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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549



FORM 20-F

(Mark One)o

Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934orý

Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2011.oro

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from
 too

Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.


Commission file number 001-34990



Bona Film Group Limited(Exact Name of Registrant as Specified in Its Charter)



Cayman Islands(Jurisdiction of Incorporation or Organization) 11/F, Guan Hu Garden 3
105 Yao Jia Yuan Road, Chaoyang District
Beijing 100025, People's Republic of China(Address of Principal Executive Offices)

Mr. Liang Xu
(86 10) 5928 3663
11/F, Guan Hu Garden 3
105 Yao Jia Yuan Road, Chaoyang District
Beijing 100025, People's Republic of China
Email: ir@bonafilm.cn(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

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

Title of Each Class

Name of Each Exchange On Which RegisteredAmerican Depositary Shares, each two representing one Ordinary Shares

The NASDAQ Stock Market LLCOrdinary Shares, par value US$0.0005 per share*

(The NASDAQ Global Market)The NASDAQ Stock Market LLC(The NASDAQ Global Market)


*Not
for trading, but only in connection with the registration of American Depositary Shares representing such Ordinary Shares pursuant to the requirements of
the Securities and Exchange Commission.


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

None

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

None

Indicate
the number of outstanding shares of each of the Issuer's classes of capital or common stock as of the close of the period covered by the annual report.

30,402,346 Ordinary Shares were issued and outstanding as of December 31, 2011



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

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

NoteChecking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 from their obligations under those Sections.

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

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

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

Large accelerated filer o

Accelerated filer ý

Non-accelerated filer o


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

International Financial Reporting Standards as issued by the International Accounting Standards
Board  o    Other o

If "Other" has been checked in responses to the previous question, indicate check mark which financial statement item the registrant has elected to follow. Item 17
o Item 18 o

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act
of 1934).    Yes  o    No ý

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate
by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court.    Yes  o    No o





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Table of Contents



BONA FILM GROUP LIMITED    FORM 20-F ANNUAL REPORT  FISCAL YEAR ENDED DECEMBER 31, 2011    TABLE OF CONTENTS



PageConventions That Apply To This Annual Report On Form 20-F

3PART IItem 1.

Identity of Directors, Senior Management and Advisers

4Item 2.

Offer Statistics and Expected Timetable

4Item 3.

Key Information

4Item 4.

Information on the Company

42Item 4A.

Unresolved Staff Comments

74Item 5.

Operating and Financial Review and Prospects

74Item 6.

Directors, Senior Management and Employees

118Item 7.

Major Shareholders and Related Party Transactions

126Item 8.

Financial Information

130Item 9.

The Offer and Listing

132Item 10.

Additional Information

133Item 11.

Quantitative and Qualitative Disclosures About Market Risk

140Item 12.

Description of Securities Other Than Equity Securities

141PART IIItem 13.

Defaults, Dividend Arrearages and Delinquencies

143Item 14.

Material Modifications to the Rights of Security Holders and Use of Proceeds

143Item 15.

Controls and Procedures

144Item 16A.

Audit Committee Financial Expert

146Item 16B.

Code of Ethics

147Item 16C.

Principal Accountant Fees and Services

147Item 16D.

Exemptions from the Listing Standards for Audit Committees

147Item 16E.

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

147Item 16F.

Change in Registrant's Certifying Accountant

148Item 16G.

Corporate Governance

148PART IIIItem 17.

Financial Statements

148Item 18.

Financial Statements

148Item 19.

Exhibit Index

149Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1


2

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Table of Contents

Conventions That Apply To This Annual Report On Form 20-F

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



This
annual report 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 annual report contains statistical data provided to us by EntGroup International Consulting
(Beijing) Co. Ltd., or EntGroup, a PRC consulting and market research firm and a member company of the ComInsight Group, for a fee that is more than nominal.

This
annual report includes our audited consolidated financial statements for the years ended December 31, 2009, 2010 and 2011 and as of December 31, 2010 and 2011.

Our
ADSs are listed on the NASDAQ Global Market under the symbol "BONA."

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Table of Contents

PART I

Item 1.    Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.    Offer Statistics and Expected Timetable

Not applicable.

Item 3.    Key Information



The selected financial data shown below should be read in conjunction with "Item 5. Operating and Financial Review and Prospects," and the financial
statements and the notes to those statements included elsewhere in this annual report. The selected statement of income data for the years ended December 31, 2009, 2010 and 2011 and the
selected balance sheet data as of December 31, 2010 and 2011 have been derived from our audited financial statements included elsewhere in this annual report. The selected statement of income
data for the years ended December 31, 2007 and 2008 and the selected balance sheet data as of December 31, 2007, 2008 and 2009 have been derived from our audited financial statements not
included in this annual report.

For the years ended December 31,2007

2008

2009

2010

2011(US$)

(US$)

(US$)

(US$)

(US$)Consolidated Statement of Operations DataNet revenues


22,398,483


23,396,442


38,372,551


52,819,786


126,161,270Cost of revenue


12,916,429


12,706,866


19,888,461


26,501,853


66,458,217Operating expenses


7,192,395


6,979,288


12,922,235


17,215,013


47,198,859Government subsidy











88,147


220,559Operating income


2,289,659


3,710,288


5,561,855


9,191,067


12,724,753Other income (loss):Changes in fair value of warrants


(183
)

(306,050
)

119,451





Changes in fair value of derivatives


31,000


(1,994,000
)

90,000


(14,528,000
)

Other


(261,061
)

308,238


(145,767
)

1,193,672


2,318,103Net income (loss)(1)


2,002,401


440,955


5,459,665


(4,223,060
)

14,572,376Net income (loss) attributable to the non-controlling interests


367,939


199,225


(168,429
)

(131,686
)

140,295Deemed dividend on Series A and Series B convertible redeemable preferred shares


381,073


873,652


1,394,985


2,150,146


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


254,303





1,947,831





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


999,086


(631,922
)

2,285,278


(6,241,520
)

14,432,081Net income (loss) per ordinary share:Basic


0.10


(0.07
)

0.27


(0.49
)

0.49Diluted


0.10


(0.07
)

0.27


(0.49
)

0.48Shares used in computation of net income per ordinary share:Basic


9,542,114


9,051,563


8,453,842


12,758,575


29,353,936Diluted


9,542,114


9,051,563


8,518,402


12,758,575


29,844,462


(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


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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.




For the years ended December 31,2007

2008

2009

2010

2011(US$)

(US$)

(US$)

(US$)

(US$)Net income (loss)


2,002,401


440,955


5,459,665


(4,223,060
)

14,572,376Adjustment for share-based compensation








132,902


447,345


3,647,144Adjustment for changes in fair value of warrants


183


306,050


(119,451
)




Adjustment for changes in fair value of derivatives


(31,000
)

1,994,000


(90,000
)

14,528,000


Adjusted net income (non-GAAP)


1,971,584


2,741,005


5,383,116


10,752,285


18,219,520




As of December 31,2007

2008

2009

2010

2011(US$)

(US$)

(US$)

(US$)

(US$)Consolidated Balance Sheet DataCash


6,663,011


4,771,897


7,418,213


84,247,984


20,107,349Accounts receivable, net of allowance for doubtful accounts


4,347,569


4,673,515


19,491,100


15,225,792


41,642,787Total current assets


11,350,873


13,567,290


33,940,357


118,052,862


100,616,945Distribution rights


6,300,851


3,847,906


5,550,394


2,265,601


3,663,966Production costs





3,785,691


19,528,560


64,815,878


69,844,822Total assets


20,007,342


24,923,695


67,028,414


231,216,536


273,751,929Accounts payable


5,766,634


4,237,192


8,902,182


9,533,672


27,807,118Bank borrowing








6,590,317


22,012,560


12,561,806Other borrowings








6,089,373


1,445,150


1,831,658Current film participation liabilities





351,154


8,337,483


10,209,351


16,224,219Non-current film participation liabilities





994,938


1,562,304


6,306,818


Derivatives


698,000


2,692,000


2,903,000


Total liabilities


11,090,113


15,681,869


46,859,438


71,144,370


90,957,784Net assets


8,917,229


9,241,826


20,168,976


160,072,166


182,794,145Series A convertible redeemable preferred shares


7,560,727


8,434,379


9,727,866





Series B convertible redeemable preferred shares








9,074,270





Total equity


1,356,502


807,447


1,366,840


160,072,166


182,794,145




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Renminbi per U.S. Exchange RateAverage

High

Low

Period-end2007


7.5806


7.8127


7.2946


7.29462008


6.9193


7.2946


6.7800


6.82252009


6.8295


6.8470


6.8176


6.82592010


6.7603


6.8330


6.6000


6.60002011


6.4630


6.6364


6.2939


6.2939October


6.3710


6.3825


6.3534


6.3547November


6.3564


6.3839


6.3400


6.3765December


6.3482


6.3733


6.2939


6.29392012 (through April 20)


6.3073


6.3330


6.2935


6.3080January


6.3119


6.3330


6.2940


6.3080February


6.2997


6.3120


6.2935


6.2935March


6.3125


6.3315


6.2975


6.2975April (through April 20)


6.3052


6.3150


6.2975


6.3080


Source:
The source of the exchange rate is: (i) with respect to any period ending on or prior to December 31, 2008, the Federal Reserve Bank of New York, and (ii) with
respect to any period ending on or after January 1, 2009, the H.10 statistical release of the Federal Reserve Board. (1)Annual
averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant
period.




Not applicable.



Not applicable.



Our business and operations are subject to various risks, many of which are beyond our control. If any of the risks described below actually occurs, our business,
financial condition or results of operations could be seriously harmed.

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 for 2009, 2010 and 2011 accounted for 67.9%, 53.5% and 58.3% of our net revenue in each of 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 business,
financial condition and results of operations in both the year of release and in the future.

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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 in selecting the films for which we acquire the distribution rights or in which we invest, 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 net revenue and other 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 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. In China, directors tend to hold substantial control over the production of films, and this may aggravate our ability to control the production schedule and budget. In addition, when
we co-invest in a film, we generally have less control over the investment and production processes, than when we are lead investor in a film.

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, financial condition and
results of operations. In addition, we may not be able to recoup our investment as a result of increased costs from budget overruns. Increased costs may also delay the release of a film to a less
favorable time, which could hurt its box office performance and thus our revenue 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, financial condition and results of operations.

The production and distribution of films are capital-intensive processes, 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 2009, 2010 and 2011, for example, our cost of revenue (excluding the movie theater segment) amounted to
US$19.9 million,

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US$21.5 million
and US$57.3 million and accounted for 51.8%, 51.7% and 57.2% of our net revenue (excluding the movie theater segment), respectively. 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. For example, compensation for star performers and other key creative personnel has increased recently. As a result, we may need
to rely on revenue from television and digital distribution or continue to expand internationally or into other distribution channels such as home video products in order for a film to be profitable
to us, and there can be no assurance that revenue from such sources would be sufficient to offset increases in the cost of film production and distribution or that any such expansion would
be successful.

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 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. Our film distribution and film investment and production businesses are highly reliant on the personal instincts, tastes and market
experiences of Mr. Dong Yu, Ms. Nansun Shi, Mr. Jeffrey Chan and Mr. Hao Zhang, and the loss of any one of these individual may have a material negative effect on our
business. On March 1, 2012, we announced that Mr. Liang Xu will resign as chief financial officer of our company effective as of May 1, 2012 to become chief executive officer of a
China-based private equity fund. Following his resignation, Mr. Xu will serve in an advisory capacity on our "strategy committee" to help oversee the transition to a new chief financial officer
and provide insight in support of our strategic expansion. We cannot assure you that we will have a smooth transition to a new chief financial officer, and any difficulties we experience during such
transition could have a material adverse effect on our business, financial condition and results of operation.

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 business, financial condition and results of operations. 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

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to
continue attracting and retaining experienced management in the relevant businesses. Our business requires specialized skills and the Chinese market has a limited supply of persons qualified for
such positions. Therefore, the process of hiring suitable qualified personnel is 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 revenue. 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 aggravate fluctuations in operating results that result from the cyclical nature of the film industry.

In
accordance with U.S. GAAP and as is standard for our industry, 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 revenue 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 generally takes into account estimated future
revenue from international distribution, non-theatrical channels and other potential revenue that a film may generate. Any reviews subsequent to the initial 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 2011, we decreased the estimate of the ultimate overseas revenue expected to be realized from six films and a
television series based on their levels of economic performance and public acceptance, and as a result incurred additional amortization of US$2.1 million. 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.

Failure to manage the expansion of our operations could strain our management and personnel, 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 net revenue from US$23.4 million in 2008 to US$126.2 million in 2011, 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:



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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, financial condition and results of operations would be materially and adversely
affected.

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

A
substantial portion of net revenue from the films we distribute or have invested in have historically been derived from our share of box office receipts, with only a small portion of
our net revenue generated from non-theatrical distribution channels, such as home video products, digital distribution (including Internet) 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. We can make no assurances that the historical correlation between box office success and success of other
non-theatrical distribution channels, which can provide a stable, long-term source of revenue, will subsist in the future. In addition, we can make no assurances that the
prices for films on non-theatrical distribution channels can be maintained at current levels due to market or other factors. Internet companies have become an increasingly important
distribution channel for our company. We cannot assure you that we will be able to maintain good relationships with major Internet companies in China. The Internet industry is relatively new and
evolving and we may not able to successfully navigate its development and competitive environment. We cannot assure you that our expansion into non-theatrical distribution channels will
be successful.

Moreover,
emerging non-theatrical distribution channels resulting from technological developments may significantly change the film industry in China. 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, improvements in the quality of 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 may not be able to accurately predict which existing non-theatrical distribution channels consumers will continue to use or which emerging distribution channels will be
broadly accepted by the public.

If
some non-theatrical distribution channels are broadly 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 entertainment and television, will decrease, which could
adversely affect our ability to generate revenue 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, financial condition or results of operations could be materially and adversely affected.

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Our business depends on our relationships with theater circuits.

Under PRC regulations, we are required to distribute films through theater circuits, which act as intermediaries between film
distributors and movie theater operators. Theater circuits 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 these 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, financial condition and results of operations.

We may encounter difficulties when expanding our movie theater network in new markets. In addition, 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.

We
began operating our movie theater business in 2010 following our acquisition of Beijing Bona International Cineplex Investment & Management Co., Ltd., or Beijing
Bona Cineplex, and Beijing Bona Youtang Cineplex Management Co., Ltd., or Beijing Bona Youtang. We further expanded our movie theater business by acquiring a 100% equity interest in
Beijing Bona Starlight Cineplex Management Co., Ltd., or Bona Starlight, an affiliated company of our company focused primarily on the operation of movie cinemas in China, in
July 2011 and by developing new theaters. The number of movie theaters we operate grew from six as of December 31, 2010 to 11 as of December 31, 2011. Our movie theater
business generated revenue of US$11.3 million and US$26.0 million in 2010 and 2011, respectively, and generated segment profit of US$6.0 million and US$14.6 million in the
same respective
periods. We intend to increase the number of movie theaters we operate to approximately 30 to 40 by the end of 2014, primarily by developing new theaters.

We
have limited experience in operating movie theaters, and we may not be able to realize the intended benefits from our acquisitions and development of new theaters, 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:



We
face particular challenges when we open movie theaters in new areas, including unfamiliarity with new local markets, inability to precisely determine market potential in new areas,
market barriers such as strong local competitors that have prime locations and local know-how, difficulties in finding

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suitable
locations, difficulties in hiring, motivating, training and retaining qualified employees and higher operating costs. Moreover, developing new theaters requires a significant amount of time
and resources and poses a number of risks. We develop new theaters by renting a piece of property (for example, in a shopping mall) and then refurbishing and installing movie theater equipment
in the property. Developing new theaters may result in delays, cost overruns and unanticipated expenses related to zoning, tax and other government requirements for construction. We may also encounter
difficulties in managing the refurbishment and installation process, including managing subcontractors who we hire to do this work.

We
cannot assure you that we will be able to successfully expand and operate our movie theater business. 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.

The expansion and operation of our movie theater business is capital-intensive and if the development of our movie theater business is not successful, our cash flow may be
negatively affected.

The
acquisition, refurbishment and construction of movie theaters, as well as the rental expenses for our movie theaters, has increased our cash requirements in 2010 and 2011, and our
planned expansion of our movie theater business will continue to increase our cash requirements going forward. In addition to the increasing scale of our movie theater business, a number of other
factors could cause acquisition, refurbishment or rental expenses to increase in the future. For example, our movie theater refurbishment expenses may increase as Chinese audiences increasingly demand
state-of-the-art audio-visual effects and inflation or other market factors could cause rental rates to increase. We intend to continue to finance our movie theater
business, in part, with bank loans. However, it may be difficult for us to obtain bank loans to finance our movie theaters because banks may not accept leased property as mortgage for loans. Due to
the capital intensive nature of the movie theater business, if the expansion of our movie theater business is not successful, our cash flow may be negatively affected. This, in turn, could have a
material adverse effect on our business, financial condition and results of operations.

Movie theaters in China are subject to a range of regulatory requirements, including regulations relating to advertising, hygiene and food licensing. Some of 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 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. Some of
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.

