pipeline of competing films to help us optimize our film release schedule accordingly.

        By managing investment risk and actively endeavoring to control our financing costs, we attempt to increase the profitability of our business.

Our Ability to Maximize the Value of Our Films

        We rely on theater circuits and operators to exhibit our films in movie theaters. Domestically, we grant exhibition rights to the films we distribute to theater circuits throughout China on a film-by-film basis. We have exhibition arrangements with virtually all theater circuits in China. We believe that our ability to maintain favorable arrangements with theater circuits is attributable to the quality of the films we distribute, our track record and scale, and our brand and reputation.

        Our results of operations are also affected by our ability to exploit our distribution rights internationally and through non-theatrical channels. We typically sell or license our distribution rights to our films for exhibition and distribution overseas on a territory by territory basis. The licensing agreement with the overseas partner, typically based on the Independent Film and Television Alliance standard form, sets the relevant terms including the distribution period, geographic area, licensing fees and scope of rights, such as distribution for theatrical screening only or including other distribution channels such as DVD and other home video products, Internet and other digital distribution, in-flight entertainment and television. The terms of the arrangement for a particular film are typically dependent on the domestic box office success of the film and the demand for Chinese films in the particular geographic area.

        We utilize our strategic relationships to distribute our films on non-theatrical distribution channels and platforms, including DVD and other home video products, Internet and other digital distribution, in-flight entertainment and television. Our ability to maintain and expand the distribution of our films on non-theatrical distribution channels is also affected by our ability to expand our portfolio of high quality films, as well as the demand for films in non-theatrical distribution channels.

Box Office Trends Driven by Consumer Spending Patterns and Film Infrastructure Growth

        The commercial potential of the film industry in general will also continue to depend upon consumer spending patterns as well as box office trends. As a result of rapid economic development in China, urban households have developed discretionary spending power, with per capita annual disposable income of urban households in China increasing from RMB10,493 in 2005 to RMB17,900 in 2009. With increasing affluence and disposable income, the Chinese population is increasingly able to spend a larger portion of their income on cultural activities and entertainment, including the viewing of films.

        Rapid urbanization and increases in discretionary spending have led to increasing investment in film infrastructure such as modern multiplex movie theaters. Newly built movie theaters are generally equipped with modern visual and audio exhibition facilities, which improve the audience experience. According to EntGroup, the number of multiplex movie theaters has increased from 838 in 2005 to 1,509 in 2009. Our results of operations are and will continue to be affected by the expansion of movie

68



theaters in China, which will enable us to expand our distribution and will provide greater opportunities to capture the discretionary spending of China's growing affluent class.

        We believe the increasing spending power of a larger consumer base, higher quality and increasing numbers of movie theaters and a greater range of available films have supported higher rates and frequency of movie attendance. We believe our results of operations will be driven primarily by growing numbers of movie theaters, a growing number of movie viewers and increased frequency of movie attendance. These ongoing box office trends will affect our profitability and results of operations.

        Although box office receipts have grown in China during the recent global financial crisis, a prolonged decline in economic conditions could reduce screenings of and attendance at our film releases or demand for our films through non-theatrical distribution channels. In addition, the increasing availability of movies through non-theatrical distribution channels, for example through digital distribution, could result in a shift in consumer demand away from the movie theater as the immediate source of film revenues. If we are unable to generate sufficient revenues from or reduce our costs incurred in distributing our films through non-theatrical distribution channels in response to any such shift in consumer demand, our results of operations may be adversely affected. Our results of operations may also be affected by the prevalence of intellectual property violations in China, which may enable viewers to circumvent movie theaters and other legitimate revenue-generating distribution channels from which we derive revenues.

        Our revenues are also affected by seasonal fluctuations, such as due to holidays and the summer release season, when movie theater attendance has traditionally been highest. As a result, our quarterly results of operations may fluctuate significantly from period to period.

Effect of Regulatory Developments on the Film Industry

        The film distribution business is greatly affected by regulations governing the type, number and sources of films, among other factors. For example, the number of foreign films that may be exhibited in China on a box office sharing basis, mainly Hollywood blockbusters is limited by the PRC central government to 20 films per year. In addition, there are separate quotas for films imported through buy-off distribution methods each year, mainly from countries other than the United States and for 3-D films. Only China Film Group Film Distribution & Exhibition Corporation and Huaxia Film Distribution Co., Ltd., which are both state owned enterprises, are currently licensed to distribute foreign films in China.

        The easing or elimination of the current regulatory restrictions could create an oversupply of films in China, reduce our share of box office receipts and make it more difficult for our films to succeed commercially. While privately owned companies such as our company can currently provide marketing assistance to state-owned enterprises for foreign films, the easing or elimination of regulations restricting the distribution of foreign films could also increase our opportunities to further leverage our established brand name and proven track to further participate in foreign film distribution in China when current regulatory restrictions are eased or eliminated.

        These and other potential regulatory changes have and could continue to have an impact on our results of operations.

Net Revenues

        We generated net revenues of US$22.4 million, US$23.4 million and US$38.4 million in 2007, 2008 and 2009, respectively. For the nine months ended September 30, 2010, we generated net revenues of US$35.0 million.

        We deduct business taxes that our PRC subsidiary, affiliated consolidated entities and their subsidiaries are subject to on certain types of services and related revenues in the presentation of our net revenues.

        We generate net revenues from our share of the box office proceeds of the films we distribute. Where we are the principal distributor of the film we receive our share of the box office proceeds after

69


the deductions by movie theaters and theater circuits of their shares in the box office sales, and taxes and other governmental charges. In addition, we cooperate with other distributors to distribute films as a non-principal distributor and receive as revenue a fixed percentage of the distribution fees received by the principal distributor.

        We also generate net revenues by licensing or selling distribution rights internationally and to non-theatrical distribution channels.

        We also sell pre-screening advertising time before the start of films for which we have acquired the distribution rights and generate net revenues from other miscellaneous advertising services such as "in-film" advertising, selling posters and promotions of films.

        Where we hold the copyright or a copyright interest in a film we also generate revenue from the licensing of our copyrights to other sales channels, including television, Internet distribution companies and overseas distributors. We also enter into arrangements where we participate in the financing of film production without receiving distribution rights or copyrights, and receive a percentage of the net profit of the film which we recognize as revenue.

        We also derive net revenues from our talent agency services, primarily from performance contracts for the artists we represent. Our agency contracts are negotiated on a case-by-case basis. The net revenues we generate from our representation of an artist are linked to the stage of the career and level of fame of the artist.

Cost of Revenues

        Our cost of revenues amounted to US$12.9 million, US$12.7 million and US$19.9 million in 2007, 2008 and 2009, respectively. For the nine months ended September 30, 2010, our cost of revenues amounted to US$17.3 million.

        Cost of revenues for our film-related revenues primarily consist of: (1) the amortization of any upfront amount we have incurred to acquire distribution rights, (2) the amortization of any upfront amount we have incurred to acquire copyrights or a proportionate interest therein, (3) the amortization of any production cost we have incurred where we are the producer of a film, (4) the amount that we remit to producers or participating distributors when they are entitled to share the box office sales based on the distribution arrangement (including cases where we guarantee the film producer a minimum amount and, if the box office sales are lower than the minimum amount, pay the difference to the film producer) and (5) other expenses in our film-related business.

        Cost of revenues for our talent-agency services primarily consists of (1) compensation paid to artists and (2) other expenses in the related business.

Gross Margin

        Our cost of revenues, and accordingly our gross margins and gross profit, are largely a function of the type of contractual arrangement we enter into and the extent of our economic rights and obligations in a particular film. For instance, in cases where we are a principal distributor, our revenues from film distribution include all of the box office receipts after deductions by movie theaters and theater circuits of their shares in the box office receipts and taxes and other governmental charges, and the share of box office receipts that we remit to the film producers or owner of the copyright or participating distributors is recorded under cost of revenues. In contrast, for films where we are not the principal distributor but own a percentage of the economic interest in the film, we receive a share of the net profits of the film. Therefore, as our gross margins and gross profit may vary significantly as a result of the type of contractual arrangement underlying the various distribution and production arrangements we enter into during each period, we do not believe a discussion of these figures on a consolidated basis is meaningful to investors. However, we believe segment profit and segment margin provide a more meaningful perspective on our results of operations and therefore we discuss these figures in the section titled "—Discussion of Segment Operations" below.

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Operating Expenses

        Our operating expenses consist of film participation expenses, sales and marketing expenses and general and administrative expenses. The following table sets forth our operating expenses, divided into their major categories by amount for the periods indicated.

 
  For the year ended December 31,   For the nine months ended
September 30,
 
 
  2007   2008   2009   2009   2010  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Operating expenses:

                               
 

Film participation expenses

            1,244,848     356,406     739,222  
 

Sales and marketing expenses

    6,035,673     5,013,812     8,887,971     3,995,075     4,918,384  
 

General and administrative expenses

    1,156,722     1,965,476     2,789,416     2,459,510     6,114,352  
                       

Total operating expenses

    7,192,395     6,979,288     12,922,235     6,810,991     11,771,958  
                       

        Film Participation Expenses.    Our film participation expenses accounted for nil, nil, 3.2% and 2.1% of our net revenues in 2007, 2008, 2009 and for the nine months ended September 30, 2010, respectively. Film participation expenses are the share of the respective film worldwide revenue to which a film participant is entitled for a certain period of time and is recorded based on an effective interest rate method on an individual film-by-film basis.

