Concentration, Credit and Other Risks

12 Months Ended

Dec. 31, 2015

Concentration, Credit and Other Risks [Text Block]

15. Concentration, Credit and Other Risks

(a) PRC Regulations

The PRC market in which the Company operates poses certain macro-economic and regulatory risks and uncertainties. These uncertainties extend to the ability of the Company to conduct wireless telecommunication services through contractual arrangements in the PRC since the industry remains highly regulated. The Company conducts all of its operations in China through Zhong Hai Video, which the Group consolidates as a result of a series of contractual arrangements entered among YOD WFOE, Sinotop Beijing as the parent company of Zhong Hai Video and the legal shareholder of Sinotop Beijing. The Company believes that these contractual arrangements are in compliance with PRC law and are legally enforceable. If Sinotop Beijing or its legal shareholder fails to perform the obligations under the contractual arrangements or any dispute relating to these contracts remains unresolved, YOD WFOE or YOD HK can enforce its rights under the VIE contracts through the operations of PRC law and courts. However, uncertainties in the PRC legal system could limit the Company’s ability to enforce these contractual arrangements. In particular, the interpretation and enforcement of these laws, rules and regulations involve uncertainties. If YOD WFOE had direct ownership of Sinotop Beijing, it would be able to exercise its rights as a shareholder to effect changes in the board of directors of Sinotop Beijing, which in turn could effect changes at the management level, subject to any applicable fiduciary obligations. However, under the current contractual arrangements, the Company relies on Sinotop Beijing and its legal shareholder to perform their contractual obligations to exercise effective control. The Company also gives no assurance that PRC government authorities will not take a view in the future that is contrary to the opinion of the Company. If the current ownership structure of the Company and its contractual arrangements with the VIEs and their equity holders were found to be in violation of any existing or future PRC laws or regulations, the Company's ability to conduct its business could be impacted and the Company may be required to restructure its ownership structure and operations in the PRC to comply with the changes in the PRC laws which may result in deconsolidation of the VIEs.

In addition, the telecommunications, information and media industries remain highly regulated. Restrictions are currently in place and are unclear with respect to which segments of these industries foreign owned entities, like YOD WFOE, may operate. The PRC government may issue from time to time new laws or new interpretations on existing laws to regulate areas such as telecommunications, information and media, some of which are not published on a timely basis or may have retroactive effect. For example, there is substantial uncertainty regarding the Draft Foreign Investment Law, including, among others, what the actual content of the law will be as well as the adoption and effective date of the final form of the law. Administrative and court proceedings in China may also be protracted, resulting in substantial costs and diversion of resources and management attention. While such uncertainty exists, the Group cannot assure that the new laws, when it is adopted and becomes effective, and potential related administrative proceedings will not have a material and adverse effect on the Company's ability to control the affiliated entities through the contractual arrangements. Regulatory risk also encompasses the interpretation by the tax authorities of current tax laws, and the Group’s legal structure and scope of operations in the PRC, which could be subject to further restrictions resulting in limitations on the Group’s ability to conduct business in the PRC.

(b) Major Customers

The Company has agreements with distribution partners, including digital cable operators, IPTV operators, OTT streaming operators and mobile smartphone manufacturers and operators. A distribution partner that individually generates more than 10% of the Company’s revenue is considered a major customer.

For the year ended December 31, 2015, three customers which are MIGU Co., Ltd, Shenzhen Tianhua Century Media Limited (“Tianhua”) and Shanxi Fenteng Interaction Technology Limited (“Fenteng”) individually accounted for more than 10% of the Company’s revenue. Four customers which are Fenteng, Guangzhou Aosemu Limited, Shenzhen Pingan Communication Technology Limited and Tianhua individually accounted for 10% of the Company’s net accounts receivables as of December 31, 2015.

For the year ended December 31, 2014, two customers which are Tai Sheng Si Information System Development (Beijing) Limited (“Tai Sheng Si”) and Tianhua individually accounted for more than 10% of the Company’s revenue. Three customers which are Tai Sheng Si, Tianhua and Beijing Tiantian Culture Spread Limited, Sichuan Branch individually accounted for 10% of the Company’s net accounts receivables as of December 31, 2014.

(c) Major Suppliers

The Company relies on agreements with studio content partners to acquire video contents. A content partner that accounts for more than 10% of the Company’s cost of revenues is considered a major supplier.

For the year ended December 31, 2015, four suppliers which are Paramount, Disney, Universal and Twentieth Century Fox individually accounted for more than 10% of the Company’s cost of revenues. One supplier which is Universal individually accounted for 10% of the Company’s accrued license fees as of December 31, 2015.

For the year ended December 31, 2014, three suppliers which are Paramount, Disney and Universal individually accounted for more than 10% of the Company’s cost of revenues. Two suppliers which are Universal and Paramount individually accounted for 10% of the Company’s accrued license fees as of December 31, 2014.

(d) Concentration of Credit Risks

Financial instruments that potentially subject the Group to significant concentration of credit risk primarily consist of cash, accounts receivable and other receivables. As of December 31, 2015 and 2014, the Group’s cash were held by financial institutions located in the PRC, Hong Kong and the United States that management believes are of high-credit ratings and quality. Accounts receivable are typically unsecured and are mainly derived from revenues from the Group’s VOD content distribution partners. The risk with respect to accounts receivable is mitigated by regular credit evaluations that the Group performs on its distribution partners and its ongoing monitoring of outstanding balances.

(e) Foreign Currency Risks

A majority of the Group’s operating transactions are denominated in RMB and a significant portion of the Group’s assets and liabilities is denominated in RMB. RMB is not freely convertible into foreign currencies. The value of the RMB is subject to changes in the central government policies and to international economic and political developments. In the PRC, certain foreign exchange transactions are required by laws to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Group in China must be processed through PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to complete the remittance.

Cash consist of cash on hand and cash in bank, which are unrestricted as to withdrawal.

Time deposits, which mature within one year as of the balance sheet date, represent interest-bearing certificates of deposit with an initial term of greater than three months when purchased. Time deposits which mature over one year as of the balance sheet date are included in non-current assets.

Cash and time deposits maintained at banks consist of the following:

		December 31,
		2015		2014
RMB denominated bank deposits with financial institutions in the PRC	$	1,076,430	$	535,184
US dollar denominated bank deposits with a financial institutions in the PRC	$	2,613,834	$	6,548,974
US dollar denominated bank deposits with financial institutions in Hong Kong Special Administrative Region (“HK SAR”)	$	23,460	$	3,125,398
US dollar denominated bank deposits with financial institutions in The United States of America (“USA”)	$	53,231	$	599,958
US dollar denominated bank deposits with financial institutions in Cayman Islands (“Cayman”)	$	99	$	186
RMB restricted cash denominated bank deposits with financial institutions in the PRC	$	2,994,364	$	-

To limit exposure to credit risk relating to bank deposits, the Company primarily places bank deposits only with large financial institutions in the PRC, HK SAR, USA and Cayman with acceptable credit rating.