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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 initially acquired in April 2010, has substantial lease obligations. In 2010 and 2011, the total rent expense in our movie theater business
was approximately US$2.8 million and US$5.7 million, respectively. As of December 31, 2010 and 2011, our movie theater business had lease obligations totaling approximately
US$51.5 million and US$105.3 million, respectively, throughout the terms of the leases which range from 10 to 20 years. As we plan to grow the number of movie theaters we operate
significantly in 2012 and 2013, we expect our rent expenses and lease obligations to increase. 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 default could materially impair our financial
condition and liquidity. If any of these lease agreements is terminated, our movie theater business, financial condition and results of operations may be materially and adversely affected. Moreover,
if our movie theater business does not generate sufficient revenue to service our payment obligations under these leases, our business, 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 and adversely affected.

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

In
2011, we derived approximately 8.5% of our net revenue from the monetization of our films outside of China. In addition, we entered into an agreement to acquire a strategic equity
stake in China Lion Entertainment Limited in November 2011 in order to strengthen our distribution capabilities in the U.S. and Canada. As we expand the distribution of our films overseas, our
business

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



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

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

Demand
for advertising on the films we distribute and in movie theaters we operate, 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
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 revenue from our films, and could have a material and adverse effect on our business, 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 revenue 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 revenue 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

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prior
to a film or product placement in films, to be disruptive or intrusive, film producers and movie theater operators may not want advertising. As a result, advertisers may reduce their spending on
pre-screening or in-film advertising. If a substantial number of advertisers lose interest in these forms of advertising for these or other reasons, our business, 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 such consents.

Our business may suffer reputational injury if we do not effectively manage our selection of products for use in our in-film advertisements. In addition, 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.

We
engage in the in-film advertising and pre-screening advertising businesses. We generate revenue from in-film advertising by charging advertising
commissions for featuring certain third-party products in our movies. If we do not effectively manage our selection of products for our in-film advertisements, our reputation may be
harmed. For example, if we feature any products in our films that later turn out to be defective and cause significant harm to the public, the reputation of the film featuring such product and the
reputation of our company would suffer injury. Any harm to our films' or our company's reputation would have a material adverse effect on our business, financial condition and results
of operations.

In
addition, 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.

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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 revenue from this business and make it difficult to predict the performance of
this aspect of our business.

The
success of our talent agency business is highly dependent on our ability to attract and retain high-profile movie stars and other artists with high earning potential, the
popularity of
positive public image of the artist we choose to represent, 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
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 amount we are entitled to may be substantially less than we would have earned were the contract performed in full. As a result, the revenue 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 the Social Insurance Law, which became effective on July 1, 2011, if employers fail to

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register
or pay social insurance in accordance with the relevant rules, they may be ordered to rectify the problem and be subject to a late fee payment of 0.05% per day from the due date; if employers
fail to comply with such orders, they may be subject to a fine ranging from one to three times of the unpaid amount. 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
December 31, 2011, our PRC subsidiary and affiliated consolidated entities and their subsidiaries, excluding those engaged in our movie theater business, owed contributions to social insurance
funds and the housing provident fund of RMB2.5 million (US$0.4 million). As of December 31, 2011, our affiliated consolidated entities and their subsidiaries engaged in our movie
theater business owed contributions to social insurance funds and the housing provident fund of RMB1.9 milion (US$0.3 million). 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 and in 2011 respectively.

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.

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 financial condition and results of operations.

Under
PRC laws and regulations, we had enjoyed 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 their
establishment to December 31, 2010, whichever ends earlier. Zhejiang Bona Film and Television Production Co., Ltd. was established in December 2008 as a cultural enterprise
and was exempted from income tax for the years 2009, 2010 and 2011 pursuant to an approval by the relevant tax authority in June 2009. Starting on January 1, 2012, Zhejiang Bona Film and
Television Production Co., Ltd. will be subject to the standard enterprise income tax rate of 25%.

Some
of our affiliated consolidated entities have 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. Beijing Bona Advertising Co., Ltd. was subject to income tax at a special concession. The taxable income is
deemed to be 6% of its revenues for the year 2009 as approved by the relevant tax authority. 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 tax than we would have been required to pay had we not received the relevant approvals from the local tax authorities. Without our preferential tax holidays and
concessions, we would have had to pay additional amounts of approximately US$1.4 million, US$3.2 million and US$5.1 million in 2009, 2010 and 2011, respectively.

Distribution
revenue earned by film distributors from theater exhibitions are exempted from business tax from January 1, 2004 to December 31, 2013. Currently, distribution
revenue obtained by

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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 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 business, financial condition and results of operations.

We face substantial competition in most aspects of our business.

The film industry in China 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 stipulated number of foreign films, mainly Hollywood blockbusters that may be exhibited in China on a box office sharing basis. It is expected that such foreign films
which these two state-owned enterprises are exclusively eligible to distribute each year will be increased substantially from 20 films to 34 films because the PRC government has agreed,
in connection with a World Trade Organization dispute settlement, to increase the number of foreign premium format films, such as 3-D or IMAX films, that may be imported into China by
14 films per year.

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. 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. The increased quota of foreign premium films that our state-owned competitors
will be able to distribute each year is expected to heighten the competition we face for film distribution, especially given that we may not be able to share in the distribution business for such
foreign films.

In
film production, we compete with large Chinese movie production companies for access to a limited pool of high quality directors, actors and other production team members. If our
competitors are more successful than us in securing high quality production teams for their film productions, the members of these teams may have limited or no availability to work on our movies, and
the quality of our production teams and, consequently, the quality of our films, may be negatively affected. Any deterioration in the quality of the films we produce would have a material negative
effect on our business, financial condition and results of operations. In addition, such competition places upward pressure on the costs for securing directors, actors and other production team
members, which may have a negative impact on our gross margin.

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Movie
theaters operated by national theater circuits, property developers and 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 primarily based on its location, the films showing there, the quality of its
facilities and price. If other movie theater operators choose to build and operate theaters in the markets where our movie theaters are located, or secure more prime locations than we do, including by
building movie theaters in prime urban real estate that they already own, 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, financial condition and results of operations.

We may face increased competition in the future from foreign films, as a result of changes in PRC regulation or other factors, and we may not be able to compete
effectively.

Current
PRC laws and regulations limit the number of foreign films that may be imported into China and, at present, only one state-owned film import company has the right to import
foreign films into China. In addition, under current PRC regulations, only two state-owned film distributors have the right to distribute foreign films in China. Imported foreign films may involve
larger budgets, more recognized stars, more established brands or otherwise have greater access to other resources than
domestic PRC films. We do not have the right to distribute foreign films and it may be difficult for our films to compete successfully against foreign films, which may be preferred by our target
audiences.

It
was recently reported that the PRC government has agreed, in connection with a World Trade Organization dispute settlement, to increase the number of foreign premium format films,
such as 3-D or IMAX films, that may be imported into China by 14 films per year. This change may increase the supply of foreign films in the PRC and competition in the PRC
film industry.

As
China develops economically and politically, the PRC government may feel increased pressure from, for example, PRC audiences or international organizations, to further relax rules
restricting the import of foreign films. In addition, as the PRC film market becomes more attractive over time, foreign film makers may expend greater resources to attract PRC audiences, which would
further increase competitive pressure. The films we invest in and/or distribute may not be able to compete successfully against foreign films, which may materially and adversely affect our business,
financial condition and results of operations.

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. In addition,
existing PRC law requires movie theaters to obtain a Certificate for Digital Films Exhibition Equipment and Technology for exhibition of digital films. However, based on verbal consultations with the
SARFT, we understand that the SARFT is not enforcing the regulation, is not requiring movie theaters to obtain a Certificate for Technical Qualification of Digital Film Exhibition Equipment for the
exhibition of digital films and had not issued and is not currently issuing such certificate to any movie theater. In addition, other aspects of the film industry, including the contents of films and
scripts, the foreign investment in the industry, the

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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 Series 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 Series effective on July 1, 2010, which superseded and replaced the
Administrative Regulations on the Examination of Television Series effective on October 20, 2004, and its supplementary regulations, and other regulations issued based on the foregoing
regulations, television series 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 series producers must obtain either a Multiple Television Series Production License or a Single Television Series Production License for the shooting
and production of television series. The Multiple Television Series Production License has an effective term of two years and may be applied to all television series produced by the holder during the
effective term. The Single Television Series Production License only applies to the specific television series, as indicated in such license.

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

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.

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

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 or television prior to, during or after theatrical release, or in the case of television series, broadcast, has proliferated. This proliferation
has had and will likely continue

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to
have an adverse effect on our business, because these products reduce the revenue we receive from our investment in or the distribution or exhibition of films and television series. 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 loss 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 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, financial condition and results of operations 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 we distribute or own the copyright for films that
misappropriate or infringe upon 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 claims of infringement or misappropriation of other parties' proprietary rights in the future. Any such assertions or claims may materially and adversely affect our business,
financial condition and 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 and results of operations. If any claim or action is 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 such license, or any other form of
settlement, would be available on reasonable terms or at all.

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

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authorities
at provincial level, and must have at least three professional performance brokers. Our affiliated consolidated entity Bona Film Group Co., Ltd. (PRC) (formerly known as
Beijing Bona Film and Culture Communications Co., Ltd.) has obtained a Commercial Performance License with an effective term until July 31, 2033. Bona Film
Group Co., Ltd. (PRC), 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.

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, the Notice regarding the
Improvement of the Filing of Film Scripts (Abstracts), the Administration of Films, which became effective on February 4, 2010, 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. If the content or main characters of the film involve issues related to national security, foreign relations, peoples, religion, military, public security, judicial matters, historical
celebrities or sensitive historical events, the film scripts shall be approved by provincial level administrative authorities in charge of the relevant fields before they are filed with SARFT and/or
its local counterpart. 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,

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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.

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:



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 claim by audiences or they may terminate their relationships with us. Any imposition of
liability could have a material adverse effect on our business, financial condition and results of operations.

An economic downturn could materially and adversely 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 economic downturns, which may adversely affect
consumer spending.

Since
the second half of 2008, global credit and capital markets, particularly in the United States and Europe, have experienced difficult conditions. In addition, there have also
been growing concerns of another global economic downturn since late 2009 triggered by the failure of certain European countries to finance their budget deficits or service their debt levels. In
addition, in early March 2012, China pared its economic growth target to 7.5% from an 8% goal that has been in place since 2005.

During
economic downturns, which are characterized by higher unemployment, lower corporate earnings, lower business investment and lower discretionary spending by consumers, including
spending on entertainment such as films, our business, financial condition and results of operations may be materially and adversely affected. The recent global financial crisis caused a general
tightening in the credit markets, lower levels of liquidity, increased rates of default and bankruptcy, an unprecedented level of governmental intervention, decreased consumer confidence, extreme
volatility in credit, equity and fixed income markets, and slower overall economic activity.

While
we cannot predict the timing or duration of any economic downturns, 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 the number of, or attendance at, our film screenings. 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 revenue 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

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utilize
our existing debt capacity or otherwise obtain financing for our operations or investing activities (including the financing of any future acquisitions). Our business, financial condition and
results of operations may be materially and adversely affected by any economic downturns in China or globally.

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 started our movie theater business through the acquisition of six movie theaters in commercial districts and residential areas in major cities in China to
support our film distribution business. In July 2011, we acquired 100% of the equity interests in Alpha Speed Limited and Bona Starlight to further expand our movie theater business. In
addition, in November 2011, we entered into an agreement to acquire a strategic equity stake in China Lion Entertainment Limited in order to strengthen our U.S. and Canadian distribution
capabilities. 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 effectively integrate any future acquisitions on terms that are favorable to us may be limited by a number of factors, such as attractive acquisition
targets and, to the extent necessary, our ability to obtain financing on satisfactory terms, if at all.

Moreover,
even 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 a variety of reasons. The negotiation and completion of potential acquisitions, whether or not ultimately consummated, could significantly divert management's time and resources and potentially
disrupt 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:



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.

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.

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If we fail to maintain an effective system of internal control over financial reporting, our ability to accurately and timely report our financial
results or prevent fraud may be adversely affected, as a result, investor confidence in our company and the market price of our ADSs may be adversely affected.

We
are subject to the Sarbanes-Oxley Act of 2002. Section 404 of the Sarbanes-Oxley Act requires 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 ended December 31, 2011. In addition, our independent
registered public accounting firm must report on the effectiveness of our internal control over financial reporting. Our management concluded that our internal control over financial reporting was
effective as of December 31, 2011, the end of the period covered by this annual report, and our independent registered public accounting firm opined that we maintained effective internal
control over financial reporting on the same date. However, as a result of the assessment, we and our independent registered public accounting firm identified certain significant deficiencies 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, 2011. As defined in AU325, 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
significant deficiencies identified were (i) lack of sufficient accounting personnel with appropriate accounting knowledge to achieve and maintain work efficiency, and
(ii) operating ineffectiveness of controls in relation to customer background review for significant sales contracts.

Following
the identification of these significant deficiencies and other control deficiencies, we have taken a number of measures and plan to continue to take measures to address these
significant deficiencies and other control deficiencies that have been identified. However, the implementation of these measures may not fully address these significant deficiencies and 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 significant deficiencies 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.

In
the event of any failure to maintain effective internal controls over financial reporting in the future, we and our independent registered public accounting firm may not be able to
conclude that we have effective internal control over financial reporting. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent
registered public accounting firm may disagree. If such independent registered public accounting firm is not satisfied with our internal control or the level at which our control is documented,
designed, operated or reviewed, or if it interprets the relevant requirements differently from us, then it may not be able to issue an unqualified opinion. In addition, our reporting obligations as a
public company may place a significant strain on our management, operational and financial resources and systems for the foreseeable future.

In
addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not
be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal
control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our
reported financial information. This could harm our operating results and lead to a decline in the market price of our ADSs. Additionally, ineffective internal control over financial reporting could
expose us to increased

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risk
of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.

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 annual report, Mr. Dong Yu, our founder, chairman and chief executive officer, through Skillgreat Limited, beneficially owned 37.1% of our outstanding share
capital. 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 Bona Film Group Co., Ltd. (PRC) 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
October 19, 2011, our affiliated consolidated entity, Bona Film Group Co., Ltd. (PRC) entered into a general credit facility agreement with the Bank of Beijing under which the
Bank of Beijing has agreed to extend a line of credit of RMB100 million to Bona Film Group Co., Ltd. (PRC) for one year from the date of the agreement. We may draw upon the line of 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 Bona Film Group Co., Ltd. (PRC)'s subsidiaries, Beijing Bona Cineplex. 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 Bona Film Group Co., Ltd. (PRC) 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 annual report, Mr. Yu, through Skillgreat Limited, beneficially owned 37.1% of our outstanding
share capital.

A
failure or delay by Bona Film Group Co., Ltd. (PRC) to meet its payment obligations promptly under the agreement or the failure by Bona Film Group Co., Ltd. (PRC) 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.

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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, movie theater operation 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 "Item 4. Information on the
CompanyB. Business OverviewRegulations of Our Industry." 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, movie theater operation, talent agency or advertising services in China. The shareholders of our
affiliated consolidated entities are set forth in "Item 4. Information on the CompanyC. Organizational Structure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, movie theater operation, 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 "Item 4. Information on the
CompanyC. Organizational StructureContractual Arrangements with Our Affiliated Consolidated Entities."

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 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 our initial public offering continued 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:



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The
imposition of any of these penalties could result in a material and adverse effect on our ability to conduct our business, 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, movie theater operation, talent agency and advertising businesses in China. 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 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

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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.

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

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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. 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.

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.

On
August 8, 2006, six PRC regulatory authorities, including the CSRC, jointly promulgated the Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors
in the People's Republic of China, or the 2006 M&A Rules, which were later amended on June 22, 2009. The 2006 M&A Rules 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 samede factocontrolling 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 our initial public 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.

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.

Risks Relating to the PRC

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



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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 may
negatively affect our business. For example, our business, financial condition and results of operations 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 reserve requirement 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 reserve requirement 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 reserve requirement 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.

We
conduct substantially all of our business through our subsidiary and affiliated consolidated entities and their subsidiaries established in China. 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. 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 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.

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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 annual report.

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 many other countries outside China upon our senior executive officers, including with respect
to matters arising under U.S. federal securities laws and applicable United States state securities laws. China does not have treaties providing
for the reciprocal recognition and enforcement of judgments of courts with the United States, the United Kingdom, Japan and many other countries. As a result, it may not be possible for
investors to serve process upon us or those persons in China, or to enforce against us or them in China, any judgments obtained from non-PRC courts.

The audit report included in this annual report are prepared by auditors who are not inspected by the Public Company Accounting Oversight Board and, as such, you are deprived
of the benefits of such inspection

Our
independent registered public accounting firm that issues the audit reports included in our annual reports filed with the United States Securities and Exchange Commission, as
auditors of companies that are traded publicly in the United States and a firm registered with the United States Public Company Accounting Oversight Board, or the PCAOB, is required by the laws
of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are located
in the Peoples' Republic of China, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected
by the PCAOB.

Inspections
of other firms that the PCAOB has conducted outside China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed
as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly evaluating our auditor's audits and its quality control
procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.

The
inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our auditor's audit procedures or quality control
procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our
financial statements.

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

In
utilizing the proceeds from our initial public 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 State Administration of Foreign Exchange, or 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

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or
any of the affiliated consolidated entities. If we fail to receive such registrations or approvals, our ability to use the proceeds from our initial public 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.