        Sales and Marketing Expenses.    Our sales and marketing expenses primarily consist of print and marketing expenses of films we distribute, salaries and benefits for our sales staff, marketing and promotional expenses, business development expenses and other costs related to supporting our sales force. Sales and marketing expenses accounted for 26.9%, 21.4%, 23.2% and 14.1% of our net revenues in 2007, 2008, 2009 and for the nine months ended September 30, 2010, respectively. The decrease in sales and marketing expenses as a percentage of our net revenues for the nine months ended September 30, 2010 was primarily due to the acquisition of our movie theater business in April 2010, as our movie theater business had lower sales and marketing expenses as a percentage of net revenues compared to our film distribution business. In addition, the sales and marketing expenses for Bodyguards and Assassins, which was one of our top films in 2010, were incurred primarily in 2009, in connection with its release on December 18, 2009. We expect the amount of our sales and marketing expenses to increase in the near future as due to increases in print and marketing expenses.

        General and Administrative Expenses.    Our general and administrative expenses primarily consist of salaries and benefits for management, accounting and administrative personnel, office rentals, depreciation of office equipment, professional service fees, maintenance, utilities and other miscellaneous office expenses. General and administrative expenses accounted for 5.2%, 8.4%, 7.3% and 17.5% of our net revenues in 2007, 2008, 2009 and for the nine months ended September 30, 2010, respectively. Our general and administrative expenses as a percentage of our net revenues were lower in 2007, 2008 and 2009 compared with the nine months ended September 30, 2010, primarily because our net revenues in the fourth quarter of those years increased relative to our general and administrative expenses in the same periods, due to the release of blockbuster films during the winter holidays. We expect our general and administrative expenses to increase in the near future as we incur additional costs in connection with the expansion of our business in general and also with operating as a publicly traded company.

Other Income (Loss)

        Our other income (loss) reflects interest income, interest expense of bank borrowings and other borrowings, interest expense of convertible notes we issued in 2007, exchange rate gains or losses, changes in fair value of warrants and the changes in fair value of derivatives. The changes in fair value of warrants we recorded in 2007, 2008 and 2009 were in connection with the warrants we issued in

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2007. The warrants were exercised in 2009, and we will not record any subsequent changes in fair value of warrants for periods after December 31, 2009. The changes in fair value of derivatives we recorded in 2007, 2008, 2009 and the nine months ended September 30, 2009 and 2010 reflected changes in connection with embedded derivative features of our Series A preferred shares and Series B preferred shares. Our net income in 2007, 2008 and 2009 included a gain of US$31,000, a loss of US$2.0 million and a gain of US$0.1 million, respectively, from changes in fair value of derivatives. Our net loss for the nine months ended September 30, 2010 included a loss of US$14.5 million from changes in fair value of derivatives. The redemption terms of Series A and Series B preferred shares were amended in August 2010, and as a result, we have ceased to recognize derivative liabilities and change in fair value of derivatives from the date of such amendment.

Equity in Earning (Loss) of Affiliated Companies

        We record our investment in affiliates using the equity method of accounting, and the profit or loss from of the affiliates is presented as "Equity in earning (loss) of affiliated companies" on the statements of operations and comprehensive income.

Taxation

        We are incorporated in the Cayman Islands. Under the current law of the Cayman Islands, we are not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands. Under the PRC EIT Law, which has been effective since January 1, 2008, and related implementing rules, dividends paid from our PRC subsidiary are subject to a withholding tax at 10% if we are considered as a "non-resident enterprise". This new dividend withholding tax, however, will only be levied on our PRC subsidiary in respect of profits earned in 2008 onwards. Profits distributed after January 1, 2008 but related to financial results generated in the year ended December 31, 2007 and prior years will not be subject to dividend withholding tax. The dividend withholding tax rate can be lower than 10% subject to tax treaties between China and foreign countries or regions.

        Our subsidiary and affiliated consolidated entities and their subsidiaries in China are subject to business taxes and related surcharges by various local tax authorities at a rate of 3% to 5% in connection with certain types of services. These entities may also be subject to value-added and other taxes imposed by PRC governmental authorities. In addition, our subsidiary and affiliated consolidated entities and their subsidiaries in China were generally subject to the standard enterprise income tax rate, which was 33% prior to December 31, 2007 with the following exceptions:

    In 2007, Beijing Baichuan Film Distribution Co., Ltd.'s share of movie theaters' box office revenues in the PRC was exempted from the income tax by the relevant local tax authority's interpretation of the Notice on Preferential Policies regarding Corporate Income by Publication and Cultural Industry issued by PRC Ministry of Finance and General Taxation Bureau. This exemption was applicable only for 2007.

    Beijing Bona Advertising Co., Ltd. and Beijing Bona Film and Culture Communication Co., Ltd. were subject to income tax at a special concession rate of 33% on the deemed profit at 10% of their revenues for year 2007 as approved by the relevant local tax authority. This exemption was applicable only for 2007.

        Under the PRC EIT Law, our subsidiary and affiliated consolidated entities and their subsidiaries are subject to a uniform 25% enterprise income tax rate commencing January 1, 2008 with the following exceptions:

    Beijing Bona Advertising Co., Ltd. was subject to income tax at a special concession rate of 25% on the deemed profit at 6% of their revenues for year 2009 as approved by the relevant local tax authority. This exemption was applicable only for 2009.

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    Zhejiang Bona Film and Television Production Co. Ltd. was established in Zhejiang in December 2008. It had no taxable income in 2008 and was exempted from income tax for the years from 2009 to 2010 pursuant to applicable PRC laws and an approval by the relevant local tax authority in June 2009.

        Without our preferential tax holidays and concessions, we would have had to pay approximately an additional US$1.1 million in PRC taxes in 2007 and an additional US$1.4 million in 2009. Under the EIT Law, enterprises that are established under the laws of foreign countries or regions and whose "de facto management bodies" are located within the PRC territory may be deemed by the PRC tax authorities as PRC resident enterprises, and will be subject to the PRC enterprise income tax at the rate of 25% on their worldwide income. Under the detailed implementation rule of the EIT Law, "de facto management bodies" is defined as the bodies that have material and overall management and control over the business, personnel, accounts and assets of the enterprise. Although substantially all of our operational management is currently based in the PRC, it is unclear whether PRC tax authorities would require (or permit) us to be treated as a PRC resident enterprise. To our knowledge, there is a lack of clear guidance regarding the criteria pursuant to which the PRC tax authorities will determine the tax residency of a company under the EIT Law. Despite the present uncertainties as a result of limited guidance from PRC tax authorities on the issue, we do not believe that our legal entities organized outside of the PRC should be treated as residents under the EIT Law. If we and our offshore holding companies are considered to be PRC resident enterprises, we would be subject to the PRC enterprise income tax at the rate of 25% on our worldwide income. In such cases, however, there is no guarantee that the preferential treatments to PRC tax residents will automatically apply to us, such as the withholding tax exemption on dividends between PRC resident companies.

Critical Accounting Policies

        The preparation of our consolidated financial statements and related notes requires us to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, net sales and expenses, and related disclosure of contingent assets and liabilities. We have based our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our management has discussed the development, selection and disclosure of these estimates with our board of directors. Actual results may differ from these estimates under different assumptions or conditions.

        An accounting policy is considered to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the consolidated financial statements. We believe that the following critical accounting policies are the most sensitive and require more significant estimates and assumptions used in the preparation of our consolidated financial statements. You should read the following descriptions of critical accounting policies, judgments and estimates in conjunction with our consolidated financial statements and other disclosures included in this prospectus.

Revenue Recognition

        We make certain judgments regarding the method of recognizing revenue and costs.

(i) Distribution Revenues

        We acquire film distribution rights as the principal or a participating distributor in China and overseas from film producers.

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        As the principal distributor, we recognize distribution revenues when the films are exhibited in movie theaters. After the payments by the movie theaters of taxes and other governmental charges and deductions by movie theaters and theater circuits of their respective shares of the box office sales, the remaining amount, or the Distributable Amount is remitted to us which we account for as our distribution revenues.

        We then share the Distributable Amount with the film producer, other participating distributors or both, pursuant to the terms of the distribution agreement under which we are typically entitled to a fixed percentage of the Distributable Amount as our fees, or the Distribution Fees. The Distributable Amount, after further deductions of the Distribution Fees and print and marketing expenses, except in rare cases where not reimbursable by the producer, is paid or payable to the producer, and is accounted for as a cost of distribution revenues.

        We evaluate such arrangements to determine whether to recognize revenue on a gross basis or net of payments paid to the film producers or other distributors, i.e., whether to recognize the Distributable Amount or the Distribution Fees as revenue.

        The determination is based upon an assessment of whether we act as a principal or agent when providing the distribution services. In these arrangements, we recognize the Distributable Amount as revenue and show the amount we owe to the producer as part of cost of sales. Our determination is based on the following factors:

    We are the primary obligor in the arrangement with the movie theaters since we are responsible for delivering the film to the movie theater and the movie theater has the right of redress against us;

    We are able to set minimum ticket price with the movie theaters;

    We select the movie theaters or locations where the film will be exhibited; and

    We bear the credit risks of not being paid by the movie theaters but are obligated to pay the producers regardless of whether we collect cash from the movie theaters.

        We also cooperate with other distributors to distribute films as a participating distributor but are not the primary obligor under the distribution arrangement. For such arrangements, we share a fixed percentage of the distribution fees received by the principal distributor as our commissions and record these commissions as our distribution revenues.

        We also generate revenues from advertising services such as "in-film" advertising, pre-screening advertising, selling poster space and promotions of films. Revenues from advertising services are recognized as advertisement is shown or upon services provided. Cost of advertising services primarily consists of the cost of acquiring advertising airtime.

        For certain films the distribution rights of which are acquired by us, we sub-license such rights to international third-party distributors and domestic and international non-theatrical channels including television and Internet companies for a particular term. Revenues from such sub-licensing arrangements are recognized when the following criteria are met: (i) an arrangement has been signed with a customer, (ii) the customer's right to use or otherwise exploit the intellectual property has commenced and there is no requirement for significant continued performance by us, (iii) licensing fees are either fixed or determinable and (iv) collectability of the fee is reasonably assured.

(ii) Copyright and Participation Revenues

        When we are not the principal distributor, but participate in the financing of film production in which we may also acquire all, a portion or none of the legal copyright in relation to the film, and bear a portion of the costs of financing, production, prints, promotion and advertising pursuant to the terms of the agreement for the production of the film, we generate revenues from such film production participation as follows.

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        (a)   Where we are entitled to receive a certain percentage of the net profit of the film, we periodically receive a report from the film producer about the net profit or loss of the film. We record our share of the net profit of the film into revenue according to the report.

        (b)   In the case of licensing our copyrights to international third-party distributors and to other domestic and international non-theatrical channels, including television and Internet companies, for a particular term, we recognize copyright revenues when the following criteria are met: (i) an arrangement has been signed with a customer, (ii) the customer's right to use or otherwise exploit the intellectual property has commenced and there is no requirement for significant continued performance by us, (iii) licensing fees are either fixed or determinable and (iv) collectability of the fee is reasonably assured.

        In addition, we also act as a talent agent for certain artists, where in certain cases we sign the service contract with a third party and in other cases, we, the artist together sign the service contract with the third party. We determine whether to record our revenue at the gross amount billed to the third party or the amount net of the payments to the relevant artists. The determination of whether revenue should be reported gross or net is based on an assessment of whether we are acting as a principal or an agent in the transaction. In arrangements where we sign the service contract with third parties and are the primary obligor, we are acting as a principal and report the gross amount of the service as revenue. In arrangements where we and the artist together sign the contract with a third party, we are acting as an agent, so we report revenue at the total service amount net of the payment to the artist. For arrangements where we record the gross amount as our revenue, cost of talent agency service primarily consists of compensation paid to artists.

Amortization of the Cost of Distribution Rights and Production Cost

        Distribution rights include the unamortized costs of films' distribution rights, including completed films and films in production. Production costs include expenditures for the production and acquisition of proportional economic interest in films by us. Production costs also include costs of productions of films which have been completed and costs of productions which are still in production.

        Costs of distribution rights and production cost are amortized using the individual-film-forecast method from the commencement of the initial exhibition of the film in movie theaters.

        Under the individual-film-forecast method, the costs are amortized in the proportion that current year's revenue bears to management's current estimate of ultimate revenue expected to be recognized from the exhibition or sub-licensing of the films.

        Film ultimate revenues include estimates of revenues from all markets and territories where persuasive evidence exists that such revenue will occur, including revenues associated with theatrical release and non-theatrical distribution of the film.

        Film ultimate revenues forecasts are limited to our estimates of revenue over a period not exceeding ten years following the date of the film's initial release.

        We assess the length of the period over which the revenue is expected to be generated based on our past experience for similar films with equivalent production values, the likely popularity of the stories and the artists in the regions where we expect to distribute the film and the competitive dynamics in the target exhibition slots in those regions.

        We start to estimate revenue streams as soon as we incur production or investments costs. Since the revenue is generated from distribution in the domestic and international markets, we estimate the revenue for each market separately. In the domestic market, after the initial showing of the films in the theaters, we believe that our forecasts of revenues are generally robust. For the films we distributed in 2009 and the nine months ended September 30, 2010, the majority of the forecast revenue was generated within the first three months of the initial exhibition and typically after nine months, approximately 90% of the total estimated domestic revenue will have been realized. As a result, the

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related film production, investment or distribution rights costs will have been amortized to a corresponding degree.

        We typically expect a relatively small percentage of the total forecast revenues to come from international distribution. We expect the international revenue to be generated over a longer time period than the domestic revenue. We closely monitor the revenue performance in the international market to continuously refine our estimate of total estimated revenue.

Impairment of Distribution Rights and Production Costs

        Distribution rights and production costs are stated at the lower of amortized cost or estimated fair value. We review the valuation of distribution rights and production costs on a title-by-title basis, when an event or change in circumstance indicates that the fair value of a film is less than its unamortized costs. The fair value of the film is determined using management's future revenues and costs estimates and a discounted cash flow approach. An impairment is recorded in the amount by which the unamortized costs exceed the estimated fair value of the film. We will not subsequently restore any amounts written off in previous fiscal years.

Film Production Financing

        To fund production of our films and lower our own risks, we obtain financing through bank borrowings, and a variety of arrangements with other third-party finance providers.

        If we guarantee the third-party finance providers a fixed rate of return on the principal over a fixed term of period, the cash received from these investors is accounted for on our balance sheet as "other borrowings" and is treated no differently from any other debt where the lender receives a pre-determined rate of return. We accrue interest expense on other borrowings using a fixed rate of return.

        For other financing, where we give the third-party investor a fixed percentage of the film's worldwide revenue, or a fixed percentage of the film's worldwide revenue with guarantee of minimum rate of return on the principal, the cash received from these investors is accounted for as film participation liabilities. We retain copyrights of the films and the arrangements do not involve sale of a proportionate undivided interest in the copyright to the third-party participants.

        Under those arrangements where the participant is entitled to a share of the respective film's worldwide revenue, we record the participant's share of revenue as film participation expense based on an effective interest rate method on an individual film-by-film basis. We start to accrue for participation expense from the initial exhibition of the film. The effective interest rate is calculated based on the initial investments by the third party participants and a series of future cash outflows to the participants estimated by management using the same estimates of revenue determined in using the individual-film-forecast method as discussed above under amortization of production cost.

        Estimates of the effective interest rate result from a complex series of judgments about future events and uncertainties and rely heavily on estimates and assumptions at a point in time. The judgments made in determining an estimate of the effective interest rate can materially impact our results of operations. The estimated effective interest rates are based on information available as of each reporting period end date and are based on expectations and assumptions that have been deemed reasonably by management. Any changes in key assumptions, including unanticipated events and circumstances, may affect the accuracy or validity of such estimates and could potentially result in change of the accrued participation expense.

        Because film participation expense is unlike debt financing with a specified rate of return we do not regard such expense as akin to interest and therefore do not regard it as eligible for capitalization under the rules in U.S. GAAP relating to the capitalization of interest. Instead, we reflect this expense in film participation expense on our income statement.

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        If a film underperforms the final redemption amount is estimated to be lower than the amount originally invested by third-party participants, a negative effective interest rate is calculated and applied to the outstanding film participation liabilities balance to determine the current period's reduction of film participation expense.

        Under those arrangements where the participant is entitled to a share of the respective film worldwide revenue with guarantee of a minimum rate of return on the principal, if at any point of time, we determine that the accrued film participation liability is not sufficient to cover the guaranteed minimum rate, an additional liability will be accrued based on the guaranteed minimum rate of return.

        For some third party financing, we and the investors co-own the copyright and share the profit or loss of the film. The form of the arrangement is the sale of an economic interest in a film to an investor. We record the amount received from the investor as a reduction of our capitalized full costs, as the investor assumes full risk for that portion of the film asset acquired in these transactions.

Income Taxes

        As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a certain period, we must include an expense within the tax provision in the statement of operations.

        Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods, we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations.

        U.S. GAAP requires that the impact of an uncertain income tax position on the income tax return be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. If we ultimately determine that the payment of these liabilities will be unnecessary, we will reverse the liability and recognize a tax benefit during that period. Conversely, we record additional tax charges in a period in which we determine that a recorded tax liability is less than we expect the ultimate assessment to be. We do not have any significant unrecognized tax benefits and did not incur any interest and penalties related to potential underpaid income tax expenses for the year ended December 31, 2007. During the years ended December 31, 2008 and 2009, there was no change in our unrecognized tax benefits.

        Uncertainties exist with respect to how the EIT Law applies to our overall operations, and more specifically, with regard to our tax residency status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for PRC income tax purposes if their "de facto management bodies" are within the PRC. The Implementation Rules define the term "de facto management bodies" as "establishments that carry out substantial and overall management and control over the manufacturing and business operations, personnel, accounting, properties, etc. of an enterprise." Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, we do not believe that our legal entities organized outside of the PRC should be treated as residents under the EIT Law. If one or more of our legal entities organized outside of the PRC were characterized as PRC tax residents, the impact would adversely affect our results of operation. See

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"Risk Factors—Risks Relating to Doing Business in China—We may be deemed a PRC resident enterprise under the EIT Law and be subject to the PRC taxation on our worldwide income."

Fair value of our ordinary shares

        We are a private company with no quoted market prices for our ordinary shares. We have therefore needed to make estimates of the fair value of our ordinary share at various dates for the following purposes:

    Determining the fair value of our ordinary shares at the date of issuance of convertible instruments as one of the inputs into determining the intrinsic value of the beneficial conversion feature, if any.

    Determining the fair value of our ordinary shares at the date of acquisition when we have acquired another entity and the consideration given includes our ordinary shares.

    Determining the fair value of our ordinary shares at the date of the grant of a share-based compensation award to our employees as one of the inputs into determining the grant date fair value of the award.

        The following table sets forth the fair value of our ordinary shares estimated at different times.

Date
  Class of Shares   Fair Value   Purpose of Valuation   DLOM   Discount Rate  

July 7, 2009

  Ordinary Shares   US$ 3.15   Assessment of beneficial conversion feature upon issuance of Series B preferred shares and valuation of share-based compensation     19 %   29 %

April 23, 2010

  Ordinary Shares   US$ 4.50   Acquisition of Bona Cineplex     16 %   22 %

June 1, 2010

  Ordinary Shares   US$ 4.75   Valuation of share-based compensation     11 %   19 %

July 26, 2010

  Ordinary Shares   US$ 5.66   Assessment of beneficial conversion feature upon issuance of Series B-3 preferred shares and valuation of share-based compensation     10 %   17 %

        When estimating the fair value of the ordinary shares, our management has considered a number of factors, including the result of a third-party appraisal and equity transactions of our company, while taking into account standard valuation methods and the achievement of certain events.