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, and several implementation rules requiring PRC residents to register with the competent local SAFE branch in
connection with 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 and its implementation rules 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, Mr. Hai Yu and Mr. Zhong Jiang have registered with the
local SAFE branch for the foreign exchange registrations of overseas investments and have amended such registrations to reflect recent developments of our company and our PRC subsidiary, including the
initial public offering of our ADSs. However, 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 and its implementation rules 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 and its implementation rules 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 incentive plans may subject the PRC plan participants or us to fines and other legal
or administrative sanctions.

Under
the applicable PRC regulations, PRC residents who participate in an employee incentive 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 or other qualified institution selected by such PRC
subsidiary to handle various foreign exchange matters associated with these plans. The PRC agents should, on behalf of the PRC residents, 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 residents' participation in the employee stock incentive plan. We and our PRC resident employees who
participate in an employee stock incentive plan are subject to these regulations. 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 "Item 4. Information on the CompanyB. Business OverviewRegulations of Our IndustryRegulations on Employee
Stock Option Granted by Offshore Listed Companies."

The approval of the China Securities Regulatory Commission, or the CSRC, may have been required in connection with our initial public offering. 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.

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

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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 our initial public offering in December 2010 are subject to the 2006 M&A Rules.

Our
PRC counsel, Han Kun Law Offices, had advised us at the time of our initial public offering 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:



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 our initial public 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.

We
cannot predict when the CSRC may promulgate additional rules or other guidance, if at all. 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.

PRC laws and regulations establish more complex procedures for some acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue
growth through acquisitions in China.

PRC
laws and regulations, such as the 2006 M&A Rules, the Anti-Monopoly Law and the national security review rules issued by the PRC governmental authorities in 2011, or the
Security Review Rules, have established additional procedures and requirements that make or are expected to make merger and acquisition activities in China by foreign investors more
time-consuming and complex. Such procedures and requirements include, for example, requirements in some instances that the Ministry of Commerce of the PRC, or MOFCOM, be notified in
advance of any change-of-control transaction in which a foreign investor takes control of a PRC domestic enterprise, or that the approval from the MOFCOM be obtained in
circumstances where overseas companies established or controlled by PRC enterprises or residents acquire affiliated domestic companies. The Security Review Rules further provide that acquisitions by
foreign investors of domestic companies engaged in military-related or certain other industries that are crucial to national security shall be subject to prior security review. The Security Review
Rules stipulate that the principle of substance over form should be applied in determining whether a specific merger or acquisition of a domestic enterprise by foreign investors is subject to security
review by MOFCOM, and foreign investors are prohibited from bypassing the security review requirement by structuring transactions through proxies, trusts, indirect investments, leases, loans,
control through contractual arrangements or offshore transactions. If the business of any target company that we plan to acquire falls within the ambit of security review, we may not be able to

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successfully
acquire such company either by equity or asset acquisition, capital contribution or through any contractual arrangement. We may grow our business in part by acquiring other companies
operating in our industry. Complying with the requirements of the relevant regulations to complete such transactions could be time-consuming, and any required approval processes, including
approval from the MOFCOM, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

Governmental control of currency conversion may affect the value of your investment and limit our foreign exchange transactions, including dividend payments on
our ADSs.

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, the 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. In 2011, the Renminbi appreciated 4.86% against the U.S. dollar. 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.

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, revenue, 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,

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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, financial condition and results
of operations.

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. 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 "Item 4. Information of the CompanyB. Business OverviewRegulations of Our Industry

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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.

Recent press reports concerning possible increased scrutiny by Chinese authorities of the variable interest entity, or VIE, structure used by us and various other Chinese
companies publicly-traded in the United States appear to have created concern among investors and caused the price of our common stock to drop, and such reports may have such an effect in
the future.

We
operate a VIE structure in which substantially all of our operations in China are conducted by our affiliated consolidated entities, in which we do not own any equity interest,
through our contractual arrangements. In the past several months, various prominent Western news outlets have reported that the PRC Ministry of Commerce and the China Securities Regulatory Commission,
among other Chinese regulatory authorities, may be considering increased scrutiny or enhanced regulation of Chinese companies that use VIE structures to conduct certain businesses in which foreign
investment is prohibited or restricted under PRC law, including film and entertainment businesses in which we are engaged. Some of such news reports have also sought to draw a connection between
recent widely reported accounting issues at certain Chinese companies and the use of VIE structures. Such news reports appear to have had the effect of causing significant drops in the market prices
of the shares of several Chinese companies, including us, that are publicly-traded in the United States. We believe even if any such Chinese regulatory authorities were to increase scrutiny of
VIE structures or adopt regulations specifically governing their use, the possibility is remote that any such scrutiny would have a material adverse impact on us or cause us to change our existing
operational structure in any materially adverse way. However, it is possible that there will be such increased scrutiny or enhanced regulation in the future. In addition, while we are not aware of any
causal connection between the recently reported accounting scandals and the use of VIE structures, it is possible that investors in our common stock will believe that such a connection exists. Any of
such circumstances could lead to further loss of investor confidence in Chinese companies such as ours and cause fluctuations in the market prices of our common stock and, if such prices were to drop
sharply, could subject us to shareholder litigation, which could cause the price for our shares to drop further.

Risks Relating to our ADSs

The market price for our ADSs has experienced volatility since our ADSs began trading on NASDAQ and may be subject to fluctuations in the future. Any such volatility could
result in a loss to you.

The
trading price of our ADSs has been and may continue to be subject to wide fluctuations. Our ADSs were first traded on the Nasdaq Global Market under the symbol "BONA" on
December 9, 2010. During the period from December 9, 2010 until April 26, 2012, the trading prices of our ADSs

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ranged
from US$3.50 to US$8.50 per ADS and the closing sale price on April 26, 2012 was US$5.60 per ADS.

The
trading price for our ADSs may continue to be volatile and subject to wide fluctuations in response to various factors, including but not
limited to:



We
cannot assure you that the price of our ADSs will not decline.

Future equity issuances, substantial future sales or perceived sales of our equity securities could cause the price of our equity securities
to decline.

Future
equity issuances, sales of our equity securities or the perception that these sales could occur, could cause the market price of our equity securities to decline. We cannot assure
you that our substantial shareholders will not dispose of the equity securities held by them or that we will not issue equity securities in the future. We cannot predict the effect, if any, that any
future sales of equity securities by our substantial shareholders, or the availability of equity securities for sale by our substantial shareholders, or the issuance of equity securities by our
company may have on the market price of our equity securities. Sales or issuance of substantial amounts of equity securities by the substantial shareholders or us, or the market perception that such
sales or issuance may occur, could materially and adversely affect the prevailing market price of our ADSs.

As
of the date of this annual report, we had 30,402,346 ordinary shares issued and outstanding, including 9,396,838 ordinary shares represented by 18,793,676 ADSs.
All ADSs sold in our initial public offering are freely transferable without restriction or additional registration under the Securities Act of 1933 of the United States, as amended, or the
Securities Act. 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.

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 with the Securities and Exchange
Commission of the United States under the Securities Act upon the occurrence of certain circumstances. See "Item 7. Major Shareholders and Related Party TransactionsPrivate
Placements." 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 which became effective upon completion of our initial public offering includes 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

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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.

You may experience dilution because of the issuance of shares pursuant to the awards or options granted under the share incentive plans.

We
have granted share options to eligible participants under the 2009 share incentive plan and 2010 share incentive plan, including employees and non-employees of our Company
and our subsidiaries. Further details of the share incentive plans are summarized in "Item 6. Directors, Senior Management and EmployeesB. Compensation of Directors, Supervisors
and Executive
OfficersShare Incentive Plans" in this document. The granting of shares under the share incentive plans and the exercise of share options by the eligible grantees would result in, an
increase in the number of shares in issue, and may result in dilution to the percentage of ownership of our shareholders, and the earnings per ordinary share or ADS and the net asset value per
ordinary share or ADS.

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, 2011 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 2011 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 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 "Item 10. Additional InformationE. TaxationUnited States Federal
Income Tax ConsequencesPassive Foreign Investment Company."

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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 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.

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, the minimum notice
period required to convene a general meeting is seven days. When a general meeting is convened, holders of our ADSs may not receive sufficient notice of a shareholders' meeting to permit them to
withdraw their ordinary shares to allow them to cast their vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to holders
of our ADSs or carry out their voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to holders of our ADSs in a timely manner,
but we cannot assure them that they will receive the voting materials in time to ensure that they can instruct the depositary to vote their 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

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vote
is cast or for the effect of any such vote. As a result, holders of our ADSs may not be able to exercise their right to vote and they may lack recourse if their ADSs are not voted as they
requested. In addition, in the capacity as an ADS holder, they 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 ADSs if a holder of our ADSs does not vote at shareholders' meetings,
except in limited circumstances, which could adversely affect their interests.

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



The
effect of this discretionary proxy is that a holder of our ADSs cannot prevent our ordinary shares underlying such 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.

Holders of our ADSs may be subject to limitations on transfers of ADSs.

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.

The rights of holders of our ADSs to participate in any future rights offerings may be limited, which may cause dilution to their holdings and they may not receive cash
dividends if it is impractical to make them available to them.

We
may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to holders of our ADSs 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 holders of our ADSs 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, holders of our ADSs may be unable to participate in our rights offerings and may experience dilution in their holdings.

In
addition, the depositary has agreed to pay to holders of our ADSs 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. Holders of our ADSs will receive these distributions in proportion to the number of ordinary shares their ADSs represent. However, the depositary may,
at its discretion,

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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 holders
of our ADSs will not receive any such distribution.

Item 4.    Information on the Company



Our affiliated consolidated entity, Beijing Baichuan Film Distribution Co., Ltd., a PRC company whose primary business was the distribution of films
and related activities, 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. On
July 8, 2010, we incorporated Bona Film Group Limited in the Cayman Islands as a listing vehicle for our initial public offering. 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.

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 and
another affiliated consolidated entity, with the exception of Beijing Bona Advertising Co., Ltd., 3% of the outstanding equity interest of which is held by Mr. Zhong Jiang, our
independent director.

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 "C. Organizational Structure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 Cineplex and Beijing Bona Youtang, two companies focused 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.

On
December 14, 2010, we completed our initial public offering, in which we offered and sold 5,870,000 ordinary shares in the form of ADSs, raising US$92.8 million
in proceeds before expenses to us.

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In
July 2011, we entered a series of agreements to acquire Alpha Speed Limited, a British Virgin Islands company and Bona Starlight, a PRC company which held five subsidiaries at
the time of the acquisition primarily focused on the movie theater business in the PRC. Prior to the acquisitions, Alpha Speed Limited was owned 51% by Skillgreat Limited, which is wholly owned by
Mr. Dong Yu, and Bona Starlight was also owned 51% by Mr. Dong Yu. We acquired Alpha Speed Limited and Bona Starlight with total cash consideration of US$30.9 million, of which
US$3.1 million was settled as an offset against the amount that our Company was owed by Mr. Dong Yu, and US$2.4 million was not yet paid as of December 31, 2011. After the
acquisition, we developed and opened two new movie theaters, Beijing Bona Jingpin Cineplex Management Co., Ltd and Beijing Bona Tianshi Cineplex Management Co., Ltd., and
we are currently in the process of developing a new movie theater, Dongguan Bona Dongsheng Cineplex Investment Co., Ltd.

In
November 2011, we entered into an agreement to acquire up to 500,000 Series A preferred shares of China Lion Entertainment Limited, representing 20% of the
company's total issued shares, for a total consideration of US$1.7 million. We believe that the purchase of this strategic equity stake will serve to strengthen our international distribution
capabilities in U.S. and Canada.

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.



Overview

We are a leading film distributor in China. A small number of our films, typically ones that are released during the peak seasons,
account for a substantial portion of our net revenue each year. Our remaining films generate lower net revenue but generally have lower costs for the acquisition of distribution rights or production.
Our top five films each year in 2009, 2010 and 2011 accounted for 67.9%, 53.5% and 58.3% of our net revenue in those years, respectively. Since our inception in November 2003 to
December 31, 2011, we distributed 154 films (including 37 films internationally), and we generally distribute between 16 and 20 films theatrically each year.

We
believe that our brand name and reputation in the film industry, our experience in film distribution and marketing, our collaborations with other domestic and international film
industry players, and our management's access to key industry participants enable us to identify and secure distribution rights for promising film projects.

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 in China through joint distribution
arrangements with industry participants such as the state-owned China Film Group Corporation. We have also distributed 25 Chinese films (including Hong Kong films) internationally since the
beginning of 2009, from which we generated US$2.0 million, US$5.7 million and US$10.7 million in net revenue in 2009, 2010 and 2011, 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 revenue. 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 revenue 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.

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In
addition to our film distribution and film and television production operations, we owned and operated 11 movie theaters in commercial districts and residential areas in
several major cities in China as of December 31, 2011. 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. We began operating our movie theater business in 2010 and we increased the number of movie theaters we operate from six as of April 30, 2010 to 11 as of
December 31, 2011. Our movie theater business generated net income of US$0.4 million from April 23 to December 31, 2010 and net loss of US$0.2 million for 2011. Our
talent agency business leverages our relationships in the film and entertainment industry and gives us additional insight into upcoming film projects, while providing us with another source of
promising film opportunities. We leverage our films and movie theater operations to attract advertisers. 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 revenue of US$38.4 million, US$52.8 million and US$126.2 million in 2009, 2010 and 2011, respectively, representing a CAGR of 81.3%. We had a net
income of US$5.5 million in 2009, a net loss of US$4.2 million in 2010 and a net income of US$14.6 million in 2011. Our net income in 2009 included a gain of US$0.1 million
from changes in fair value of derivatives, our net loss in 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 2009, 2010 and 2011, was US$5.4 million, US$10.8 million and US$18.2 million,
respectively, representing a CAGR of 84.0%. 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 annual report. 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.

Film Distribution

Our core business is the distribution of films produced in China and Hong Kong to theater circuits in China. Since our inception in
November 2003 to December 31, 2011, we distributed 154 films, including 37 films internationally. The films we distributed have earned numerous industry awards, including
Hong Kong Film Awards and Golden Horse Awards, and received recognition at prominent international film festivals, including the Berlin Film Festival. We distribute (i) films produced by
third-party production studios for which we have distribution rights and (ii) films we produced and in which we hold ownership interests in the copyright. We generally distribute between 16 and
20 films theatrically per year. In 2011, we distributed 15 films theatrically, includingThe Road Less Travelled(released on
December 31, 2010, which contributed most of its revenue in year 2011), four of which we own all of the copyright and five of which we own part of the copyright through our participation in the
financing of the film. In 2009, 2010 and 2011, we distributed 16, 13
and 15 films, representing box receipts of RMB769.2 million, RMB450.5 million and RMB1,158.9 million, respectively.

Our
film distribution activities primarily consist of (i) film sourcing, which includes identifying quality film projects with commercial potential and securing film distribution
rights, (ii) print and marketing, which includes coordinating the distribution of film prints to theater circuits, as well as conducting marketing and publicity campaigns to promote the films
to their target audiences, (iii) exhibition, which includes negotiating the terms of exhibitions of films in domestic and international movie theaters as well as through
non-theatrical distribution channels, and (iv) film

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advertising,
which includes the sale of approximately three minutes advertising time immediately prior to the start of the theatrical screening of a film, in-film product placements and
cross-promotion campaigns.