        The fair value of the ordinary shares was determined with the assistance of American Appraisal China Limited, or AA, an independent third-party valuation firm. The valuation reports from AA have been used as part of our analysis in reaching our conclusion on share values. We reviewed the valuation methodologies used by AA and believe the methodologies used are appropriate and the valuation results are representative of the fair value of our ordinary shares.

        AA considered two generally accepted valuation approaches: market and income. In 2009 and 2010, the comparability of earning multiples of publicly traded film production and distribution companies and hence the reliability of market approach was low because most publicly traded film production and distribution companies operate in the United States and Japan and their market capitalization fluctuated significantly as a result of the global financial crisis while our operation and long term forecast had not been impacted by the same degree during this period. Therefore, AA used

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the discounted cash flow, or DCF, method of the income approach to assess the fair value of ordinary shares in 2009 and 2010. The determination of the fair value of our ordinary shares requires complex and subjective judgments to be made regarding our projected financial and operating results, our unique business risks, the liquidity of our shares and our operating history and prospects at the time of valuation.

        The major assumptions used in calculating the fair value of ordinary shares include:

        Weighted average cost of capital, or WACC:    WACCs of 29%, 22%, 19% and 17% were used for dates as of July 7, 2009, April 23, 2010, June 1, 2010 and July 26, 2010, respectively. The WACCs were determined by using the capital asset pricing model, or CAPM, a method that market participants commonly use to price securities. Under CAPM, the discount rate was estimated based on a consideration of the factors including risk-free rate, comparative industry risk, equity risk premium, company size, the company's state of development and company-specific factors as of the valuation date. The decrease in WACCs from 2009 to 2010 was due to the combined results of the following factors:

    (i)
    The continuous growth of our business and company size. As our size increased, small company risk premium, which is a component of our WACC, decreased from 6.3% as of July 2009 to 4.5% as of June 2010.

    (ii)
    A longer track record for forecasting. According to the guideline prescribed by the AICPA Audit and Accounting Practice Aid, "Valuation of Privately Held Company Equity Securities Issued as Compensation," or the Practice Aid, when an enterprise has established a solid financial history, the reliability of forecasted results is generally higher than those made at an earlier stage, and therefore the perceived risk of investing in the enterprise is generally lower than in an earlier stage. Therefore, the estimated WACC, which reflects the perceived risk of and a market participant's expected rate of return for investing in our securities, also declined gradually from July 2009 to June 2010 as our company progressed through the earlier stages of development and towards this offering.

    (iii)
    Completion of the acquisition of Beijing Bona International Cineplex Investment & Management Co., Ltd. and Beijing Bona Youtang Cineplex Management Co., Ltd. on April 23, 2010. The acquisitions expanded our business to operation of movie theaters and lowered our business concentration risk, resulting in a lower unsystematic risk factor of our company.

    (iv)
    Additional financing obtained through the issuance of preferred shares. We issued our Series B-3 preferred shares for aggregate proceeds of US$5.0 million in July 2010. The closing of a new round of financing indicated that the uncertainty and risk perceived by investors in our business plan and our company was further reduced, resulting in a lower cost of capital. Decrease in WACC used for the valuation resulted in an increase in the determined fair value of the ordinary shares.

    (v)
    The improvement of controls over financial reporting with the recruitment of key management.

        Comparable companies:    In deriving the WACCs, which are used as the discount rates under the income approach, certain publicly traded companies in the film production and distribution industry were selected for reference as our guideline companies.

        To reflect the operating environment in China and the general sentiment in the U.S. capital markets towards the film production and distribution industry, the guideline companies were selected with consideration of the following factors: (i) the comparable companies should operate film production and distribution business; and (ii) the comparable companies should either have their principal operations in Asia Pacific, as we mainly operate in China, or are publicly listed in the United States, as we plan to become a public company in the United States.

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        Discount for lack of marketability, or DLOM:    AA quantified DLOM using the Black-Scholes option pricing model. Under this option-pricing method, the cost of the put option, which can hedge the price change before the privately held shares can be sold, was considered as a basis to determine the DLOM. This option pricing method is one of the methods commonly used in estimating DLOM as it can take into consideration factors like timing of a liquidity event (such as an initial public offering) and estimated volatility of equity securities. The farther the valuation date is from an expected liquidity event, the higher the put option value and thus the higher the implied DLOM.

        The DLOMs were estimated to be 19%, 16%, 11% and 10% as of July 7, 2009, April 23, 2010, June 1, 2010 and July 26, 2010, respectively. The lower DLOM is used for the valuation, the higher is the determined fair value of the ordinary shares. In the first quarter of 2010, we started the preparation for our initial public offering. Because of the proximity of the expected time of the offering, DLOM decreased from 19% for the valuation as of July 7, 2009 to 16% for the valuation as of April 23, 2010, 11% for the valuation as of June 1, 2010 and 10% for the valuation as of July 26, 2010.

        The income approach involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. Our revenues and earning growth rates, as well as major milestones that we have achieved, contributed significantly to the increase in the fair value of our ordinary shares from July 2009 to April 2010. However, these fair values are inherently uncertain and highly subjective. The assumptions used in deriving the fair values are consistent with our business plan.

        These assumptions include: no material changes in the existing political, legal and economic conditions in China; our ability to retain competent management, key personnel and staff to support our ongoing operations; and no material deviation in market conditions from economic forecasts.

        These assumptions are inherently uncertain. The risks associated with achieving our forecasts were assessed in selecting the appropriate discount rates, which ranged from 17% to 29%.

        AA used the option-pricing method to allocate enterprise value to preferred and ordinary shares, taking into account the guidance prescribed by the Practice Aid. The method treats common stock and preferred stock as call options on the enterprise's value, with exercise prices based on the liquidation preference of the preferred stock.

        The option-pricing method involves making estimates of the anticipated timing of a potential liquidity event, such as a sale of our company or an initial public offering, and estimates of the volatility of our equity securities. The anticipated timing is based on the plans of our board of directors and management. Estimating the volatility of the share price of a privately held company is complex because there is no readily available market for the shares. We estimated the volatility of our shares to range from 39% to 74% based on the historical volatilities of comparable publicly traded companies engaged in similar lines of business. Had we used different estimates of volatility, the allocations between preferred and ordinary shares would have been different.

        The determined fair value of our ordinary shares increased from US$3.15 per share as of July 7, 2009 to US$4.50 per share as of April 23, 2010 and to US$4.75 per share as of June 1, 2010. We believe the increase in the fair value of our ordinary shares in each of these periods is primarily attributable to the following factors:

    The overall economic growth in our principal geographic markets led to an increased market demand for our film production and distribution services.

    In the first quarter of 2010, we started the preparation for our initial public offering. Because of the proximity of the expected time of the offering, DLOM decreased from 19% for the valuation as of July 7, 2009 to 16% for the valuation as of April 23, 2010.

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    Our weighted average cost of capital decreased from 29% as of July 7, 2009 to 22% as of April 23, 2010. The decrease was due to the combined results of (i) the continuous growth of our business and company's size, (ii) a longer track record for forecasting, and (iii) completion of the acquisition of Beijing Bona International Cineplex Investment & Management Co., Ltd. and Beijing Bona Youtang Cineplex Management Co., Ltd. on April 23, 2010. The acquisition expanded our business to operation of movie theaters and lowered our business concentration risk, resulting in a lower unsystematic risk for our company.

        The determined fair value of our ordinary shares increased from US$4.50 per share as of April 23, 2010 to US$4.75 per share as of June 1, 2010 and US$5.66 as of July 26, 2010. We believe the increase in the fair value of our ordinary shares is primarily attributable to the following factors:

    We continued to bolster our management and finance function by recruiting key management. Mr. Liang Xu joined our company as chief financial officer in June 2010.

    Market sentiment towards initial public offerings continued to improve in the second quarter of 2010. As an indication, 37 companies completed their initial public offerings in the United States in the second quarter of 2010, compared to 27 companies in the first quarter of 2010. In addition, we made our first confidential submission of our registration statement relating to this offering in July 2010. The proximity of the timing of this offering to the date of valuation increased the liquidity of our shares and hence lowered DLOM from 16% as of April 23, 2010, to 11% as of June 1, 2010 and 10% as of July 26, 2010.

    We issued ordinary shares and Series B-3 convertible redeemable preferred shares for an aggregate of US$2.0 million and US$5.0 million, respectively, in July 2010. This new round of financing, together with the proximity of this offering, lowered our estimated cost of capital. Accordingly, the discount rate, which is based on a market participant's required rate of return, was lowered from 22% as of April 23, 2010, to 19% as of June 1, 2010 and 17% as of July 26, 2010, which resulted in an increase in our equity value and the estimated fair value of our ordinary shares.

        We have considered the guidance prescribed by the Practice Aid in determining the fair value of our ordinary shares as of various dates before this offering. A detailed description of the valuation method used and the factors contributing to the changes in the fair value of our ordinary shares through July 26, 2010 is set out above. Paragraph 113 of the Practice Aid states that "the ultimate IPO price itself also is generally not likely to be a reasonable estimate of the fair value for pre-IPO equity transactions of the enterprise." We therefore believe that the ultimate price of this offering is generally not likely to be a reasonable estimate of the fair value of our ordinary shares as of various dates before this offering.