The
following table lists a selection of the films we distributed including in the case of foreign films, those of which we assisted in marketing:

Title

Release Date

Principal Cast

Genre

Revenue
Sources

Gross Box
Office(RMB
millions)A Simple Life CHINESE_TEXT

March 8, 2012

Andy Lau, Deannie Yip CHINESE_TEXT

Drama

Copyright/Distribution


68.1The Great Magician CHINESE_TEXT

January 12, 2012

Tony Leung, Xun Zhou, Ching Wan Lau CHINESE_TEXT

Historical Drama

Copyright/Distribution


171.6Flying Swords of Dragon Gate CHINESE_TEXT

December 15, 2011

Jet Lee, Xun Zhou, Kun Chen, Lun Mei Kwai CHINESE_TEXT

3D martial Arts

Copyright/Distribution


553.6The Sorcerer and the White Snake CHINESE_TEXT

September 28, 2011

Jet Lee, Shengyi Huang, Charlene Choi, Raymond Lam CHINESE_TEXT

Martial Arts

Distribution


198.1Source Code CHINESE_TEXT

August 30, 2011

Jake Gyllenhaal, Vera Farmiga, Michelle Monaghan

Action/Thriller

Distribution


69.9Overheard 2 CHINESE_TEXT

August 18, 2011

Ching Wan Lau, Louis Koo, Daniel Wu CHINESE_TEXT

Crime Thriller

Copyright/Distribution


214.0Night Market Hero CHINESE_TEXT

July 12, 2011

Lan Chin Lung CHINESE_TEXT

Comedy

Distribution


1.3Treasure Inn CHINESE_TEXT

June 28, 2011

Nicholas Tse, Nick Cheung, Charlene Choi CHINESE_TEXT

Martial Arts Comedy

Copyright/Distribution


101.1Pleasant Goat and Big Big Wolf 3 CHINESE_TEXT

January 21, 2011



Animation

Distribution


40.6A Beautiful Life CHINESE_TEXT

May 13, 2011

Ye Liu, Qi Shu CHINESE_TEXT

Drama

Copyright/Distribution


20.0What Women Want CHINESE_TEXT

February 2, 2011

Andy Lau, Gong Li, Li Yuan CHINESE_TEXT

Romantic Comedy

Copyright/Distribution


63.8The Road Less Travelled CHINESE_TEXT

December 31, 2010

Louis Koo, Karen Mok, Yi Huang CHINESE_TEXT

Drama

Copyright/Distribution


6.7


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Title

Release Date

Principal Cast

Genre

Revenue Sources

Gross
Box
Office(RMB
millions)Just Call Me Nobody CHINESE_TEXT

December 3, 2010

Benshan Zhao, Shenyang Xiao, Kelly Lin CHINESE_TEXT

Martial Arts Comedy

Copyright/Distribution


151.0Triple Tap CHINESE_TEXT

July 2, 2010

Louis Koo, Daniel Wu, Li Bing Bing, Charlene Choi, Chapman To, Alex Fong, Andrew Lin, Lam Suet, Michael Wong CHINESE_TEXT

Action

Copyright/Distribution


126.4Fire of Conscience CHINESE_TEXT

April 1, 2010

Leon Lai, Richie Ren CHINESE_TEXT

Action

Primary Distribution


18.4My Iz Budushchego (Russia) CHINESE_TEXT

March 5, 2010

Boris Galki, Daniil Strakhov, Yekaterina Klimova

Action/Drama

Marketing Assistance


11.4Like a Dream CHINESE_TEXT

February 2, 2010

Daniel Wu, Quan Yuan CHINESE_TEXT

Drama

Copyright/Distribution


0.8Pleasant Goat and Big Big Wolf 2 CHINESE_TEXT

January 29, 2010



Animation

Distribution


21.7Bodyguards and Assassins CHINESE_TEXT

December 18, 2009

Donnie Yen, Nicholas Tse, Leon Lai, Bingbing Fan, Xueqi Wang, Tony Leung, Jun Hu, Bojie Wang, Yuchun Li, Mengke Bateer, Yun Zhou, Hanyu Zhang, Michelle Lee CHINESE_TEXT

Action/Drama/History

Copyright/Distribution


291.4Mulan CHINESE_TEXT

November 27, 2009

Vicki Zhao, Kun Chen, Jaycee Chan CHINESE_TEXT

Historical Drama

Regional Joint Distribution


66.3Wheat CHINESE_TEXT

September 28, 2009

Bingbing Fan, Jue Huang, Jiayi Du CHINESE_TEXT

Historical Drama

Participation


9.9Empire of Silver CHINESE_TEXT

August 21, 2009

Aaron Kwok, Lei Hao CHINESE_TEXT

Drama

Distribution


22.7


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Title

Release Date

Principal Cast

Genre

Revenue
Sources

Gross Box
Office(RMB
millions)Overheard CHINESE_TEXT

July 24, 2009

Ching Wan Lau, Louis Koo, Daniel Wu CHINESE_TEXT

Action

Copyright/Distribution


89.3I Corrupt All Cops CHINESE_TEXT

April 29, 2009

Eason Chan, Tony Leung, Anthony Wong CHINESE_TEXT

Crime/Action

Distribution


19.0The Counterfeiter (Austria) CHINESE_TEXT

April 14, 2009

Karl Markovics, August Diehl, David Striesow

Drama

Marketing Assistance


9.8Irreversi CHINESE_TEXT

February 20, 2009

Lynda Wei, Adam Liu CHINESE_TEXT

Thriller

Distribution


2.6Pleasant Goat and Big Big Wolf CHINESE_TEXT

January 16, 2009



Animation

Regional Joint Distribution


26.8All About Women CHINESE_TEXT

December 4, 2008

Xun Zhou, Kitty Zhang, Lun-Mei Guey CHINESE_TEXT

Romantic Comedy

Distribution


21.4Connected CHINESE_TEXT

September 28, 2008

Louis Koo, Barbie Hsu, Nick Cheung CHINESE_TEXT

Action

Distribution


43.5The Deserted Inn CHINESE_TEXT

August 15, 2008

Meitian He, Kenny Kwan CHINESE_TEXT

Thriller

Participation


15.4Almost Perfect CHINESE_TEXT

August 1, 2008

Leon Jay Williams, Crystal Huang CHINESE_TEXT

Comedy

Distribution


49.3Red Cliff CHINESE_TEXT

July 10, 2008

Tony Leung, Takeshi Kaneshiro, Zheng Zhang, Chiling Lin, Jun Hu, Vicki Zhao CHINESE_TEXT

Action/Drama/History/War

Participation


313.9Run Papa Run CHINESE_TEXT

May 30, 2008

Louis Koo, Rene Liu, Jackie Chan CHINESE_TEXT

Family

Marketing Assistance


11.3And the Spring Comes CHINESE_TEXT

April 11, 2008

Wenli Jiang, Yao Zhang, Guangjie Lee CHINESE_TEXT

Drama

Distribution


2.9An Empress and the Warriors CHINESE_TEXT

March 7, 2008

Kelly Chen, Donnie Yen, Leon Lai CHINESE_TEXT

Action

Participation


43.0


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Title

Release Date

Principal Cast

Genre

Revenue
Sources

Gross Box
Office(RMB
millions)Marriage Trap CHINESE_TEXT

February 14, 2008

Tao Guo, Hong Tao CHINESE_TEXT

Comedy

Participation


4.3CJ7 CHINESE_TEXT

January 31, 2008

Stephen Chow, Jiao Xu, Kitty Zhang CHINESE_TEXT

Sci-Fi

Participation


200.9The Warlords CHINESE_TEXT

December 13, 2007

Jet Li, Andy Lau, Takeshi Kaneshiro CHINESE_TEXT

Action/Drama/ History/War

Participation


200.1Lost in Beijing CHINESE_TEXT

November 30, 2007

Tony Leung, Bingbing Fan CHINESE_TEXT

Drama

Distribution


10.8Sinking of Japan (Japan) CHINESE_TEXT

August 24, 2007

Tsuyoshi Kusanagi, Ko Shibasaki, Etsushi Toyokawa, Mao Daichi, Mitsuhiro Oikawa, Mayuko Fukuda, Hideko Yoshida, Akira Emoto, Koji Ishizaka

Adventure/Drama

Marketing Assistance


14.1Flash Point CHINESE_TEXT

August 3, 2007

Donnie Yen, Louis Koo, Collin Chou CHINESE_TEXT

Action

Participation


33.8Arsène Lupin (France) CHINESE_TEXT

April 13, 2007

Romain Duris, Philippe Magnan, Mathiue Carrière, Patrick Toomey, Robin Renucci

Action/Adventure

Marketing Assistance


5.2Postmodern Life of My Aunt CHINESE_TEXT

March 2, 2007

Yun-Fat Chow, Gaowa Siqin, Vicki Zhao CHINESE_TEXT

Comedy

Distribution


6.6Twins Mission CHINESE_TEXT

February 18, 2007

Sammo Hung, Gillian Chung, Jacky Wu CHINESE_TEXT

Action

Distribution


14.5Protégé CHINESE_TEXT

February 14, 2007

Andy Lau, Daniel Wu, Louis Koo CHINESE_TEXT

Crime/Action

Participation


64.3


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The following table lists a selection of unreleased films in our pipeline.

Title

Director

Principal Cast

GenreThe Grand Master CHINESE_TEXT

Wong Kar Wai CHINESE_TEXT

Tony Leung, Ziyi Zhang, Song Hye Kyo CHINESE_TEXT

Martial ArtsFlying Machine CHINESE_TEXT

Geoff Lindsey & Martin Clapp

Lang Lang, Heather Graham CHINESE_TEXT

3D FamilyLegend of Mulan CHINESE_TEXT

Jan de Bont CHINESE_TEXT

Ziyi Zhang CHINESE_TEXT

Historical ActionThe Lion Roars 2 CHINESE_TEXT

Joe Ma CHINESE_TEXT

Cecilia Cheung, Shenyang Xiao CHINESE_TEXT

Romantic ComedyThe Three Musketeers CHINESE_TEXT

Paul W.S. Anderson

Logan Lerman, Milla Jovovich, Orlando Bloom

Action/3DPrincess and 7 Kung Fu Masters CHINESE_TEXT

Wong Jing CHINESE_TEXT

Sammo Hung, Eric Tsang, Sandra Ng CHINESE_TEXT

Martial Arts ComedySeefood CHINESE_TEXT

Aun Hoe Gou



AnimationTracks in the Snowy Forest CHINESE_TEXT

Tsui Hark CHINESE_TEXT

To be determined

Drama/3DThe White-Hair Witch CHINESE_TEXT

Jacob Cheung CHINESE_TEXT

To be determined

Martial Arts/3DThe Last Tycoon CHINESE_TEXT

Wong Jing CHINESE_TEXT

Yun-Fat Chow, Sammo Hung CHINESE_TEXT

Action/3DChristmas Rose CHINESE_TEXT

Charlie Yeung CHINESE_TEXT

Aaron Kwok CHINESE_TEXT

DramaThe Next 11 Days CHINESE_TEXT

Guoxing Chen CHINESE_TEXT

Yuanzheng Feng CHINESE_TEXT

ActionOverheard 3 CHINESE_TEXT

Mak Shui Fai Alan,
Chong Man Keung CHINESE_TEXT

To be determined

Crime Thriller


Film Sourcing

Film project identification.We identify promising film projects through a variety of sources, including collaboration with industry
players, our
management's relationships, and contacts in the film and entertainment industry. We believe that our brand name and reputation in the film industry, our experience in film distribution and marketing
in China, our collaborations with other domestic and industry players and our management's access to key industry participants enable us to identify and secure distribution rights for promising
film projects.

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Distribution rights acquisition.The decision to acquire distribution rights is made collectively by our senior management, supported by
analysis on
a variety of factors that typically include a film's expected critical reception, marketability and potential for box office success, as well as the cost to acquire the film, the estimated
distribution and marketing expenses required to bring the film to its widest possible target audience and ancillary market potential post theatrical release.

We
seek to structure our distribution arrangements to achieve the desired balance of risk and benefits of the commercial success of a film. We may acquire distribution rights through a
variety of arrangements, including (i) buy-off distribution arrangements, 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) commission-based distribution arrangements, 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, and (iii) minimum guarantee distributions, in which we receive a higher proportion of the box office proceeds, subject to paying the producer the amount of
any shortfalls from a minimum amount.

We
typically enter into distribution agreements during the post-production stage of a film, which improves our ability to evaluate the market potential of the film, reduces
the risk of delays in the film's completion and enables us to evaluate the optimal distribution arrangement for the film. However, we may enter into distribution arrangements prior to the production
of certain films, such as
big budget blockbusters or where certain high-profile actors or directors are involved, or films of which we invest in production. We generally seek to acquire full distribution rights
that cover movie theater distribution, international distribution, as well as distribution through home video products, digital distribution, television and other channels. We generally seek
arrangements where we are reimbursed by film producers for the expenses we incur in marketing and promoting their films, and agree to waive such reimbursements in limited circumstances.

In
addition to exclusive distribution arrangements, we also selectively enter into a range of joint distribution arrangements that significantly increase our exposure to high quality
films and enhance our distribution opportunities, and by which we share the risks inherent in film distribution. For example, we collaborated with the China Film Group Corporation, the largest
state-owned film enterprise in China, to jointly distributeSource Code.

Print and Marketing

We coordinate the printing and distribution of film prints to theater circuits in China. We also conduct cost-effective
marketing and publicity campaigns to promote the films to their target audiences by integrating a broad spectrum of advertising media, including television, print, billboards and the Internet. As part
of our marketing work, we also organize appearances of the actors and directors of the films on television programs and at other events to promote the films.

Under
our distribution agreements, we are reimbursed by film producers for the expenses we incur in the printing, marketing and promotion of their films, and agree to waive such
reimbursements in limited circumstances. The reimbursement is done by deducting costs incurred in printing, marketing and a film from the box office receipts of the film, prior to the calculation of
our fee or of the remaining box office receipts to which we are entitled or that we share with the producers of the film.

Distribution Channels

Domestic.We generally pace the release of films we distribute to avoid scheduling conflicts with other films we have agreed to
distribute and time
the release of these films during favorable time periods, such as holiday seasons. We configure release schedules taking into account moviegoer attendance
patterns and competition from other distributors' scheduled theatrical releases. We grant exhibition rights of the films we distribute to theater circuits throughout China on a
film-by-film basis. We typically give a theater circuit the right to exhibit the film in exchange for a fixed percentage of the

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box
office receipts they generate. Ticket prices are typically set based on the city and district where a theater is located, the appeal and marketability of the film, and other competitive and market
factors, such as its proximity to other theaters. Our agreements with the theater circuits will also specify the period during which they may exhibit the film, which will generally depend on the box
office performance of each film. Marketable films that are expected to have high box office admissions revenue will generally have longer licensing terms compared to films with more uncertain
performance potential and popularity. We have exhibition arrangements with virtually all theater circuits in China, including Wanda, China Film Group Digital Circuits, Shanghai United, Beijing
New Film and China Film South. We distributed 14, 11 and 11 domestic films (including Hong Kong films) in 2009, 2010 and 2011, respectively.

We
have 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 theater circuits value their relationships with us because we offer them access to our pipeline of approximately 16 to 20 films annually in a variety of genres as well as a
share of revenue 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.

The
number of certain foreign films that may be exhibited in China on a box office sharing basis is limited by the PRC central government to approximately 20 films per year. In
addition, there are separate quotas for films imported through the buy-off distribution method each year mainly from countries other than the United States and for 3-D
films. It was recently reported that the PRC government has agreed, in connection with a World Trade Organization dispute settlement, to increase the number of foreign premium format films, such as
3-D or IMAX films, that may be imported into China by 14 films per year. 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, but companies like ourselves can enter into marketing
assistance agreements with the state-owned enterprises to provide marketing assistance for such foreign films. Films produced in Hong Kong and Macau (subject to certain requirements) do not fall
within the foreign film quota limitation but are considered foreign films for purposes of government review and approval processes. We assisted in the marketing of one, two and one foreign films
(excluding Hong Kong films) in 2009, 2010 and 2011, respectively, with China Film Group Film Distribution & Exhibition Corporation and Huaxia Film Distribution Co., Ltd. We
are also one of the most prominent distribution partners for leading players in the Hong Kong film
industry, such as Derek Yee, Tsui Hark and Wong Jing. We believe our brand name and track record will position us to participate in foreign film distribution in China if current regulatory
restrictions on who may distribute foreign films are eased or eliminated.

Our
distribution of films in domestic theater circuits also includes exhibition through our own movie theaters. See "Movie Theater Operations" below.

International.We conduct the international distribution of films on a territory-by-territory and
film-by-film basis through cooperation with local third parties. Our international film distribution activities primarily consist of the licensing and sale of rights to
distribution for films for which we have full distribution rights as well as films we produce or in which we have a partial or full interest in the copyright. Our licensing agreements with overseas
partners, typically based on the Independent Film and Television Alliance standard form, set forth 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 exhibition methods such as DVD and other home video products, Internet and other digital distribution,
in-flight entertainment and television.

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We
distribute films internationally, primarily in regions with large Chinese speaking populations, such as Hong Kong, Singapore, Malaysia, Macau, and Taiwan, as well as in other Asian
countries such as Korea and Japan generally through local distributors. We also arrange to distribute films that have broad box office appeal due to the involvement of internationally known directors
and actors in the United States and Europe. In November 2011, we entered into an agreement to acquire a strategic equity stake in China Lion Entertainment Limited, which we believe will
strengthen our film distribution capabilities in the United States and Canada. Based on our track record of distributing Chinese films internationally, we have cultivated relationships with
distributors for foreign markets, including the CJ Group for Korea and Japan and Celestial Movies Asia for Southeast Asia. Our foreign distribution arrangements are on a
film-by-film basis and typically provide us with a share of the overseas revenue of our films, subject to a minimum guarantee or advances payable to us. For certain regions and
films, we may license or sell our foreign distribution rights for a share of the overseas revenue without a minimum guarantee or at fixed amount, with no share of the overseas revenue. In addition, we
may also directly distribute the films to theater circuits in Hong Kong. In recent years, we have collaborated with 45 foreign distributors, to expand our distribution reach overseas. We
categorize film distribution to Hong Kong, Macau and Taiwan as part of our international distribution operations.

Non-theatrical channels.As consumer preferences have developed and technological changes have increased the channels through which
films
may be distributed, we have expanded into non-theatrical distribution channels through our relationships with third parties. Our arrangements with non-theatrical distributors
are typically made on a film-by-film basis. For films exhibited in movie theaters, our agreements typically establish an initial theater exhibition period during which no
distribution other than through movie theaters may be made. Following the expiration of the theater exhibition period, we commence distribution of films through other channels. We also distribute
films we produce through non-theatrical channels on a similar schedule.

Our
primary non-theatrical distribution channels, in order of general timing of release, consist of:



As
films continue to generate an increasing proportion of revenue from sources other than box office sales, we expect to continue to develop new and existing relationships to maximize
the value of our distribution rights.

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Film Advertising

The theatrical screening of a film generally includes over two minutes of advertising immediately prior to the start of the film. As
the film's distributor, we are typically entitled, subject to the consents of the copyright owners, to sell approximately three minutes of the advertising time closest to the start of the film, while
the remaining advertising time is sold by the movie theater operator (including by the movie theaters we operate). We generally sell 30-second slots using a scaled pricing system with
progressively more expensive slots, since audience attendance and attention tend to increase as the start of the film approaches. The number of advertising slots that can be shown will depend on the
expected popularity of the film, the film screening schedule at the theater and the consent of the copyright owner. Popular and widely publicized films account for a disproportionate amount of
advertising revenue, and there is considerably less demand for advertising time for other films.

Our
distribution rights may entitle us to place in-film advertisements in the films we distribute, or license product placements in or cross promotion rights to these films.
These advertising and promotional services are made on a film-by-film basis, with pricing determined by the popularity of the director and actors involved in the film, the
expected box office appeal of the movie and the prominence and length of the advertisement or product placement, as applicable. As these advertising and promotional services are tailored to the
individual client's needs, they are accordingly negotiated on a case-by-case basis.

Other Operations Along the Film Value Chain

Production

We invest in the production of domestic and Hong Kong films principally with the goal of obtaining distribution rights for movie
theater and non-theatrical channels, including home video, digital media and television, both domestically and internationally.

Film production.We began investing in film production in 2007 and had partial or full copyrights in five, six and nine films in 2009,
2010 and 2011,
respectively. By acquiring the distribution rights in addition to investing in film production, we gain greater control over the marketing and screening of the films and may reap additional share of
the box office success of and revenue from non-theatrical channels from these films. In addition, by investing in film production, we may also provide input on key aspects of the film,
such as the selection of the director and principal cast. The process of deciding to invest in a film is similar to that used in deciding whether to acquire distribution rights of a film. The
decisions are made by senior management, who will consider factors such as a film's expected critical reception, marketability and potential for box office success, as well as the size of the
investment, the timing of required cash outlays for production, the estimated distribution and marketing expenses required to bring the film to its widest possible target audience, and ancillary
market potential after its theatrical release. We generally make the decision whether to invest in a film in the pre-production stage as a means of procuring distribution rights. We have
invested in a total of 39 films that have been released as of December 31, 2011.

Collaborations.We also develop potential film production projects through collaborations with established and up-and-coming
producers and directors. For example, we formed Cinema Popular with Peter Chan, one of the most experienced and recognized producers and directors in the Chinese industry to co-produce Bodyguards and Assassins, the 5th highest grossing domestic movie since the commencement of economic reforms in China. We believe these
collaborative efforts and partnerships provide us with additional opportunities to identify and source potentially lucrative films for production or distribution, while also strengthening our brand
and reputation.

Film financing.Film production and, to a lesser extent, distribution is a capital intensive activity. We fund the production and
distribution of
films through cash flow from our business, short-term loans

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as
well as through syndication to other investors and producers. We manage the risks associated with committing to capital intensive film production projects in a number of ways. We limit the films we
invest in to an appropriate proportion of the films we distribute. We determine this proportion based on a number of factors, including each film's likely box office appeal based on the director and
actors participating in the film, its genre and subject matter, the amount of capital we have committed to other investment projects at that time and the availability of funding from bank borrowings
and film participations. We do not limit our investment in films to a specific percentage or number of films but evaluate investment opportunities on a film-by-film basis while
concentrating on diversifying our capital-at-risk. We either take the role of lead investor or co-investor with respect to a particular film. The role of lead
investor generally entails a greater investment amount and therefore greater risk, but can also gives us greater control over the production process and typically enables us to acquire copyrights to
the film. In the role of lead investor, we typically syndicate our investment in film production to other investors who share the investment risk. We also include a portion of the total estimated
production budget of the film as an administration fee from participating investors to cover costs we incur to manage the production process of the film. Alternatively, we also co-invest
in films. Co-investment generally entails less risk than the lead investment role. We typically obtain distribution rights to films in which we co-investment, but do not obtain
copyrights to these films.

We
have access to bank borrowings for the financing of our film projects. Under our loan agreements with Beijing Dongcheng branch of the Industrial and Commercial Bank of
China Ltd., we had obtained loans with an aggregate principal amount of RMB29.8 million (US$4.6 million) as of December 31, 2011. The interest rates for such financings are
subsidized through the Beijing Cultural and Creative Industry Promotion Center. In addition, we had obtained a line of revolving credit with a principal amount of RMB100.0 million
(US$15.9 million) from Bank of Beijing as of December 31, 2011.

Television series.Where our investment in film productions provides us with ownership of the copyright for the films, this enables us
to extend the
franchise of the films, such as through the development of television series based on the film script. For example, the television series we are currently producing include series based on our films Bodyguards and
AssassinsandThe Flying Swords of Dragon Gate, which are both expected to be completed
in 2013. While most of our television series are thematically based on our most popular films, we also produce television series that are independent of our films. For example, our television series, The King's
Battlesis scheduled to be broadcast in December 2012. We generally collaborate with industry players, including artists, television
channels and television production studios to develop our television series. Due to the fragmentation of the Chinese television industry, we often sell a single television series to multiple
television stations, and PRC rules and regulations currently permit us to sell first-round broadcasting rights for each of our television series to up to four satellite television stations.

Movie Theater Operations

We operated 11 movie theaters in eight cities in China as of December 31, 2011. The number of movie theaters we
operated grew from six as of April 30, 2010 to 11 as of December 31, 2011, through the acquisition of Bona Starlight in July 2011 and the development of a new movie
theater. We have developed and opened two additional movie theaters in 2012 and are currently in the process of developing an additional new movie theater. We intend to further increase the number of
movie theaters we operate to approximately 30 to 40 by the end of 2014, primarily by developing new movie theaters. We develop new theaters by renting a piece of property (for example,
in a shopping mall) and then refurbishing and installing movie theater equipment in the property.

Our
movie theaters generate revenue primarily through sales of admissions, concessions and advertising prior to the start of each film and within the theater. We believe that our
audiences are attracted to our movie theaters by the films we exhibit, the locations of our movie theaters and the

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overall
entertainment experience we offer. Our movie theaters are located in major commercial districts or residential areas and provide our audiences with facilities and features such as stadium
seating and state of the art projection and sound technologies. They are affiliated with leading theater circuits in China.

The
following table sets forth details of our movie theaters as of December 31, 2011.

Movie Theater

City/District

Screens

Total Seating
Capacity

Location DetailsBeijing Bona Shunjing Cineplex

Beijing


10


1,236

Located in central Shunyi commercial district.Beijing Bona Huixin Cineplex

Beijing


11


1,263

Located in one of the most populated areas in Beijing; local population of over one million residents.Tianjin Bona Jinkang Cineplex

Tianjin


11


1,625

Located one of the largest shopping mall in Tianjin near numerous major corporate offices; covers neighborhood with population of
approximately 500,000.Chongqing Bona Yuexin Cineplex

Chongqing


9


1,082

Located in rapidly developing commercial district; local population of over one million residents.Changsha Mango Bona Cineplex

Changsha, Hunan Province


10


1,037

Located in central Changsha commercial district nearby numerous major international and domestic businesses and major office
buildings.Bona Red Sparrow International Cineplex

Xi'an, Shaanxi Province


7


1,605

Located in second largest shopping mall in Xi'an near numerous major corporate offices; covers neighborhood with population of
approximately 500,000.Bona Xintiandi International Cineplex

Xi'an, Shaanxi Province


9


1,932

Located in university district with over 40 colleges and universities; covers areas with population of approximately
500,000.Beijing Bona Youtang Cineplex

Beijing


7


1,161

Located in central Chaoyang commercial district nearby numerous major international and domestic businesses and major office
buildings; one of the major meeting places for businesspeople and professionals.Shanghai Bona Yinxing Cinema

Shanghai


5


767

Located in rapidly developing commercial district; local population of over one million residents.Shijiazhuang Bona Cinema

Shijiazhuang, Hebei Province


7


1,133

Located in large urban area otherwise underserved by theater facilities; total urban population of 2.3 million with over
400,000 neighborhood residents.Shenzhen Bona Shidai Cinema

Shenzhen, Guangdong Province


9


1,355

Located in central northern commercial district with daily pedestrian traffic of over 500,000.


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Film Exhibitions.Our movie theaters exhibit desirable domestic, Hollywood and other foreign films licensed from state-owned and non
state-owned
distributors. Due to PRC regulations, movie theaters must be affiliated with a theater circuit and rely on theater circuits to negotiate the terms of agreements with film distributors and to provide
the films that they exhibit. The terms of the agreements under which our movie theaters exhibit films are made on a chain-by-chain and film-by-film
basis and depend on the expected performance of each film. Desirable films that are expected to have high box office admission revenue will generally have longer license terms than movies with more
uncertain performance and popularity.

Concessions.We operate concession stands in all our movie theaters that sell snacks and drinks as well as film-related memorabilia and
collectables. We continually seek to increase concessions sales by revising our product mix, introducing special promotions from time to time and offering employee training and incentive programs to
up-sell and cross-sell products.

Advertising.Our movie theaters sell advertising through a number of channels and media, including advertising time prior to the
screening of all
films exhibited in our movie theaters and the sale of advertising poster and frame space in our movie theaters. As a movie theater operator, we are typically entitled, subject to the consent of the
copyright owners, to sell a portion of the over two minutes of advertising time available at the start of a film. We generally utilize third party advertising service providers to sell
30-second slots using a scaled pricing system with progressively more expensive slots the closer the slot is to the screening of the film. The film distributor (which in some cases may
also be us) is entitled, subject to the consent of the copyright owners, to sell the time slots immediately preceding the screening of the film. The number of advertising slots will depend on the
expected popularity of the film, as well as the film screening schedule at the movie theater. In addition, we also provide promotion sponsorships and sell advertising poster and digital frame space,
typically for periods of one month or more, primarily to film producers to market their films, as well as to other companies, such as food and beverage companies, that want to target audiences that
attend our movie theaters.

Talent Agency Services

We operate a talent agency business that represented 25 artists as of December 31, 2011. Our agency contracts are
negotiated on a case-by-case basis. In most arrangements we act as an agent and are entitled to a percentage of an artist's fees for their roles in all artistic performances we
procure for them during the term of the contract, including television advertising engagements, performances in films, television programs and concerts and other appearances. We may also act as agent
for an artist for a single performance. In other arrangements, we act as the primary obligor and recognize revenue on a gross basis.The level of commission we receive is linked to the stage of the
career and level of fame of the artist, with higher commissions agreed to with newer, less established artists and lower commissions agreed to with more famous and established artists. The agency
contracts generally have terms of between three and ten years, with scheduled penalties if the artist terminates the contract prior to the agreed term.

Our
talent agency business leverages our relationships in the film and entertainment industry and gives us additional insight into upcoming film projects, while providing us with another
source of promising films for distribution. Our talent agency also attracts high profile as well as up-and-coming talent who desire access to our pipeline of high box office
potential film projects.

Competition

The film industry is a highly competitive business. We face competition for audiences from companies within the entertainment business
and from alternative forms of leisure entertainment, such

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as
sporting events, outdoor recreation, video games, the Internet and other cultural and computer-related activities.

The
films we distribute and invest in compete for audience acceptance and exhibition outlets with films produced and distributed by other companies. Our primary competitors in film
distribution and production include state-owned enterprises such as China Film Group and non state-owned companies
such as Huayi Brothers. 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 approximately 32.5% and 43.7% of the total domestic
films' box office between 2009 and 2011, according to EntGroup. Moreover, two state-owned film distributors have the exclusive right to distribute the limited number of foreign films that may be
exhibited in China on a box office sharing basis. Non state-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 non state-owned film distributors. Our company accounted for approximately 17.3%, 7.6% and 16.5% of the total domestic films' box office in 2009, 2010 and 2011, respectively,
and Huayi Brothers accounted for approximately 13.2%, 15.3% and 2.33% during the same respective years, according to EntGroup.

Domestically,
we compete with production and distribution companies for the acquisition of literary and film properties, the services of performing artists, directors, producers and
other creative and technical personnel and production financing, all of which are essential to the success of our business. Furthermore, the international film industry, particularly in more developed
markets such as the United States, competes directly with our film production business through marketing efforts aimed at the Chinese and Greater China markets. As a result, the success of any
of our films is dependent not only on the quality and acceptance of a particular film, but also on the quality and acceptance of other competing films released into the marketplace at or near the
same time.

The
market for movie theaters is highly fragmented and intensely competitive. Our movie theaters compete with other movie theater operators for audience acceptance on the basis of the
films we exhibit, the location of our movie theaters, and seating comfort, theater capacity, ticket prices, projection and sound systems that influence the audiences' experience. Our competitors in
the movie theater business include property developers who run their own movie theaters in their properties in prime locations. Our movie theaters also compete to enter into agreements with theater
circuits and secure film exhibitions offered by theater circuits based on factors such as the location, condition and capacity of the theater, revenue potential and licensing terms and a theater
operator's ability to attract and license desirable films. We compete for new theater sites with other theater operators as well as other entertainment venues.

The
talent agency services industry is highly fragmented, with numerous agencies of varying sizes and reputations existing across China. Our talent agency competes against other talent
agencies on the basis of our brand name, reputation for access to industry participants and desirable film and television projects as well as pricing.

Intellectual Property

Our intellectual property assets include copyrights in films, trademarks in names, logos and characters, domain names, and licenses of
intellectual property rights of various kinds, primarily in the films we distribute.

We
currently have full ownership of the copyright to nine films, partial ownership of the copyright to 14 films and participation in financing of two film productions
without distribution rights or copyright. We primarily derive value from our copyrights and film distribution licenses through the theatrical release of films and the distribution and licensing of our
films to movie theaters. We also

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monetize
our film rights through distribution of our films on broadcast television and cable network, Internet and digital distribution, and through the sale of home video products, such as DVDs and
Blu-ray discs.

We
devote significant resources to protecting our intellectual property in China and other key territories. We rely upon a combination of copyright, trademark and Internet/domain name
statutes and laws and contract provisions to protect our intellectual property. However, there can be no assurance of the degree to which these measures will be successful in any given case. Policing
unauthorized use of our film rights and related intellectual property is often difficult and the steps taken may not in every case prevent the infringement by unauthorized third parties of our
intellectual property. We seek to limit that threat through a combination of approaches, including offering legitimate market alternatives, deploying digital rights management technologies, pursuing
legal sanctions for infringement under domestic and foreign laws and under international treaties, and enhancing public awareness of the meaning and value of intellectual property and intellectual
property laws. Copyright protection is a serious problem in the film distribution, production and exhibition industries because of the ease with which films may be duplicated and distributed
illegally. Film piracy is widespread in China and other Asian countries to a greater extent that in the United States and Europe. Film piracy continues to be prevalent across the entertainment
industry. See "Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryPiracy of films and television series, including digital
and Internet piracy, may reduce the gross receipts from the exploitation of our films and television series." We have taken legal actions to enforce copyright protection when necessary.

Third
parties may challenge the validity or scope of our intellectual property from time to time, and such challenges could result in the limitation or loss of intellectual property
rights. Irrespective of their
validity, such claims may result in substantial costs and diversion of resources that could have an adverse effect on our operations. Moreover, effective intellectual property protection has
historically been weaker in China than in more developed countries such as the United States, and it may be either unavailable or limited in other foreign territories.

Our
trademarks include "Bona," which we are in the process of registering. We regard our trademarks as valuable assets and believe that our trademarks are an important factor in
marketing our products. We also hold various domain names relating to our trademarks and service marks, includingwww.bonafilm.cn. We do not know if the
trademarks for which we have submitted registration applications will obtain registrations with the scope of commercial coverage that we seek, if at all, or whether any trademark we have registered or
may receive registration in the future will be challenged or invalidated. See "Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and
IndustryFailure to protect our intellectual property rights could have a negative impact on our business."

Employees

As of December 31, 2009, 2010 and 2011, we had 79, 458 and 765 full-time employees, respectively. The
following table sets forth the number of full-time staff by business area as of December 31, 2011:

Number of
employeesFilm related


57Talent agency


14Management and administration


57Movie theater


637Total


765


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We plan to hire additional employees in all functions as we grow our business. None of our employees are represented by a labor union or other collective
bargaining agreements. Since our inception, we have never experienced a strike or other disruption of employment. We believe our relationships with our employees are good.

The
remuneration package of our employees includes salary, bonus, stock options, other cash benefits and benefits in kind. In accordance with applicable regulations in China, we
participate in social insurance funds, including a pension contribution plan, a medical insurance plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity insurance
plan, as well as a housing provident fund for the benefit of our employees. Our total contribution for such employee benefits required by applicable regulations amounted to US$0.2 million,
US$0.6 million and US$0.9 million for 2009, 2010 and 2011, respectively. We have not fully paid the required contributions to the social insurance funds or housing provident fund. See
"Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryOur failure to make adequate contributions to various employee benefit
plans as required by PRC regulations may subject us to penalties."

Facilities

Our principal executive offices are located at our headquarters at 11/F, Guan Hu Garden 3, 105 Yaojiayuan Road, Beijing 100025,
People's Republic of China. In aggregate, we maintained a total of approximately 3,120 square meters for our offices as of December 31, 2011 and leased all of our facilities. We believe
that our leased facilities are adequate to meet our needs for the foreseeable future, and that we will be able to obtain adequate facilities, principally through leasing of additional properties, to
accommodate our future expansions.

Insurance

We do not maintain any property insurance policies covering equipment and facilities for losses due to fire, earthquake, flood or any
other disaster. Consistent with customary industry practice in China, we do not maintain business interruption insurance or key employee insurance for our executive officers. Uninsured damage to any
of our equipment or buildings could have a material adverse effect on our results of operations. See "Item 3. Key InformationD. Risk FactorsRisks Relating to Our
Business and Industry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."