        Nevertheless, we believe that the increase in fair value of our ordinary shares from US$5.66 per ordinary share as of July 26, 2010 to US$17.00 per ordinary share, the initial public offering price, is primarily attributable to the following factors:

    Improved forecasted performance

    On September 15, 2010, our affiliated consolidated entity, Beijing Bona Film and Culture Co., Ltd., entered into a credit agreement with Bank of Beijing for a RMB100 million credit facility for the financing of film projects. Compared to our previous loans for film projects from Industrial and Commercial Bank of China Ltd., which required us to enter into a new loan for each film financing, the credit agreement with Bank of Beijing enables us to quickly allocate funding for new film projects with substantially less burdensome drawdown requirements, and thereby further enhances our financial flexibility. In addition, we entered into advanced negotiations with other banks, which evidenced our increased accessibility to bank credit facilities

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      for the financing of film productions and our improved capital resources. As bank borrowing has become a less sporadic source of film financing and developed into a reliable and predictable source for our film financing, we have expanded our access to potential film projects, which enhances our ability to pursue film projects that generate higher returns on equity. Through our new credit facility, we were able to increase the number of production projects that we could undertake and added additional films to our film pipeline in 2011 and 2012, including The Magician, Big Shanghai, and Legend of Condor Heroes, which are expected to be released in 2011, and Legend of Mulan and The Sword of the Third Master, which are expected to be released in 2012.

    The six movie theaters, that we acquired in April 2010 achieved greater profitability sooner than we had expected. Our movie theater business generated net income of US$0.3 million in the third quarter of 2010, compared to losses of US$0.4 million in the second quarter of 2010. As three of our movie theaters began commercial operation in the second half of 2010, due to these movie theaters' short operating history, our management could not anticipate that our movie theater business would achieve profitability when they reviewed our financial forecast in July 2010.

    In September 2010, we negotiated favorable terms for a film and a television series, which increased our profit by a total of US$1.4 million.

    New business opportunity

    In September 2010, our movie theater business entered into an agreement with Beijing Bona Starlight Cineplex Management Co., Ltd., or Bona Starlight, a development stage movie theater operator in the PRC, under the terms of which our movie theater business will provide management services for the movie theaters established by Bona Starlight, including negotiating agreements with theater circuits and advertisers and operating the movie theaters. In return, we are entitled to receive a portion of the box office receipts and advertising revenue generated by these movie theaters. In November 2010, we obtained a right of first refusal to acquire movie theaters developed by this company and a right of first refusal with respect to the shares of Bona Starlight.

      We believe that these agreements will not only generate additional revenues in our movie theater business, but further enhance our ability to achieve economies of scope and scale, strengthen our brand and competitive position in the Chinese film industry, capture additional revenue streams throughout the film industry value chain, strengthen our integrated business model and enable us to continue to improve the movie going experiences of Chinese audiences.

    Completion of our initial public offering

    This offering will create a public market for our ordinary shares, which will eliminate the discount previously applied for lack of marketability.

    Upon the completion of this offering, all of our Series A and Series B preferred shares will be converted into ordinary shares, and the corresponding elimination of the related liquidation and other preferences and redemption rights will contribute to the increase in the value of our ordinary shares.

    Upon the completion of this offering, we will have the ability to issue listed ADSs for the acquisition of businesses, the compensation of directors, officers and employees and enhance our access to capital markets. Such equity currency provides us with an efficient means for financing growth through acquisitions and will be an attractive form of compensation due to the liquidity of the shares issued. Equity-based compensation arrangements allow us to conserve cash and

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      increase the loyalty and motivation of our directors, officers and employees, which are important assets to our business. The listing of our ADSs on the Nasdaq Global Market will enhance our ability to access capital markets and access additional sources of financing.

    We expect this offering to further enhance our brand awareness and raise our profile to secure additional film distribution and investment opportunities.

    Favorable market conditions

    Since the last valuation, there has been a continuous improvement in U.S. capital market sentiment towards China-based publicly traded companies as well as initial public offering. As an indication, the Nasdaq China Index increased by 13.7% from 180.41 as of July 28, 2010 to 205.13 as of November 22, 2010.

Share-based compensation

        Our share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument we issued and recognized as compensation expense over the requisite service period based on a graded vesting attribution method, with a corresponding impact reflected in additional paid-in capital.

        The fair values of our option awards were estimated on the date of grant using the binomial option pricing model using the following assumptions.

 
  Options Granted on
June 1, 2009
  Options Granted on
June 1, 2010
  Options Granted on
July 26, 2010
 

Risk-free interest rate

    4.49 %   4.36 %   1.26 %

Expected dividend yield

    nil     nil     nil  

Expected volatility

    42 %   44 %   44 %

Exercise price

    US$3.36     US$3.44 and US$6.31     US$6.31  

Fair value of the underlying ordinary shares

    US$3.15     US$4.75     US$5.66  

        The risk-free rate for periods within the expected life of the option is based on the implied yield rates of PRC international bonds denominated in U.S. dollars as of the valuation date. As we expected to grow the business with internally generated cash, we did not expect to pay dividends in the foreseeable future. Because we do not maintain an internal market for our ordinary shares, the expected volatility was based on the historical volatilities of comparable publicly traded companies engaged in similar businesses.

        We recorded share-based compensation of US$0.1 million for options granted to employees for the year ended December 31, 2009, according to a graded vesting schedule on a straight-line basis with the amount of compensation expenses recognized in any period not less than the portion of the grant date fair value of the options vested during that period. For options granted to employees on June 1, 2010, US$43,044 of share-based compensation was recorded as of the grant date, US$0.5 million of share-based compensation will be recorded in the 35 months after the grant date for grants with a three-year vesting schedule, and US$1.7 million of share-based compensation will be recorded in the 47 months after the grant date for grants with a four-year vesting schedule, in each case according to a graded vesting schedule on a straight-line basis with the amount of compensation expenses recognized in any period not less than the portion of the grant date fair value of the options vested during that period. In addition, 35,671 options granted to an officer on June 1, 2010 will vest upon the completion of this offering and the related share-based compensation expenses of US$0.1 million will be recorded then. The options granted to an officer on July 26, 2010 were fully exercised in July 2010 and the related total share-based compensation of US$616 was recognized in July 2010.

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Change in fair value of warrants

        The fair value of warrants was estimated using the Black-Scholes option pricing model with the following assumptions:

 
  May
2007
  June
2007
  December
2007
  December
2008
  June
2009
 

Expected volatility

    72 %   72 %   72 %   73 %   40 %

Risk-free interest rate

    4.95 %   5.53 %   4.35 %   3 %   2.90 %

Expected dividend

                     

Expected life of the warrants

    4.81     4.94     4.34-4.46     3.33-3.46     2.89-3.01  

        The fair value of the warrants increased from US$133,306 as of their grant dates in May and June 2007 to US$0.1 million as of December 31, 2007. We believe the change in the fair value of the warrants during this period was due to the net effect of the fair value of the underlying Series A preferred shares increasing slightly resulting in an increase in the intrinsic value of the warrants. The increase in intrinsic value was partially offset by the decrease in the time value of the warrants as the life of the warrants was reduced by approximately half a year over this period.

        The total fair value of the warrants increased from US$0.1 million as December 31, 2007 to US$0.4 million as of December 31, 2008. We believe the increase in the fair value of the warrants is mainly due to the increase in the fair values of our equity interest and the fair values of our Series A preferred shares, which in turn are attributable to continuing to improve our operational and financial performance in 2008. In spite of global financial crisis, our operating income before change in fair value of warrants and embedded derivatives increased by 62% from US$2.3 million in 2007 to US$3.7 million in 2008. In anticipation of increasing demand for film production and distribution in China, we had forecasted our revenue and operating income would continue to increase in 2009.

        The impact of increase in the value of Series A preferred shares on the fair value of the warrants was partially offset by the decrease in the remaining life of the warrants.

        The total fair value of the warrants decreased from US$0.4 million as of December 31, 2008 to US$0.3 million as of June 12, 2009, the exercise date of the warrants. We believe the decrease in fair value of the warrants is due to the effect of the following:

    The decrease in life of the warrants by approximately half a year; and

    The decrease in volatility assumptions from 73% as of December 31, 2008 to 40% as of June 12, 2009. For the valuation of our warrants as of June 2009, we reviewed the financial and operational performance of comparable companies previously selected for volatility estimates and considered certain companies were no longer comparable to us in terms of business nature and profitability. In view of the above, we extended our selection criteria to film production and distribution companies operating in other Asian countries and used them to replace those previously selected companies that were no longer comparable to us.

        The volatility assumptions used in the valuation of our warrants were based on the standard derivation derived from the historical share prices of comparable publicly traded companies engaged in similar lines of business for an observation period that matches the contractual life of our warrants.

        In determination of volatility as an input to the estimate of fair value of our warrants in 2007 and 2008, the comparable publicly traded companies selected include: Esun Holdings Limited, Orange Sky Golden Harvest Entertainment (Holdings) Ltd., China Star Entertainment Limited, Shaw Brothers (Hong Kong) Limited and Mei Ah Entertainment Ltd., which were engaged in film production and distribution business in China. For valuation of our warrants as of June 2009, we reviewed the financial and operational performance of these selected companies to assess their comparability and found that (i) Shaw Brothers (Hong Kong) Limited was privatized in March 2009; (ii) China Star Entertainment

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Limited changed its business model and major source of revenue from film production and distribution to lottery and gaming business; and (iii) Esun Holdings Limited and Mei Ah Entertainment Ltd. incurred significant operating losses in the first half of 2009. In comparison, during the same period, we continued generating positive operating profit from our film distribution and production operations. In view of the above, we considered these companies were no longer comparable to us in terms of business nature and profitability. In determination of fair value of options as of June 1, 2009, we extended our selection criteria to film production and distribution companies that operate in other Asian countries and used them instead of the previously selected companies that were no longer comparable to us. The comparable companies used for the June 1, 2009 valuation include: Orange Sky Golden Harvest Entertainment, Tohokushinsha Film Corp, Shochiku Co. Ltd., Toho Co Ltd. and Toei Co. Ltd. These comparable companies were selected based on the criteria that (i) the comparable companies should operate film production and distribution businesses; (ii) the comparable companies have their principal operations in the Asia Pacific region, as we mainly operate in China; and (iii) the comparable companies have positive operating profits in 2008 and 2009. Because the operating incomes of the newly selected comparable companies are less volatile than those of the previously selected comparable companies, the change in the selected comparable companies resulted in a corresponding change in the expected volatility assumption to 40%.