Legal and Administrative Proceedings

We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or
administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of
our business.

Regulations of Our Industry

This section sets forth a summary of the most significant regulations or requirements that affect our business activities in China or
our shareholders' rights to receive dividends and other distributions from us.

As
the film industry is at an early stage of development in China, new laws and regulations may be adopted from time to time that will require us to obtain additional licenses and
permits in addition to those that we currently have, and will address new issues that arise from time to time. As a result, substantial uncertainties exist regarding the interpretation and
implementation of current and any future Chinese laws and regulations applicable to the film industry, including the film and television

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production,
distribution, exhibition and talent agency businesses. See "Item 3. Key InformationD. Risk FactorsRisks Relating to the PRC."

Regulations on Film Industry

Our core business is the distribution of films in China. In addition, we also engaged in film production and exhibition activities,
which complement our film distribution business. Our operations in the film industry are mainly regulated by the Film Administrative Regulations, or the Film Regulations, effective on
February 1, 2002, the Interim Provisions on the Qualifications for a Film Enterprise's Access to Commencement of Operation, or the Film Enterprise Qualification Provisions, effective on
November 10, 2004, the Provisions on the Filing of Film Scripts (Abstracts) and the Administration of Films, or the Film Filing Provisions, effective on June 22, 2006, the Regulations on
the Sino-foreign Cooperation in Film Production, or the Sino-foreign Cooperation Regulations, effective on August 10, 2004, and other rules and regulations issued based
on the foregoing regulations. Pursuant to those regulations, production, distribution, exhibition and import of films are subject to special licenses or approvals issued by the SARFT and/or its local
counterparts as follows: (i) Film Production License or Film Production License (Single Film), as applicable, for production of films in China; (ii) License for Sino-foreign
Cooperation of Films for joint production of films by PRC and foreign entities; (iii) Film Distribution License for distribution of films; (iv) Film Exhibition License for exhibition of
films and Certificate for Technical Qualification of Exhibition Equipment of Digital Film
for exhibition of digital films; and (v) License for Film Public Screening for any film exhibited in, imported into or exported out of China.

Regulations on Film Distribution

Pursuant to the Film Regulations and the Film Enterprise Qualification Provisions, distribution of films in two or more provinces,
autonomous regions, and/or municipalities directly under the central government requires a Film Distribution License issued by the SARFT and distribution of films within one province, autonomous
region, and/or municipality directly under the central government may be approved by the local counterpart of the SARFT in such region at the provincial level. Film Distribution Licenses issued by the
SARFT are subject to inspection by the SARFT every two years and those issued by the local counterparts of the SARFT at the provincial level are subject to inspection annually. In practice, the SARFT
issues Film Distribution Licenses with an effective term of two years and application for extension of the term must be made to the SARFT before expiration of the term. Distribution of foreign films
is subject to special approval by the SARFT. Currently China Film Group Film Distribution & Exhibition Corporation and Huaxia Film Distribution Co. Ltd. are the only two
enterprises which are licensed to distribute foreign films in China. Our affiliated consolidated entities Zhejiang Bona Film and Television Production Co., Ltd. and Beijing Baichuan Film
Distribution Co., Ltd. each currently holds a Film Distribution License, issued by the SARFT, for distribution of films throughout China, which has an effective term until
June 24, 2012 and February 23, 2014 respectively.

Film
distributors may not distribute any film that has not received a License for Film Public Screening. Under current PRC regulations, film distributors must distribute films to theater
circuits instead of individual movie theaters.

Regulations on Film Production

Pursuant to the Film Regulations and the Film Enterprise Qualification Provisions, production of films in China requires either a Film
Production License or a Film Production License (Single Film). The Film Production License (Single Film) is granted on a film-by-film basis and will expire after the exhibition
of the film. A company will not be qualified for a Film Production License unless it has produced two or more films under Film Production Licenses (Single Film). A Film Production License

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is
subject to inspection by the SARFT every two years. In practice, the SARFT issues Film Production Licenses with an effective term of two years and application for extension of the term must be made
to the SARFT before expiration of the term. A duly approved film producer may produce film(s), make copies of, distribute within China and export film(s) produced by it subject to relevant laws and
regulations. In accordance with the PRC Copyright Law, effective on June 1, 1991 and latest amended on February 26, 2010, film producers own copyrights to the films produced by them,
while playwrights, directors, cinematographers, lyricists, composers and other authors enjoy the right of authorship and is entitled to receive remuneration pursuant to the contract concluded with the
producers. Authors of the film scripts, musical works and other works that are included in a film and that can be separately exploited are entitled to exercise their copyrights to such works
independently.

Under
the Film Regulations and the Sino-foreign Cooperation Regulation, no organizations or individuals from abroad may independently make films within China, and cooperation
between a PRC entity and a foreign entity in film production inside or outside China is subject to the approval of SARFT on a film-by-film basis. Only PRC producers with a Film
Production License or a Film Production License (Single Film) may cooperate with foreign producers in the film production. Sino-foreign cooperation in film production include the following
models: (i) Joint Production whereby PRC and foreign parties jointly invest in and produce films, and share profits and risks; (ii) Co-production through synergy, whereby the
investments are made by the foreign parties, the films are shot in China and the Chinese parties are responsible for providing equipments, services, facilities or other assistance for a fee; and
(iii) Co-production through commission, whereby the PRC party is entrusted by a foreign party to shoot films in China. Approval by the SARFT will be evidenced by a License for
Sino-foreign Cooperation in Film Production for Joint Production model or an approval certificate for the other two models. The License for Sino-foreign Cooperation in Film
Production has an effective term of two years.

Our
affiliated consolidated entity Bona Film Group Co., Ltd. (PRC) holds a Film Production License with an effective term of two years that ends on March 8, 2014.
Our affiliated consolidated entities have also obtained a Film Production Licenses (Single Film) and/or Licenses for Sino-foreign Cooperation in Film Production for films they produced or
are producing.

Regulations on Film Exhibition

Pursuant to the Film Regulations, the establishment of a film exhibitor is subject to the approval of the local film administration
authority at the county or municipal level and a Film Exhibition License will be issued to the successful applicant. The Film Exhibition License is subject to annual inspection of the issuing
authority. Exhibition of digital films further requires a Certificate for Technical Qualification of Exhibition Equipment of Digital Films. Movie theaters
operated by our affiliated consolidated affiliates are equipped to display both non-digital films and digital films, and have obtained Film Exhibition Licenses. However, they have not yet
obtained the requisite Certificate for Technical Qualification of Digital Film Exhibition Equipment to exhibit digital films. Based on verbal consultations with the SARFT, we understand that the SARFT
is not enforcing the regulation, is not requiring movie theaters to obtain a Certificate for Technical Qualification of Digital Film Exhibition Equipment for the exhibition of digital films and had
not issued and is not currently issuing such certificate to any movie theater. However, there can be no assurance that the SARFT will continue to permit movie theaters to exhibit digital films without
the Certificate for Technical Qualification of Digital Film Exhibition Equipment or that our movie theaters would be able to obtain such certificate if so required by the SARFT.

Movie
theaters may not exhibit any film that has not received a License for Film Public Screening. Movie theaters are required to exhibit domestic films for at least two thirds of the
total exhibition time every year.

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Regulations on Film Import and Export

Pursuant to the Film Regulations, import of foreign films can only be conducted by entities designated by the SARFT. Currently, China
Film Group Film Import & Export Corporation is the only entity designated to import foreign films into China. Imported foreign films can only be distributed in China by the entities designated
by the SARFT and currently China Film Group Film Distribution & Exhibition Corporation and Huaxia Film Distribution Co., Ltd. are the only two entities allowed to distribute
imported foreign films. Where a film is to be imported for public exhibition, it shall be submitted to the film censorship authority for censorship prior to its import. For a film that is submitted to
the film censorship authority for censorship, the importer of the film usually presents the customs authorities with the approval for temporary import issued by the SARFT.

A
film that has been imported on a temporary basis and passed the censorship and for which the License for Film Public Screening and approval for import have been issued, the film
importer typically presents the approvals to customs authorities. Under Appendix 9 of Protocol on the Accession of the People's Republic of China to the World Trade Organization, China has
agreed to import 20 box-office-earnings-sharing films for theatrical release each year, without prejudice to compliance with China's regulations on the administration of films. It
was recently reported that the PRC government has agreed to increase the number of foreign premium format films, such as 3-D or IMAX films, that may be imported into China by
14 films per year. Chinese-language films produced by film producers established under laws of Hong Kong or Macau are not subject to the foreign film quota limitation, provided that 75% or more
of the interests in the
copyright of such films are owned by the film producers established under Hong Kong or Macau law and 50% or more of the members of the production team are Hong Kong or Macau citizens. Films that are
produced by film producers established under Hong Kong law and meeting these requirements will not be subject to the quota restrictions imposed on the exhibition time between imported films and
domestic films. However, such films are deemed to be foreign films for the purposes of import and distribution procedures.

PRC
film producers must receive a License for Film Public Screening to export films produced by themselves or jointly with foreign entities. Exhibition of domestic films in overseas film
exhibitions and film festivals must be approved by the SARFT.

Scripts and Film Examination System

Films are subject to examination and approval by the SARFT and/or its local counterparts.

In
accordance with Film Filing Provisions and circulars issued by the SARFT, film scripts and abstracts and films are subject to filing requirement and censorship. Film producers must
file film abstracts of film scripts with the SARFT and/or its provincial counterparts before filming. Upon completion of production, film producers must apply for examination of such films by the
SARFT and/or its local counterparts at provincial level. Importers must apply for the examination and approval of foreign films to be imported. Films passing the examination will be granted a License
for Film Public Screening by the SARFT and may be distributed, exhibited, imported into or exported out of China. However, the SARFT may, under special circumstances, terminate distribution and
exhibition of films which have received Licenses for Film Public Screening or require editing of such films first and terminate their distribution or exhibition after the required editing is rejected
by the film copyright owners.

The Draft Film Industry Promotion Law

On December 15, 2011, the PRC State Council issued a draft of the Film Industry Promotion Law, or the Draft Law, for public
comment. The Draft Law sets forth laws relating to specific areas of film-making, such as creation, production, distribution and exhibition of films, provides for financial support
measures and preferential tax treatment for the film industry and stipulated legal liabilities for

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non-compliance.
In accordance with the Draft Law, a company that has produced two or more publicly exhibited films will be qualified to apply for a Film Production License, and such
company will not be required to have a sponsor organization and administration authority approved by the SARFT, which are required under current law. The Draft Law provides that
pre-screening advertisements shall be displayed before the screening time as stated on movie tickets. In the event of non-compliance, a movie theater may be subject to a fine
ranging from RMB10,000 to RMB200,000 and be ordered to remedy such non-compliance within a certain time period. Any failure to comply with any such order may lead to a revocation of the
movie theater's Film Exhibition License. The Draft Law also provides that a Sino-foreign co-production film shall be considered to be a domestic film if a PRC film producer
owns the copyright to such film. In addition, the Draft Law provides more detailed legal liabilities for the certain non-compliance matters than those provided under current regulations.
For example, if any license of a company has been revoked in accordance the Draft Law, such company will be prohibited from applying for such license for five years from the date of revocation. As of
the date hereof, the Film Industry Promotion Law has not been officially promulgated and it is uncertain whether and how the provisions in the final Film Industry Promotion Law will differ from those
in the Draft Law.

Regulations on Sales of Food and Beverage in Movie Theaters

Sales of food and beverages to audiences in movie theaters must comply with laws and regulations regarding food hygiene and safety.
Pursuant to the Food Safety Law of the PRC, which took 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. Companies having the Catering Service Permit are allowed to sell
food and beverages made by them at their place of operation without the Food Distribution Permit. Before the Food Safety Law of the PRC took effect on June 1, 2009, sale of food and beverages
and the provision of catering services required food hygiene permits issued by the relevant hygiene administration authorities. Companies which had obtained food hygiene permits for selling food and
beverages or the provision of catering services prior to June 1, 2009 may continue to use such permits during their effective terms and are only required to obtain a Food Distribution Permit or
Catering Service Permit upon expiration of the relevant food hygiene permits. Each of our movie theaters have obtained the relevant Food Distribution Permits for packaged foods, which will expire
between September 15, 2012 and February 14, 2015. However, the permits obtained by these theaters do not cover unpackaged foods sold by such theaters. The laws and regulations governing
the issuances of Food Distribution Permits for unpackaged foods are not specific to movie theaters and impose qualifications and requirements that movie theaters generally do not meet. We believe that
movie theaters in China typically do not obtain Food Distribution Permits for unpackaged foods as an industry practice. However, there can no assurance that our movie theaters will not be deemed to be
in violation of the Food Safety Law of the PRC by the relevant authorities. See "Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and
IndustryMovie theaters in China are subject to a range of regulatory requirements, including regulations relating to advertising, hygiene and food licensing. Some of 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."

Regulations on Television Program Production and Distribution

Television program production and distribution businesses are mainly regulated by the Administrative Regulations on Radio and
Television effective on September 1, 1999, 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 effective on January 1, 2007. Pursuant

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to
those regulations, television plays can only be produced by television stations at the municipal level or above and entities with either a Film Production License or a License for the Production
and Operation of Radio and Television Program. 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
License for the Production and Operation 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 apply to all television plays
produced by the holder during the effective term. The Single Television Play Production License only applies to a single television play and the producer must apply for another Single Television Play
Production License for the shooting and production of another television play as indicated in such license.

Under
the Administrative Regulations on Content of Television Plays effective on July 1, 2010, a television play must be filed with and announced to the public by the SARFT or its
provincial counterparts before it is shot or produced. Television plays are subject to censorship by the SARFT or its provincial counterparts, which will issue Television Play Distribution Licenses
for television plays passing their censorships. No television play may be distributed or broadcasted without the Television Play Distribution License. However, the SARFT may, under certain
circumstances, based on the public interest, terminate distribution and exhibition of television plays which have received Television Play Distribution Licenses or require editing of such television
plays. On an ongoing basis, the content of the television series we produce are submitted for review to the relevant local branches of the SARFT and we also apply for Single Television Play Production
Licenses for each television series we produce.

Foreign
investments in television program production companies are prohibited; foreign investments in television program production projects are restricted, and such investments may only
take the form of Sino-foreign cooperation.

Regulations on Talent Agencies

Performance talent agency industry is mainly regulated by the Administrative Regulation on the Commercial Performances effective on
September 1, 2005 and latest amended on July 22, 2008, and its implementation rules latest amended on September 3, 2009 and effective on October 1, 2009, the Administrative
Measures for Brokers effective on August 28, 2004, and other regulations issued based on the foregoing regulations. Pursuant to those regulations, a brokerage company, including talent agency,
shall specify the method and category of brokerage business conducted by it in its business license and file relevant information of the brokers engaged or dismissed by it with the local
administration for industry and commerce. In addition, talent agencies engaged in (i) organization, production or market promotion of commercial performance, which term refers to the
on-site art performance for the public for the purpose of making profits, (ii) intermediation, agency or brokerage for commercial performance, or (iii) entering into agency
contracts with, agency for or promotion of artists must obtain a Commercial Performance License from the competent culture authorities at provincial level, and must have at least three
full-time performance brokers. Our affiliated consolidated entity Bona Film Group Co., Ltd. (PRC) has obtained a Commercial Performance License with an effective term until
July 31, 2033. Bona Film Group Co., Ltd. (PRC), 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 for the relevant brokers with the local administration for industry and
commerce. 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 not obtained Commercial Performance Licenses, as their representations of artists are not in connection with on-site art performances for the public,
although there is uncertainty as to whether such license is required.

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Foreign investments in performance talent agencies are restricted under PRC law and may only take the form of Sino-foreign joint ventures in which
Chinese parties should maintain a controlling stake.

Regulations on the Advertising



The State Administration for Industry and Commerce, the SAIC, is responsible for the supervision and regulation of advertising
activities. The Advertising Law adopted by the Tenth Session of the Standing Committee of the Eighth National People's Congress which became effective on February 1, 1995, the Regulations on
the Administration of Advertisements promulgated by
the State Council in October 1987 and Rules for the Implementation of the Regulations on the Administration of Advertisements issued by the SAIC in November 2004 outline the regulatory
framework of the advertising industry. Pursuant to these regulations, companies engaged in advertising activities must obtain from the SAIC or its local counterparts a business license which
specifically includes advertising services within its business scope.



PRC advertising laws, rules and regulations set forth certain requirements on the content of advertisements in China. The content of an
advertisement is subject to the following restrictions:



Advertisements
for special drugs like anesthetic, psychotropic, toxic or radioactive drugs are prohibited. There are also specific restrictions and requirements regarding advertisements
that relate to matters such as patented products or processes, pharmaceutical products, medical procedures, foods, alcohol, tobacco, and cosmetics. In addition, all advertisements relating to
pharmaceuticals, medical procedures, agrochemicals and veterinary pharmaceuticals, together with any other advertisements which are subject to censorship by administrative authorities in accordance
with relevant laws or regulations, are subject to content censorship by relevant regulatory authorities prior to dissemination.

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Advertisers,
advertising operators, including advertising agencies, and advertising disseminators are liable for the truthfulness of the content of the advertisements. Under the
applicable laws and regulations, advertising operators and advertising disseminators must review and examine the supporting documents for advertisements provided by advertisers and verify that the
content of the advertisements complies with applicable PRC laws and regulations. Prior to publishing advertisements that are subject to government censorship and approval, advertising disseminators
are obligated to verify that such censorship has been performed and the approval has been obtained.

Violation
of these regulations may result in penalties, including fines, confiscation of advertising income, orders to cease dissemination of the advertisements and orders to publish an
advertisement to correct the misleading information. In circumstances of severe violations, the SAIC or its local counterparts may cease their advertising business to rectify, or revoke violators'
licenses or permits for their advertising business operations and they may be subject to criminal prosecution if their activities constitute a crime. Furthermore, advertisers, advertising operators or
advertising distributors may be
subject to civil liability if they infringe the legal rights and interests of third parties in the course of their advertising business.



Under the Administrative Provisions on Foreign Investment in the Advertising Enterprises latest amended on August 22, 2008 and
effective on October 1, 2008, foreign investors can invest in PRC advertising industry either through wholly owned enterprises or joint ventures with Chinese parties. However, to invest in the
advertising industry, foreign investors, if investing with Chinese partners, must (1) be engaged in advertising business, (2) have been operating for at least two years, and
(3) have a track record of advertising business, and if investing by itself or with other foreign investors, must have at least three years of operation and have advertising as their
core business.



Currently only a few regulations have been issued specifically for the administration and regulation of pre-screening
advertising, including the Circular on Strengthening of Administration of Pre-screening Advertising effective on June 25, 2004 and the Circular on Further Regulation of
Pre-screening Advertising effective on February 10, 2009. Pursuant to those regulations, consent of the copyright owner of the film is needed for placing pre-screening
advertisements before the screening of the relevant film; no entities including film distributors and exhibitors can delete or replace any pre-screening advertisement without consent of
the relevant film copyright owner. In addition, pre-screening advertisements shall be displayed before the License for Public Screening of Films and the screening time as stated in the
tickets. Violation of those regulations may result in public condemnation or, in case of serious violation, suspension of supply of films or suspension of exhibition.

Regulations on Foreign Investment in Film-related Enterprises

Foreign investment in film companies is restricted or prohibited under PRC law. Pursuant to Certain Opinions on Foreign Investment in
Culture Industry which became effective on July 6, 2005, the Catalogue for the Guidance of Foreign Investment Industries (Amended in 2011), the Interim Provisions on Foreign Investments in
Cinemas effective on January 1, 2004 and its two supplementary regulations, the Supplementary Regulation to the Film Enterprise Qualification
Provisions, foreign investors are prohibited from holding any equity interest in any PRC film production company, distribution company or theater circuit; foreign investments in movie production
projects are restricted, and such investments may only take the form of Sino-foreign cooperative joint ventures; foreign investors may not hold more than 49% of the equity interests in any
PRC movie theater company. Notwithstanding the foregoing, "Hong Kong or Macau service providers" are allowed to set up wholly

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foreign
owned enterprises engaged in film distribution or exhibition. "Hong Kong or Macau service providers" refer to Hong Kong or Macau citizens or entities incorporated under Hong Kong or Macau law
and having similar business operations in Hong Kong or Macau as the business that they intend to conduct in China.

Regulations on Foreign Exchange Registration of Overseas Investment by PRC Residents

The Notice on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Overseas Financing and
Round Trip Investment via Overseas Special Purpose Vehicles, or Circular 75, issued by the SAFE and effective on November 1, 2005, and the latest implementation rules relating to the
Circular 75 issued on May 20, 2011, regulates the foreign exchange matters in relation to the use of a "special purpose vehicle" by PRC residents to seek offshore equity financing and
conduct a "round trip investment" in China. Under Circular 75, a "special purpose vehicle" refers to an offshore entity directly established or indirectly controlled by PRC resident natural or
legal persons ("PRC residents") for the purpose of seeking offshore equity financing using assets or interests owned by such PRC residents in onshore companies, while "round trip investment"
refers to the direct investment in China by such PRC residents through the "special purpose vehicles," including, without limitation, establishing foreign-invested enterprises and using such
foreign-invested enterprises to purchase or control onshore assets through contractual arrangements. Circular 75 and its implementation rules require that, before the completion of a
round-trip investment or the overseas equity financing through a "special purpose vehicle", PRC residents and PRC entities are required to complete a foreign exchange registration with the
competent local branches of the SAFE for their overseas investments. After the completion of a round-trip investment or the overseas equity financing, the PRC residents are required to go
through foreign exchange registration alteration formalities of overseas investment in respect of net assets of special purpose vehicles that such PRC residents hold and the variation thereof.

In
addition, an amendment to the registration is required if there is a material change in the "special purpose vehicle," such as increase or reduction of share capital and transfer of
shares. Failure to comply with the registration procedures set forth in Circular 75 and its implementation rules may result
in restrictions on the foreign exchange activities of the relevant foreign-invested enterprises, including the payment of dividends and other distributions, such as proceeds from any reduction in
capital, share transfer or liquidation, to its offshore parent or affiliate and the capital inflow from the offshore parent, and may also subject the relevant PRC residents to penalties under PRC
foreign exchange administration regulations.

We
conduct businesses in China primarily through our PRC affiliated consolidated entities. We enter into contractual arrangements with our PRC affiliated consolidated entities and their
respective shareholders including Mr. Dong Yu, Mr. Hai Yu and Mr. Zhong Jiang, who are PRC residents and also shareholders of our company. Mr. Dong Yu, Mr. Hai Yu
and Mr. Zhong Jiang have registered with the local SAFE branch for the foreign exchange registrations of overseas investments and have amended their registrations to reflect recent developments
of our company and our PRC subsidiary, including the initial public offering of our ADSs.

Regulations on Employee Stock Option Granted by Offshore Listed Companies

The Notices on Issues concerning the Foreign Exchange Administration For Domestic Individuals Participating in Stock Incentive Plan of
Overseas Publicly-Listed Company, or the Stock Option Rules, issued in February 2012, which replaced previous rules issued in March 2007, regulate the foreign exchange matters associated
with the employee stock incentive plans granted to PRC individuals by companies whose shares are listed on overseas stock exchanges. Domestic residents who are granted shares by companies listed on
overseas stock exchanges based on the company's employee share

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incentive
plan are required to register with the SAFE or its local counterparts. Pursuant to Stock Option Rules, PRC residents participating in the employee stock incentive plans of the overseas
listed companies must retain a domestic agent, which can be a subsidiary of the overseas listed company in China or other qualified institution selected by such PRC subsidiary to handle various
foreign exchange matters associated with their employee incentive plans. The PRC agents must, on behalf of the domestic residents who have the right to exercise the employee stock options, apply
annually to the SAFE or its local competent branches for a quota for the conversion and/or payment of foreign currencies in connection with the domestic residents' exercise of the employee stock
options. The foreign exchange proceeds received by the domestic residents from sale of shares under the stock incentive plans granted by the overseas listed companies must be remitted into the bank
accounts in China opened by the PRC agents.

Our
board of directors and shareholders adopted our 2009 share incentive plan on June 1, 2009 and our 2010 share incentive plan on June 1, 2010. Pursuant to these plans, we
may issue employee stock options to our qualified employees and non-employees on a regular basis. As required under Circular 75, Mr. Dong Yu, Mr. Hai Yu and
Mr. Zhong Jiang has registered their SAFE registration to reflect that approximately 16.2% of the share capital of our company on a fully diluted basis that has been reserved for employee stock
options and service incentive shares. As of the date hereof, we have granted employee stock options under our 2009 and 2010 share incentive plans. We have advised our employees and
non-employees participating in our share incentive plans to handle foreign exchange matters in accordance with Stock Option Rules. However, we cannot assure that the stock options holders
can successfully complete the registration with the SAFE in full compliance with Stock Option Rules. The failure of our stock options holders to complete their SAFE registration pursuant to Stock
Option Rules and other SAFE requirements may subject these PRC individuals to fines and legal sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary, limit
our PRC subsidiary's ability to distribute dividends to us or otherwise materially adversely affect our business.

Further,
in 2005 and 2006, the Ministry of Finance and the State Administration of Taxation jointly issued notices concerning the individual income tax on earnings from employee stock
options. The notice requires PRC companies that implement employee share option programs in the PRC, under which the shares issuable are the shares of listed companies (domestic or overseas) to
(i) file the employee share option plans and other relevant documents to the local taxation departments having jurisdiction over them before implementation of such employee share option plans;
and (ii) file share option exercise notices and other relevant documents with the local taxation departments having jurisdiction over them before exercise by the employees of the share options.
To comply with the requirement, we have filed our 2009 share incentive plan and 2010 share incentive plan with Beijing Local Taxation Bureau.

M&A Regulations and Overseas Listings

On August 8, 2006, six PRC regulatory authorities, including the CSRC, promulgated the 2006 M&A Rules, which were later amended
on June 22, 2009. Pursuant to the 2006 M&A Rules, an offshore special purpose vehicle, or SPV, refers to an overseas company controlled directly or indirectly by PRC 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, 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 obtain the approval of the CSRC.
However, it remains unclear whether the 2006 M&A Rules and the requirement of the CSRC approval apply to the listing of our company in December 2010. Up to the date of this annual report, the
CSRC has not issued any rules or written interpretation clarifying whether offerings like our initial public offering would have been are subject to this new procedure.

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Our
PRC counsel, Han Kun Law Offices, advised us that the 2006 M&A Rules did not require that we obtain prior CSRC approval for the listing and trading of our ADSs on the NASDAQ Global
Market in December 2010, given that:



Regulations on Foreign Currency Exchange

Pursuant to applicable PRC regulations on foreign currency exchange, the Renminbi is freely convertible only to the extent of current
account items, such as trade-related receipts and payments, interest and dividends. Capital account items, such as direct equity investments, loans and repatriation of investment, require the prior
approval from the SAFE or its local branch for conversion of Renminbi into a foreign currency, such as U.S. dollars. Payments for transactions that take place within the PRC must be made in
Renminbi. Domestic companies or individuals can repatriate foreign currency payments received from abroad into the PRC, or deposit these payments abroad subject to compliance with the requirement as
promulgated by the SAFE. Foreign currencies received for current account items can be either retained or sold to financial institutions that have foreign exchange settlement or sales business without
prior approval from the SAFE, subject to certain regulations. Foreign exchange income under capital account can be retained or sold to financial institutions that have foreign exchange settlement and
sales business, with prior approval from the SAFE, unless otherwise provided.

In
addition, another notice issued by the SAFE, or Circular 142, regulates the conversion by foreign-invested enterprises of foreign currency into Renminbi by restricting how the
converted Renminbi may be used. Circular 142 requires that Renminbi converted from the foreign currency-dominated capital of a foreign-invested enterprise may only be used for purposes within
the business scope approved by the relevant government authority and may not be used to make equity investments in PRC, unless specifically provided otherwise. The SAFE further strengthened its
oversight over the flow and use of Renminbi funds converted from the foreign currency-dominated capital of a foreign-invested enterprise. The use of such Renminbi may not be changed without approval
from the SAFE, and may not be used to repay Renminbi loans if the proceeds of such loans have not yet been used. Any violation of Circular 142 may result in severe penalties, including
substantial fines. Furthermore, another circular issued by the SAFE or Circular 59 tightens the regulation over settlement of net proceeds from overseas offerings and requires that the
settlement of net proceeds must be consistent with the description in the prospectus for the offering.

Regulations on Dividend Distribution

Under applicable PRC laws and regulations, foreign-invested enterprises in China may pay dividends only out of their accumulated
profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, wholly foreign-owned enterprises in China are required to allocate to reserve funds and staff
incentive and welfare funds. Wholly foreign-owned enterprises shall contribute at least 10% of their respective accumulated profits each year, if any, to fund statutory

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reserve
funds unless these reserves have reached 50% of the registered capital of the respective enterprises. As for staff incentive and welfare funds, the contribution percentage is to be decided by
the foreign-owned enterprise on its own discretion. These reserves are not distributable as cash dividends.

Regulations Regarding the Enterprise Income Tax and Dividend Withholding Tax

The EIT Law, effective on January 1, 2008, imposes a uniform enterprise income tax at the rate of 25% on all domestic
enterprises, including foreign- invested enterprises unless they qualify for certain exceptions, and terminates most of the tax exemptions, reductions and
preferential treatments available under previous tax laws and regulations. Under the EIT Law and a notice issued by the PRC State Council on transition preferential policies, commencing
January 1, 2008, (i) those enterprises that were established before March 16, 2007 and were formerly entitled to preferential policies of lower taxation will undergo a gradual
transition to statutory tax rates within five years; and (ii) those enterprises that were established before March 16, 2007 and were formerly entitled to preferential income tax
reductions such as "two-years exempt and three-years halved" and "five-years exempt and five-years halved" shall continue to enjoy such preferential policies as
stipulated in the former taxation laws, administrative regulations and relevant documents until the completion of the lifetime of said policies, provided however that for those enterprises not
profitable enough to enjoy the said tax preferences, the preference time limits shall commence from 2008.

Pursuant
to the EIT Law and its implementation rules, an enterprise established outside of China with "de facto management bodies" within China is considered a "resident enterprise" for
PRC enterprise income tax purposes. The term "de facto management body" is defined as the management body that exercises substantial and comprehensive control and overall management over the business,
productions, personnel, finance and properties of an enterprise. Pursuant to a circular issued by the State Administration of Taxation, a foreign enterprise controlled by a PRC company or a PRC
company group will be classified as a "resident enterprise" with its "de facto management bodies" located within China if the following requirements are satisfied: (i) the place where the
senior management and core management departments that are in charge of its daily operations perform their duties is mainly located in the PRC; (ii) its financial and human resources decisions
are made by or are subject to approval by persons or bodies in the PRC; (iii) its major assets, accounting books, company seals, and minutes and files of its board and shareholders' meetings
are located or kept in the PRC; and (iv) more than half of the enterprise's directors or senior management with voting rights frequently reside in the PRC. In addition, the SAT issued a
bulletin on July 27, 2011, effective September 1, 2011, providing more guidance on the implementation of Circular 82 and clarifying matters including resident status
determination, post-determination administration and competent tax authorities. Although both the circular and the bulletin only apply to offshore enterprises controlled by PRC enterprises
and not those controlled by PRC individuals or foreigners, it is believed that the determining criteria set forth in the circular and the bulletin may reflect the State Administration of Taxation's
general position on how the "de facto management body" test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC
enterprises, individuals or foreigners. However, it remains uncertain how tax authorities will determine tax residency based on the facts of each case, given that the EIT Law is relatively new and
ambiguous in terms of some definitions, requirements and detailed procedures.

Furthermore,
the EIT Law and its implementation rules provide that the "non-resident enterprises" are subject to the enterprise income tax rate of 10% on their income sourced
from China, if such "non-resident enterprises" (i) do not have establishments or premises of business in China or (ii) have establishments or premises of business in China,
but the relevant income does not have actual connection with their establishments or premises of business in China. Such income tax may be exempted or reduced by the PRC State Council or pursuant to a
tax treaty with China that provides for

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a
different withholding agreement between China and the jurisdictions in which the non-resident enterprise reside. The Cayman Islands, where we are incorporated, does not have such tax
treaty with China.

Moreover,
non-resident individual investors may be required to pay PRC individual income tax at a rate of 20% on interests or dividends payable to the investors or any
capital gains realized from the transfer of ADSs or ordinary shares if such gains are deemed income derived from sources within the PRC. Under the PRC Individual Income Tax Law, or IIT Law,
"non-resident individual" refers to an individual who has no domicile in China and does not stay in the territory of China or who has no domicile in China and has stayed in the territory
of China for less than one year. Pursuant to the IIT Law and its implementation rules, for purposes of the PRC capital gains tax, taxable income is the balance of the total income obtained from the
transfer of the ADSs or ordinary shares minus all the costs and expenses that are permitted under PRC tax laws to be deducted from the income. Therefore, if we are considered a PRC "resident
enterprise" and the relevant competent 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
income derived from sources within the PRC, such gains earned by non-resident individuals may also be subject to PRC withholding tax at a rate of 20%.

If
the PRC tax authorities determine that our Cayman Islands holding company is a "resident enterprise" for PRC enterprise income tax purposes, a number of unfavorable PRC tax
consequences could follow: (i) we may be subject to enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations;
(ii) a 10% withholding tax may be imposed on dividends we pay to our shareholders who are non-resident enterprises and gains derived by them from transferring our shares or ADSs, if
such income is considered as PRC-sourced income by relevant PRC authorities; and (iii) a potential 20% withholding tax may be imposed on dividends we pay to our shareholders who are
non-resident individuals and gains derived by them from transferring our shares or ADSs, if such income is considered as PRC-sourced income by relevant PRC authorities.

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Our Corporate Structure

The following diagram illustrates our shareholding and corporate structure as of the date of this annual report:

GRAPHIC

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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 "B. Business OverviewRegulations of Our Industry." 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 substantially all of the economic benefits from them.
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

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of
other contractual arrangements, as described under "Agreements that Transfer Economic Benefits to Us" and "Agreements that Provide Us with Effective Control."



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.

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 Bona Film Group Co., Ltd. (PRC) 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.