Fair value of derivative liabilities

        We determine the fair value of the derivative liabilities associated with the issuances of the Series A preferred shares and Series B preferred shares with the assistance of AA. We used a "with-and-without" approach which takes into consideration the fair value increment between the scenario where the conversion option is not in place and the scenario where the conversion option is in place.

        The first step of this approach is to determine the fair value of our equity interest as of various valuation dates. In determination of fair values of our equity interest, we considered both market approach and income approach, and selected the methodology that is most indicative of our fair value in an orderly transaction between market participants as of the measurement dates. For more information regarding the main inputs and assumptions used in the determination of the our equity interest, see "—Fair value of our ordinary shares".

        The equity value is then allocated using option pricing method among the different classes of shares of our company to determine the fair value of ordinary shares, Series A and Series B preferred shares under the scenario where the conversion option is not in place and the scenario where the conversion is in place, taking into account the guidance prescribed by the Practice Aid.

        The option pricing model considers the Series A preferred shares, Series B preferred shares, and ordinary shares as call options on our company's equity value, with strike prices based on the redemption price of the Series A preferred shares and Series B preferred shares. Under the scenario where the conversion option is not in place, if, at the time of redemption occurs, the value of equity interest exceed the sum of redemption price of the preferred shares, the holders of preferred shares will only receive an amount up to the redemption price and each dollar of value in excess of the total redemption price should be distributed to holders of ordinary shares. Under the scenario where the conversion is in place, if, at the time redemption occurs, the value of equity interest goes up further to a point (the "Conversion Point") that the interest shared by the holders of preferred shares exceeds the redemption price when they select to convert the preferred shares into ordinary shares, each dollar of value in excess of the Conversion Point shall be distributed to the holders of preferred shares on as-converted basis. The analysis also incorporated estimates of probabilities of the events, such as an initial public offering, that will trigger the exercise of the conversion right.

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        The key assumptions used in valuation of the derivative liabilities are summarized in the following table:

 
  December
2007
  December
2008
  December
2009
  June
2010
  July
2010
  August
2010
 

Total fair value of equity interest (US$ in millions)

    16.2     44.0     63.3     131.7     136.7     138.7  

Expected life (years)(1)

    3.3     2.3     3.5     3.0     3.0     2.9  

Expected volatility(2)

    72 %   74 %   39 %   51 %   48 %   48 %

Risk free interest rate(3)

    4.3 %   3.0 %   2.4 %   2.1 %   2.0 %   2.0 %

Minimum redemption price of the preferred shares

    140% of original issuance price plus any declared but unpaid dividend  

Estimated probability of events that trigger the exercise of conversion option(4)

    20 %   20 %   20 %   50 %   60 %   60 %

(1)
Expected life of the embedded derivatives

The expected life of the embedded derivatives was estimated based on the period between the valuation dates and the maturity dates of the preferred shares. For valuation of the embedded derivative of Series A preferred shares from 2007 to June 2009, the maturity date was considered to be 48 months from the issuance date of the Series A preferred shares. After the issuance of Series B preferred shares in July 2009, the maturity date was considered to be 48 months from the issuance date of Series B preferred shares.

(2)
Volatility

The volatility of the underlying ordinary shares during the life of the embedded derivatives was estimated based on average historical volatility of comparable companies for the period before the valuation date with lengths equal to the life of the embedded derivatives.

(3)
Risk-free interest rate

Risk-free interest rate is estimated based on the yield to maturity of PRC international government bonds with maturity term close to the life of the embedded derivatives.

(4)
Estimated probability of events that trigger the exercise of conversion option

The estimated probability of events that trigger the exercise of conversion option takes into consideration our stage of development, potential liquidity events such as redemption or initial public offering, the plans of our board of directors and management with respect to future developments and liquidity events, and the total fair value of the equity interest relative to the redemption price of the preferred shares, as of the valuation dates.

        From July 2007 to December 2007, the fair value of the embedded conversion option associated with our Series A Preferred Shares decreased slightly by US$31,000. We believe the decrease in fair value of the embedded derivatives was primarily attributable to the decrease in the remaining time to redemption event, which is an input parameter of option pricing model described above, and hence the implied life of the conversion option associated with Series A preferred shares by approximately half a year.

        For the year ended December 31, 2008, the fair value of the embedded conversion option associated with our Series A preferred shares increased by US$2.0 million. We believe the increase in the fair value of the embedded derivatives during this period was due to the increase in the fair value of our equity interest, which, in turn, was primarily attributable to the following:

    During 2008, we continued improving our operational and financial performance. In spite of global financial crisis, our operating income before change in fair value of warrants and embedded derivatives and other income (loss) increased by 62% from US$2.3 million in 2007 to US$3.7 million in 2008. In anticipation of increasing demand for film production and distribution business in China, we forecast our revenue and operating would continue to increase in 2009.

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    The impact of the increase in the value of our equity interest on the fair value of the embedded conversion option associated with our Series A preferred shares was partially offset by the decrease in the time input parameter to the option pricing model.

        For the year ended December 31, 2009, the fair value of the embedded conversion option associated with our Series A preferred shares decreased by US$0.3 million. We believe the change in the fair value of the embedded derivatives associated with our Series A preferred shares during this period was due to the net effect of the following;

    The issuance of our Series B-1 and B-2 preferred shares in July 2009 caused a dilutive effect on the conversion option associated with the Series A preferred shares. Before issuance of our Series B preferred shares, the Series A preferred shares represented 43% of our total equity, on an as-if converted basis. After the issuance of our Series B preferred shares, the percentage of shareholding represented by the Series A preferred shares, on an as converted basis was diluted to approximately 35%.

    The volatility assumption used in the option pricing method decreased from 74% as of December 2008 to 39% as of December 2009. When performing the valuation of the embedded derivatives as of the end of 2009, we reviewed the financial and operational performance of comparable companies previously selected for volatility estimates and concluded that certain companies were no longer comparable to us in terms of business nature and profitability. In view of the above, we extended our selection criteria to film production and distribution companies operating in other Asian countries and used them to replace those previously selected companies that were no longer comparable to us. As the operating incomes of the newly selected comparable companies were less volatile than those of previously selected comparable companies, we lowered our expected volatility assumption.

    The dilutive effect of the Series B-1 and B-2 preferred shares and the impact of the decrease in volatility assumption on the fair value of conversion option associated with the Series A preferred shares was partially offset by the increase in the fair value of total equity as described below.

        From the issuance of our Series B-1 and Series B-2 preferred shares to December 2009, the fair value of the embedded conversion option associated with our Series B-1 and Series B-2 preferred shares increased by US$0.2 million. We believe the increase in the fair value of the embedded derivatives during this period was mainly due to the increase in fair value of our equity interest, which, in turn, was attributable to the following:

    During 2009, we experienced continuous improvement in our operational and financial performance. Our operating income before the change in fair value of warrants and embedded derivatives and other income (loss) increased from US$3.7 million in 2008 to US$5.6 million in 2009. The improvement in our financial performance reduced the overall level of inherent risk and a market participant's required rate of return for investing in our equity securities. Because of the above, our estimated cost of capital decreased from 29% as of July 2009 to 25% as of December 2009, resulting in an increase in the determined fair value of our equity interest.

        From December 2009 to June 2010, the fair value of the embedded conversion options associated with our Series A and Series B preferred shares increased by US$13.2 million. We believe the increase in the fair value of the embedded derivatives during this period was due to the increase in the estimated probabilities of the events that will trigger the exercise of the conversion option and the increase in the fair value of our equity interest, which in turn were primarily attributable to the following:

    In the first half of 2010, we started the preparation for our initial public offering. Market sentiment towards initial public offerings in the United States also improved during this period.

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      The proximity of the offering increased the estimated probabilities of the exercise of the conversion option, the liquidity of our ordinary shares and the fair value of our equity interest.

    Our weighted average cost of capital decreased from 25% as of December 31, 2009 to 17% as of June 30, 2010. The decrease was due to the combined results of (i) the continuous growth of our business and company's size, (ii) a longer track record for forecasting, (iii) the completion of the acquisition of Beijing Bona International Cineplex Investment & Management Co., Ltd. and Beijing Bona Youtang Cineplex Management Co., Ltd. on April 23, 2010, which expanded our business to operation of movie theaters and lowered our business concentration risks, resulting in a lower unsystematic risk for our company, and (iv) the improvement of internal controls over financial reporting with the recruitment of key management.

        From June 2010 to August 2010, the fair value of the embedded conversion options associated with our Series A and Series B preferred shares increased by US$1.8 million, of which an increase of US$0.5 million was due to the issuance of our Series B-3 preferred shares and US$1.3 million was due to the increase of the probability of exercise of conversion feature from 50% to 60%. We believe the changes in the fair value of the embedded derivatives of our Series A, Series B-1 and Series B-2 preferred shares were due to the net effect of the following: (i) the first confidential submission of our registration statement relating to this offering in July 2010 increased the estimated probabilities of the events that will trigger the exercise of conversion right; (ii) the proceeds of the ordinary shares and Series B-3 preferred shares issued in July 2010 increased our total equity interest and (iii) the ordinary shares and Series B-3 preferred shares issued in July 2010 had a dilutive effect on the conversion option associated with our Series A, Series B-1 and Series B-2 preferred shares.

        On August 1, 2010, all the Series A and Series B shareholders and the board of directors passed resolutions to amend the redemption term of the preferred shares. The resolutions changed the redemption price of Series A and B preferred shares to be 140% of the issuance price plus any declared but unpaid dividends, instead of the higher of 140% of the issuance price or the fair market value of the preferred shares upon redemption. As a result of this amendment, the redemption price of Series A and B preferred shares is no longer linked to the fair value of the underlying preferred shares, and therefore the conversion features of Series A and B preferred shares do not meet the net settlement criterion of a derivative. Accordingly, the separate accounting at fair value for the conversion features is no longer required. The related derivative liabilities were eliminated against additional paid-in capital on the date of amendment.

Acquisition of Movie Theaters

        In April 2010, we entered into a series of transactions to acquire Beijing Bona International Cineplex Investment and Management Co., Ltd. and Beijing Bona Youtang Cineplex Management Co., Ltd., two companies that focus on the movie theater business in the PRC. These companies are beneficially owned by Mr. Dong Yu, our chairman and chief executive officer, and his immediate family member. The total consideration comprised 5,810,320 newly issued ordinary shares and the settlement of US$5.3 million that Mr. Dong Yu owed to us.

        We have accounted for these transactions as a purchase and not as a reorganization of entities under common control. Pursuant to our articles of association, the following matters among others need to be approved by the Series A preferred shareholders: (1) the adoption of the annual budget of any of our subsidiaries or affiliated entities; (2) the appointment or removal or settlement of the terms of appointment of any senior manager (including any chief financial officer, chief operating officer or chief technology officer) of any of our subsidiaries or affiliated entities; (3) approval, or making adjustment or modifications to the terms of transactions involving the interest of any director, shareholder or related party any of our subsidiaries or affiliated entities, including but not limited to the making of any loans or advances, whether directly or indirectly, or the provision of any guarantee,

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indemnity or security for or in connection with any indebtedness of liabilities of any director or shareholder of any of our subsidiaries or affiliated entities. In July 2009, upon the issuance of Series B preferred shares, the Series B shareholders had the same rights. These rights allow the noncontrolling shareholders to participate in decisions that relate to the ordinary course of our business and prevent the majority ordinary shareholder, Mr. Yu, from exercising control over our operating and financial policy decisions. As a consequence, Mr. Dong Yu lost control of Bona Film Group Limited upon the issuance of Series A preferred shares in July 2007.

        In the acquisition, we determined the fair value and useful life of the intangible assets acquired based on the following:

(i)
The movie theater licenses acquired are film exhibition licenses issued by local film administration authorities that allow us to exhibit movies. The terms of the film exhibition licenses range from one to three years and are renewable upon inspection of the issuing authority. Since the government has been promoting the gradual liberalization of the film industry, we believes local film administration authorities normally grant the licenses to applicants as long as they can fulfill fixed asset investment and other relevant regulatory requirements. Therefore, we believe the licenses can be applied for and obtained through reasonable expenditure, without undue cost or time. Based on the above analysis, we concluded the cost approach should be applied for the determination of the fair value of the licenses. The cost approach takes into consideration the estimated staff costs, opportunities for fixed asset investment and overhead cost incurred for application of the licenses. We estimated the license has an indefinite life because we will renew it in the foreseeable future and do not expect that we will require substantial costs to renew or extend the licenses' legal life.

(ii)
As of the acquisition date, 41,657 individuals were registered as members of Beijing Bona Cineplex and Beijing Youtang and those members can purchase movie tickets at discounted price. The fair value of movie theater memberships was appraised by "excess earning method" which takes into consideration the projected cash flow to be generated from the members. The most significant estimates and assumptions inherent in the approach we used to value movie theater membership are the estimated revenues and margin derived from sale of tickets to the members and the discount rate. The resulting cash flow is discounted at a rate approximating the estimated cost of equity of Beijing Bona Cineplex and Beijing Youtang, which reflects a market participant's required rate of return for investing in the subject intangible asset. The terms of the membership range from one to five years with a weighted average of 1.8 years. The useful life of movie theater membership was determined based on the period over which the intangible asset will generate cash flow to our Company in the future.

(iii)
The fair value of favorable leases was determined by the incremental cash flow approach, which takes into consideration the projected rental expenses to be saved by virtue of ownership of lease agreements at rates more favorable than market rate. The most significant estimates and assumptions inherent in the approach that we used to value the favorable leases were the market rates for renting the premise of those movie theaters and the discount rate. The resulting rental saving was discounted at a rate approximating the estimated cost of equity of Beijing Bona Cineplex and Bona Youtang, which reflected a market participant's required rate of return for investing in the subject intangible asset.

Internal Control over Financial Reporting

        We and our independent registered public accounting firm, in connection with the preparation and external audit of our consolidated financial statements as of and for the fiscal year ended December 31, 2009, identified certain material weaknesses and other control deficiencies, each as defined in AU325, in our internal control over financial reporting as of December 31, 2009. As defined in AU325, a

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"material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis, and a "significant deficiency" is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting.

        The material weaknesses identified primarily related to: (i) insufficient accounting personnel with appropriate knowledge of U.S. GAAP; and (ii) lack of a comprehensive accounting policies and procedures manual in accordance with U.S. GAAP. Neither we nor our independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weaknesses and other control deficiencies in our internal control over financial reporting as we and they will be required to do once we become a public company. In light of the number of material weaknesses and other control deficiencies that were identified as a result of the limited procedures performed, we believe it is possible that, had we performed a formal assessment of our internal control over financial reporting or had our independent registered public accounting firm performed an audit of our internal control over financial reporting, additional control deficiencies may have been identified.

        Following the identification of these material weaknesses and other control deficiencies, we have taken measures and plan to continue to take measures to remedy these weaknesses and deficiencies, including (1) hiring one or more additional accounting personnel with understanding of U.S. GAAP and experience with SEC reporting requirements; (2) providing external and internal training to our accounting personnel; (3) developing detailed accounting policies and procedures; (4) developing formal risk management policies and establishing clear roles, responsibilities and accountability; and (5) hiring a director of internal audit with requisite experience in internal control over financial reporting. However, the implementation of these measures may not fully address these material weaknesses and other control deficiencies in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. We are not able to estimate with reasonable certainty the costs that we will need to incur to implement these and other measures designed to improve our internal control over financial reporting. See "Risk Factors—Risks Relating to Our Business and Industry—In the course of preparing our consolidated financial statements, we have identified material weaknesses and other control deficiencies in our internal control over financial reporting. If we fail to maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud, and investor confidence in our company and the market price of our ADSs may be adversely affected."

Our Selected Quarterly Results of Operations

        The following table presents our selected unaudited quarterly results of operations for the seven quarters in the period from January 1, 2009 to September 30, 2010. This information should be read together with our audited and unaudited consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the unaudited condensed consolidated financial statements for the quarters presented on the same basis as our audited consolidated financial statements. The unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of our financial position and operating results for the quarters presented. The historical quarterly results

90



presented below are not necessarily indicative of the results that may be expected for any future quarters or periods.

 
  Three Months Ended  
 
  March 31,
2009
  June 30,
2009
  September 30,
2009
  December 31,
2009
  March 31,
2010
  June 30,
2010
  September 30,
2010
 
 
  US$
  US$
  US$
  US$
  US$
  US$
  US$
 

Net revenues

    3,817,641     3,030,340     8,610,938     22,913,632     7,807,804     6,695,006     20,482,158  

Cost of revenues

    (2,708,851 )   (1,596,570 )   (3,563,836 )   (12,019,204 )   (4,080,681 )   (3,428,217 )   (9,791,784 )
                               

Gross profit

    1,108,790     1,433,770     5,047,102     10,894,428     3,727,123     3,266,789     10,690,374  
                               

Operating expenses

    (1,413,042 )   (1,885,158 )   (3,512,783 )   (6,111,252 )   (2,225,003 )   (4,245,567 )   (5,301,388 )
                               

Government subsidy

                            88,147  
                               

Operating income (loss)

    (304,252 )   (451,388 )   1,534,319     4,783,176     1,502,120     (978,778 )   5,477,133  

Other income (Loss):

                                           

Changes in fair value of warrants

    11,725     107,726                      

Changes in fair value of derivatives

    135,000     (213,000 )   471,000     (303,000 )   (5,406,000 )   (7,777,000 )   (1,345,000 )

Other

    (2,874 )   (6,159 )   14,396     (151,130 )   (68,019 )   478,660     831,345  
                               

Income/(loss) before income taxes provision, and equity in (earnings) loss of affiliated companies

    (160,401 )   (562,821 )   2,019,715     4,329,046     (3,971,899 )   (8,277,118 )   4,963,478  

Provision for income taxes

    (19,203 )   (24,333 )   96,800     285,383     94,392     (65,090 )   62,735  

Equity in earnings of affiliated companies

    4,468     203,651     2,251     (37,597 )   2,435     3,653     3,175  

Net(loss)/income

    (136,730 )   (334,837 )   1,925,166     4,006,066     (4,063,856 )   (8,208,375 )   4,903,918  
                               

Net(loss)/income attributable to Bona Film Group Ltd.

    (48,191 )   (207,394 )   2,004,882     3,878,797     (4,048,653 )   (8,237,324 )   5,025,319  
                               

        Our business is affected by seasonal trends. In particular, our total revenues are typically greater in the third and fourth quarters of each year than in the first two quarters of each year due to the summer release season in the third quarter and the holidays in the fourth quarter, when movie theater attendance has traditionally been highest and blockbuster films are typically released. Our cost of revenues is also generally greater in the third and fourth quarters as the costs of distribution rights and production costs of a film are amortized in the proportion that the revenue of such film bears to management's current estimate of ultimate revenue expected to be recognized from the exhibition or sub-licensing of such film. In addition, our operating expenses are also typically greater in the third and fourth quarters, corresponding to the print and marketing costs associated with the films released in those periods. Other factors that may cause our quarterly operating results to fluctuate include, among others, the box office success of a particular film, film scheduling, changes in general economic conditions in China, changes in overall movie theater attendance in China and the impact of unforeseen events.

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Results of Operations

Selected consolidated financial information

        The following table sets forth selected consolidated operating income information as a percentage of our net revenues for the relevant periods:

 
  For the year ended December 31,   For the nine months ended September 30,  
 
  2007   2008   2009   2009   2010  
 
  US$   % of
revenues
  US$   % of
revenues
  US$   % of
revenues
  US$   % of
revenues
  US$   % of
revenues
 

Net revenues

    22,398,483     100.0 %   23,396,442     100.0 %   38,372,551     100.0 %   15,458,918     100.0 %   34,984,968     100.0 %

Cost of revenue

    12,916,429     57.7 %   12,706,866     54.3 %   19,888,461     51.8 %   7,869,256     50.9 %   17,300,682     49.5 %
                                           

Operating expenses:

                                                             
 

Film participation expense

                    1,244,848     3.2 %   356,406     2.3 %   739,222     2.1 %
 

Sales and marketing

    6,035,673     26.9 %   5,013,812     21.4 %   8,887,971     23.2 %   3,995,075     25.8 %   4,918,384     14.1 %
 

General and administrative expenses

    1,156,722     5.2 %   1,965,476     8.4 %   2,789,416     7.3 %   2,459,510     15.9 %   6,114,352     17.5 %
                                           

Total operating expenses

    7,192,395     32.1 %   6,979,288     29.8 %   12,922,235     33.7 %   6,810,991     44.1 %   11,771,958     33.6 %
                                           

Government subsidies

                                    88,147     0.3 %
                                           

Operating income

    2,289,659     10.2 %   3,710,288     15.9 %   5,561,855     14.5 %   778,671     5.0 %   6,000,475     17.2 %

Changes in fair value of derivatives

    31,000     0.1 %   (1,994,000 )   (8.5 )%   90,000     0.2 %   393,000     2.5 %   (14,528,000 )   (41.5 )%

Other income (loss):

    (261,244 )   (1.2 )%   2,188     0.0 %   (26,316 )   (0.1 )%   124.819     0.8 %   1,241,986     3.6 %

Income before income tax provision and equity in earnings (loss) of affiliated companies

    2,059,415     9.2 %   1,718,476     7.3 %   5,625,539     14.7 %   1,296,490     8.4 %   (7,285,539 )   (20.8 )%

Provision for income taxes

    57,014     0.3 %   1,071,610     4.6 %   338,647     0.9 %   53,264     0.3 %   92,037     0.3 %

Equity in earnings (loss) of affiliated companies

            (205,911 )   (0.9 )%   172,773     0.5 %   210,370     1.4 %   9,263     (0.0 )%
                                           

Net income (loss)(1)

    2,002,401     8.9 %   440,955     1.9 %   5,459,665     14.2 %   1,453,596     9.4 %   (7,368,313 )   (21.1 )%
                                           

Net income (loss) attributable to holders of ordinary shares of Bona Film Group Limited

    999,086     4.5 %   (631,922 )   (2.7 )%   2,285,278     6.0 %   478,735     3.1 %   (8,863,924 )   (25.3 )%
                                           

Net income (loss) per ordinary share:

                                                             
 

Basic

    0.10           (0.07 )         0.27           0.05           (0.77 )      
 

Diluted

    0.10           (0.07 )         0.27           0.05           (0.77 )      

Shares used in computation of net income per share:

                                                             
 

Basic

    9,542,114           9,051,563           8,453,842           9,052,396           11,555,326        
 

Diluted

    9,542,114           9,051,563           8,518,402           9,052,719           11,555,326        

(1)
As a supplement to net income, we use a non-GAAP financial measure of net income that is adjusted from results based on U.S. GAAP to exclude share-based compensation, changes in fair value of warrants and changes in fair value of derivatives. This non-GAAP measure is provided as additional information to help our investors compare business trends among different reporting periods on a consistent basis and to enhance investors' overall understanding of our current financial performance and prospects for the future. This non-GAAP financial measure should be considered in addition to results prepared in accordance with U.S. GAAP, but should not be considered a substitute for or superior to U.S. GAAP results. In addition, our definition of non-GAAP net income may be different from the definitions used by other companies, and therefore comparability may be limited.

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            The following table sets forth the reconciliation of our non-GAAP net income to our U.S. GAAP net income.

   
  For the year ended December 31,   For the nine months
ended September 30,
 
   
  2007   2008   2009   2009   2010  
   
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 
 

Net income (loss)

    2,002,401     440,955     5,459,665     1,453,596     (7,368,313 )
 

Adjustment for share-based compensation

            132,902     114,780     226,688  
 

Adjustment for changes in fair value of warrants

    183     306,050     (119,451 )   (119,451 )    
 

Adjustment for changes in fair value of derivatives

    (31,000 )   1,994,000     (90,000 )   (393,000 )   14,528,000  
                         
 

Adjusted net income (non-GAAP)

    1,971,584     2,741,005     5,383,116     1,055,925     7,386,375  
                         

Discussion of Segment Operations

        We review our results of operations according to three operating segments when making decisions about allocating resources and assessing performance. The segments are (i) film distribution, (ii) film investment and production and (iii) talent agency.

Segment Revenues

        Film distribution.    Our film distribution segment generates revenues from external customers. Its revenues comprise our share of the box office receipts for our distribution services, to the extent we have distribution rights outside the PRC, the revenues we derive from those arrangements and advertising revenues.

        Film investment and production.    Our film investment and production segment generates revenues both from external customers and, through inter-segment transactions, from our own distribution entities. Our film investment and production segment generates revenues from external customers where we have invested in a film but do not act as the principal distributor. Our film investment and production segment generates revenues through inter-segment transactions where we have invested in a film and do act as the principal distributor.

        Talent agency.    The talent agency segment generates revenues only from external customers for our talent agency services.

Segment Cost of Revenues

        Film distribution.    Costs of revenues for our film distribution segment include (1) the amortization of the cost of acquiring distribution rights and participation rights where we cooperate with other distributors to distribute films as a participating distributor but is not the primary obligor; (2) the amount we remit to participating distributors when we are the principal but not sole distributor; (3) the amount that we remit to film producers when they are entitled to share the box office sales with us based on the distribution arrangement; (4) where we produce the film, this amount includes any amount paid by our film distribution operations to our film investment and production operations; and (5) costs incurred in providing film-related advertising services.

        Film investment and production.    Costs of revenues for our film investment and production segment include the amortization of production costs for films for which we have invested in the production of.

        Talent agency.    Costs of revenues for our talent agency segment primarily consists of compensation paid to artists.

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        The following table sets forth our revenues from external customers, costs of revenues, and segment profit, which is gross profit less film participation expense by segments for the periods indicated:

 
  For the nine months ended September 30, 2010  
 
  Film
distribution
  Film
investment
and
production
  Talent
agency
  Movie
theater
  Intersegment
elimination
  Consolidated  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Revenues from external customers

    24,730,791     2,043,669     1,814,654     6,395,854         34,984,968  

Intersegment revenues

    135,839     10,196,200             (10,332,039 )    
                           

Total revenues

    24,866,630     12,239,869     1,814,654     6,395,854     (10,332,039 )   34,984,968  

Cost of revenues

    (14,757,977 )   (8,708,577 )   (1,105,732 )   (3,060,435 )   10,332,039     (17,300,682 )

Film participation expense

        (739,222 )               (739,222 )
                           

Segment profit

    10,108,653     2,792,070     708,922     3,335,419         16,945,064  
                           

 

 
  For the nine months ended September 30, 2009  
 
  Film
distribution
  Film
investment
and
production
  Talent
agency
  Intersegment
elimination
  Consolidated  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Revenues from external customers

    13,856,497     1,093,264     509,157         15,458,918  

Intersegment revenues

        4,848,709         (4,848,709 )    
                       

Total revenues

    13,856,497     5,941,973     509,157     (4,848,709 )   15,458,918  

Cost of revenues

    (8,338,762 )   (4,074,586 )   (304,617 )   4,848,709     (7,869,256 )

Film participation expense

        (356,406 )           (356,406 )
                       

Segment profit

    5,517,735     1,510,981     204,540         7,233,256  
                       

 

 
  For the year ended December 31, 2009  
 
  Film
distribution
  Film
investment
and
production
  Talent
agency
  Intersegment
elimination
  Consolidated  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Revenues from external customers

    35,331,320     2,038,491     1,002,740         38,372,551  

Intersegment revenues

        14,063,747         (14,063,747 )    
                       

Total revenues

    35,331,320     16,102,238     1,002,740     (14,063,747 )   38,372,551  

Cost of revenues

    (21,925,682 )   (11,345,790 )   (680,736 )   14,063,747     (19,888,461 )

Film participation expense

        (1,244,848 )           (1,244,848 )
                       

Segment profit

    13,405,638     3,511,600     322,004         17,239,242  
                       

94



 
  For the year ended December 31, 2008  
 
  Film
distribution
  Film
investment
and
production
  Talent
agency
  Intersegment
elimination
  Consolidated  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Revenues from external customers

    20,275,104     2,889,638     231,700         23,396,442  

Intersegment revenues

        6,390,479         (6,390,479 )    
                       

Total revenues

    20,275,104     9,280,117     231,700     (6,390,479 )   23,396,442  

Cost of revenues

    (12,919,986 )   (5,945,541 )   (231,818 )   6,390,479     (12,706,866 )

Film participation expense

                     
                       

Segment profit

    7,355,118     3,334,576     (118 )       10,689,576  
                       

 

 
  For the year ended December 31, 2007  
 
  Film
distribution
  Film
investment
and
production
  Talent
agency
  Intersegment
elimination
  Consolidated  
 
  (US$)
  (US$)
  (US$)
  (US$)
  (US$)
 

Revenues from external customers

    21,129,064     1,269,419             22,398,483  

Intersegment revenues

        4,238,689         (4,238,689 )    
                       

Total revenues

    21,129,064     5,508,108         (4,238,689 )   22,398,483  

Cost of revenues

    (13,368,629 )   (3,786,489 )       4,238,689     (12,916,429 )

Film participation expense

                     
                       

Segment profit

    7,760,435     1,721,619