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, except that the purchase
price for the equity interest held by Mr. Dong Yu in Bona Film Group Co., Ltd. (PRC) shall be equal to the principal of the loan outstanding under the loan agreement described
below, unless otherwise required by applicable PRC laws, rules and regulations. 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.

Loan Agreement.Mr. Dong Yu, has entered into a loan agreement with Bona New World, under which Bona New World has
granted an
interest-free loan of RMB10 million to Mr. Dong Yu solely for purposes of Mr. Yu's increased capital contributions to Bona Film Group Co., Ltd. (PRC).
The loan has a term of 10 years and may be extended upon mutual written consent of the parties. Any proceeds generated from the transfer of equity interests held by Mr. Dong Yu in Bona
Film Group Co., Ltd. (PRC) to us shall be used to repay the loan and the loan can only be repaid using such proceeds. The

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loan
agreement contains a number of covenants that restrict the actions that Mr. Dong Yu may take or cause the Bona Film Group Co., Ltd. (PRC) to take. For example,
Mr. Dong Yu (i) shall not transfer, sell, mortgage, dispose of, or encumber his equity interest in Bona Film Group Co., Ltd. (PRC) except in accordance with the Equity
Pledge Agreement discussed above, (ii) without Bona New World's prior written consent, shall not take actions or omissions that may have a material impact on the assets, business and
liabilities of Bona Film Group Co., Ltd. (PRC), (iii) shall cause the shareholders' meeting and/or the board of directors of Bona Film Group Co., Ltd. (PRC) not to
approve the merger or consolidation of Bona Film Group Co., Ltd. (PRC) with any person, or any acquisition or investment in any person, without Bona New World's prior written
consent, and (iv) shall appoint any director candidates nominated by Bona New World.

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 with all applicable PRC laws, rules and regulations, and does not violate any 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 "Item 3. Key InformationD. 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 the PRC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.



See "B. Business OverviewFacilities."

Item 4A.    Unresolved Staff Comments

None.

Item 5.    Operating and Financial Review and Prospects

Unless stated otherwise, the discussion and analysis of our financial condition and results of operations in this section apply to our
financial information as prepared according to U.S. GAAP. You should read the following discussion of our financial condition and results of operations together with the financial statements
and the notes to these statements included in this annual report. This discussion may contain forward-looking statements based upon current expectations that involve risks

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and
uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Item 3.
Key InformationD. Risk Factors" or in other parts of this annual report on Form 20-F.

Overview

We are a leading film distributor in China. A small number of our films, typically ones that are released during the peak seasons,
account for a substantial portion of our net revenue each year. Our remaining films generate lower net revenue but generally have lower costs for the acquisition of distribution rights or production.
Our top five films each year in 2009, 2010 and 2011 accounted for 67.9%, 53.5% and 58.3% of our net revenue in those years, respectively. Since our inception in November 2003 to
December 31, 2011, we distributed 154 films (including 37 films internationally), and we generally distribute between 16 and 20 films theatrically each year.

We
believe that our brand name and reputation in the film industry, our experience in film distribution and marketing, our collaborations with other domestic and international film
industry players, and our management's access to key industry participants enable us to identify and secure distribution rights for promising film projects.

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 in China through joint distribution
arrangements with
industry participants such as the state-owned China Film Group Corporation. We have also distributed 25 Chinese films (including Hong Kong films) internationally since the beginning of 2009,
from which we generated US$2.0 million, US$5.7 million and US$10.7 million in net revenue in 2009, 2010 and 2011, 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 revenue. 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 revenue 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 film and television production operations, we owned and operated 11 movie theaters in commercial districts and residential areas in
several major cities in China as of December 31, 2011. 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. We began operating our movie theater business in 2010 and we increased the number of movie theaters we operate from six as of April 30, 2010 to 11 as of
December 31, 2011. Our movie theater business generated net income of US$0.4 million from April 23 to December 31, 2010 and net loss of US$0.2 million for 2011. Our
talent agency business leverages our relationships in the film and entertainment industry and gives us additional insight into upcoming film projects, while providing us with another source of
promising film opportunities. We leverage our films and movie theater operations to attract advertisers. 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.

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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 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 success at the box office, which is a key factor in estimating revenue
from other distribution channels. Box office earnings are largely determined by the appeal of the film to a broad audiencewhether
owing to its storyline or the quality of its 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 earnings 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 it being exhibited on a sufficiently large number of screens at movie theaters to meet demand.

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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 2009, 2010 and 2011 based on our net revenues accounted for 67.9%, 53.5% and 58.3% 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 may 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.

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 approximately 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

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basis.
We have, historically, entered into 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 RMB13,786 in 2007 to RMB21,810 in 2011, according to the National Bureau of Statistics of China. 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
1,427 in 2007 to 2,800 in 2011. Our results of operations are and will continue to be affected by the expansion of movie 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

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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-earnings-sharing basis 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. It was recently reported that the PRC government has agreed, in connection with a World Trade Organization dispute settlement, to increase the number of foreign premium format films, such as
3-D or IMAX films, that may be imported into China by 14 films per year. Only China Film Group Film Distribution & Exhibition Corporation and Huaxia Film
Distribution Co., Ltd., both state owned enterprises, are currently licensed to distribute foreign films in China.

The
easing or elimination of the current regulatory restrictions, including the above-mentioned recent agreement to increase the number of foreign premium films, 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 non state-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$38.4 million, US$52.8 million and US$126.2 million in 2009, 2010 and 2011,
respectively.

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 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 and broadcast rights internationally and to non-theatrical distribution channels.

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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 revenue 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.

We
also generate revenues from our movie theater business, primarily from ticket sales and concession sales.

Cost of Revenues

Our cost of revenues amounted to US$19.9 million, US$26.5 million and US$66.5 million in 2009, 2010 and 2011,
respectively.

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.

Cost
of revenues for our movie theater business primarily consists of the box office split with theater circuits.

Gross Margin

Our cost of revenues, and accordingly our gross margins and gross profit of our film-related business, 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, the 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.

The
gross margin of our movie theater business is mainly derived from the box office split with theater circuits.

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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.

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 years ended December 31,2009

2010

2011(US$)

(US$)

(US$)Operating expenses:Film participation expenses


1,244,848


696,101


321,100Sales and marketing expenses


8,887,971


7,213,519


18,506,262General and administrative expenses


2,789,416


9,305,393


28,371,497Total operating expenses


12,922,235


17,215,013


47,198,859


Film Participation Expenses.Our film participation expenses accounted for 3.2%, 1.3% and 0.3% of our net revenues in 2009, 2010
and 2011,
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 23.2%,
13.7% and 14.7% of our net revenues in 2009, 2010 and 2011, respectively. The decrease in sales and marketing expenses as a percentage of our net revenues for the year ended 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 forBodyguards 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. The slight increase in sales and marketing expenses for 2011 was primarily due to promotion of our blockbuster film, The Flying Swords of
Dragon Gate.

General and Administrative Expenses.Our general and administrative expenses primarily consist of salaries and benefits for
management, accounting
and administrative personnel, rentals, depreciation of equipment, professional service fees, maintenance, utilities and other miscellaneous office expenses. General and administrative expenses
accounted for 7.3%, 17.6% and 22.5% of our net revenues in 2009, 2010 and 2011, respectively. We expect our general and administrative expenses to continue to increase in the near future as we incur
additional costs in connection with the expansion of our business in general.

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

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of
warrants we recorded in 2009 were in connection with the warrants we issued in 2007 that were exercised in 2009. The changes in fair value of derivatives we recorded in 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 2009 and net loss in 2010 included a gain of
US$0.1 million and a loss of US$14.5 million, respectively, 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. Our other income in 2011 is
mainly due to to the exchange gain of US$1.7 million. The exchange gain was primarily attributable to several of our films, including the blockbuster filmThe Flying
Swords of Dragon Gate, for which production costs were largely incurred in Hong Kong dollars, and distribution business revenues were primarily denominated in RMB.

Equity in Earnings (Loss) of Affiliated Companies

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

Taxation

Cayman Islands

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 the Cayman Islands. In addition, our payment of dividends, if any, is not subject to withholding tax in the Cayman Islands.

PRC

Business tax.Currently, our subsidiary and affiliated consolidated entities and their subsidiaries in China are subject to a 3%
to 5% business tax
in connection with certain types of services, plus related surcharges.

Income tax.Pursuant to the EIT Law, which became effective on January 1, 2008, a uniform 25% enterprise income tax rate is
generally applied
to both foreign-invested enterprises and domestic enterprises, except where a special preferential rate applies. Our subsidiary and affiliated consolidated entities and their subsidiaries in China are
subject to enterprise income tax at a statutory rate of 25% with the following exceptions:



Income
tax is assessed and paid at subsidiary level; therefore, the net loss from operations generated by a particular entity cannot be transferred to or utilized by other entities
within our consolidated company.

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Without our preferential tax holidays and concessions, we would have had to pay approximately an additional US$1.4 million, US$3.2 million and
US$5.1 million in 2009, 2010 and 2011, respectively.

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 annual report.

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.

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

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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
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, 2010 and 2011, the majority of the forecast revenue was generated within the first three months

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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 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. In 2011, we
decreased the estimate of the ultimate overseas revenue expected to be realized from six films and a television series based on their levels of economic performance and public acceptance, and as a
result incurred additional amortization of US$2.1 million.

Impairment of Distribution Rights and Production Costs

We review the valuation of distribution rights and production costs on a title-by-title basis at least annually
or 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.

Impairment of Long-lived Assets and Intangible Assets with Definite Life other than Distribution Rights and Production Costs

Long-lived assets, such as property and equipment and definite-lived intangible assets, other than distribution rights and
production costs, are stated at cost less accumulated depreciation or amortization. We evaluate the recoverability of long-lived assets, including identifiable intangible assets with
determinable useful lives, other than distribution rights and production costs, whenever events or changes in circumstances indicate that a long-lived asset's carrying amount may not be
recoverable. We measure the carrying amount of long-lived asset against the estimated undiscounted future cash flows associated with it. Impairment exists when the sum of the expected
future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. Fair
value is estimated based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires us to make assumptions about future
cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

Impairment of Goodwill

Goodwill represents the cost of an acquired business in excess of the fair value of identifiable tangible and intangible net assets
purchased. We assign all the assets and liabilities of an acquired business, including goodwill, to reporting units. We perform our goodwill impairment test on December 31 of each year.
Impairment is tested using a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. As of December 31, 2011, we
had four reporting units: film distribution, film investment and production, talent agency and movie theaters. Substantially all of our goodwill is recorded by our movie theater reporting unit.

If
the fair value of a reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a
reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is
determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the

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first
step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of
goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. Estimating fair value is performed by utilizing various valuation
techniques.

In
determining the fair values of our movie theatre reporting unit as of December 31, 2011, we considered the discounted cash flow method, or DCF method, of the income approach to
be more reliable than other approaches. The discounted cash flow for the reporting unit was projected based on financial forecast developed by management for planning purposes. Cash flows beyond the
forecast periods were estimated using a terminal value calculation, which incorporated historical and forecasted financial trends for the reporting unit. Specifically, the income approach valuation
included a revenue projection with the compound annual growth rate of 36.6% during the years from 2012 to 2016, a cash flow discount rate at 18.5%, and a terminal value growth rate at 3%. Publicly
available information regarding the market capitalization of the Group was also considered in assessing the reasonableness of the fair value of the reporting unit estimated using the income approach
valuation methodology. Based on the result of goodwill impairment test as of December 31, 2011, no impairment of goodwill was identified.

The
valuations are based on information available as of the impairment review date and are based on expectations and assumptions that have been deemed reasonable by the 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 additional impairment charge.

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

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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.

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. During the years ended December 31, 2009, 2010 and 2011, 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 Chinese income tax purposes if the place of effective management or control is within the PRC. The
implementation rules

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to
the EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the manufacturing and business operations,
personnel, accounting and properties occurs within the PRC. On April 22, 2009, the State Administration of Taxation, or the SAT, issued the Notice Regarding the Determination of
Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies, or Circular 82, which provides certain specific criteria for
determining whether the "de facto management body" of a Chinese-controlled offshore-incorporated enterprise is located in China. In addition, on August 3, 2011, the SAT issued a bulletin to
make clarifications in the areas of resident status determination, post-determination administration, as well as competent tax authorities. We do not believe that our legal entities
organized outside of the PRC should be treated as residents for EIT law purposes. However, if the PRC tax authorities subsequently determine that our legal entities registered outside the PRC should
be deemed resident enterprises, these entities will be subject to the PRC income taxes, at a rate of 25% and the impact would adversely affect our results of operation. See "Item 3. Key
InformationD. Risk FactorsRisks Relating to the PRC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

Prior to our initial public offering, we were a private company with no quoted market prices for our ordinary shares. We therefore
needed to make estimates of the fair value of our ordinary share at various dates for the following purposes:



Following
our initial public offering, the fair value of our ordinary shares is determined by reference to the trading prices of our ADSs on the NASDAQ Global Market.

The
following table sets forth the fair value of our ordinary shares estimated at different times prior to the completion of our initial public offering.

Date

Class of Shares

Fair Value

Purpose of Valuation

DLOM

Discount RateJuly 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
%


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When
estimating the fair value of the ordinary shares, our management 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 earnings 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 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:



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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 are a public company in the United States.

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

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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
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
considered the guidance prescribed by the Practice Aid in determining the fair value of our ordinary shares as of various dates before our initial public 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 the initial public offering was generally not likely to be a reasonable estimate of the fair value of our ordinary shares as of various dates before the initial public offering.

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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, was primarily attributable to the following factors:





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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 granted to employees and non-employees were estimated on the date of grant or the date of vesting using the binomial option pricing model
based on the following assumptions.

June 1,
2009

June 1,
2010

July 26,
2010

March 23,
2011

November 13,
2011

December 31,
2011Risk-free interest rate


4.49%


4.36%


1.26%


2.89%


2.78%


2.77%Expected dividend yield


nil


nil


nil


nil


nil


nilExpected volatility


42%


44%


44%


44%


44%


44%Exercise multiple


2.00


2.00


2.00


2.00 and 2.30


2.00


2.00Fair value of the underlying ordinary shares


US$3.15


US$4.75


US$5.66


US$12.37


US$8.88


US$7.60


The risk-free rate is based on the implied yield of PRC international bonds denominated in U.S. dollars with maturity similar
to the expected life of the option 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

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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. Exercise multiple represents the value of the underling share as a multiple of the exercise price of the option which, if achieved, results in exercise of the option of
the option. The exercise multiple of the options was estimated based on an empirical study conducted by a third party.

In
determining the fair value of the share options granted prior to the completion of our initial public offering in December 2010, we used the fair value of our ordinary shares
as determined through retrospective valuations prepared with the assistance of AA. For more information, see "Fair Value of our ordinary shares". After our initial public offering in
December 2010, the fair value of our ordinary shares will be determined by reference to the trading prices of our ADSs on the NASDAQ Stock Market as of the grant date of the
share options.

Share-based
compensation expense, based on the estimated fair value of share awards granted and the estimated forfeiture rate, will be recorded over vesting periods after the grant date
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 share awards vested during
that period.

The
estimate of forfeiture rate is reviewed and adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimate.
Changes in estimated forfeitures will be recognized through a cumulative catch-up adjustment in the period of change.

We
recorded share-based compensation of US$0.1 million, US$0.4 million and US$3.6 million for options granted to employees and non-employees for the
years ended December 31, 2009, 2010 and 2011, respectively according to the 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. As of December 31, 2011, we had a total of US$6.7 million in unrecognized
compensation expense related to unvested share options. The expense is expected to be recognized over a weighted-average period of 2.21 years according to the graded vesting schedule.

Change in fair value of warrants

In May and June 2007, we issued two convertible notes, or the Convertible Notes, of $3,000,000 to two financial investors, or
the Holders, with an interest rate of 5% per annum compounded monthly. In conjunction with the issuance of the Convertible Notes, we also issued stock purchase warrants to the Convertible Notes
Holders, providing rights to purchase a certain number of our Series A convertible redeemable preferred shares. As the warrants were exercisable for Series A convertible redeemable
preferred shares, the warrants were classified as a liability, recorded at fair value at issuance date, and subsequently marked to market at each reporting period end.

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

December
2007

December
2008

June
2009Expected volatility

72%

73%

40%Risk-free interest rate

4.35%

3%

2.90%Expected dividend





Expected life of the warrants

4.34 - 4.46

3.33 - 3.46

2.89 - 3.01


The
total fair value of the warrants increased from US$0.1 million as of December 31, 2007 to US$0.4 million as of December 31, 2008. We believe the increase
in the fair value of the warrants was

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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 were attributable to continuing to improve our
operational and financial
performance in 2008. In spite of the 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 was due to the effect of the following:



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 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%.

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Fair value of derivative liabilities

We determined 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 was to determine the fair value of our equity interest as of various valuation dates. In determining the fair values of our equity interest, we considered
both market approach and income approach, and selected the methodology that was 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 our equity interest, see "Fair value of our ordinary shares".

The
equity value was 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 would 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.

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
2010Total fair value of equity interest (US$ in millions)


16.2


44.0


63.3


131.7


136.7


138.7Expected life (years)(1)


3.3


2.3


3.5


3.0


3.0


2.9Expected 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 dividendEstimated 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


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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.


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:



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;



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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:



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:



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 in July 2010 relating to
our December 2010 initial public offering 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

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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 was no longer
linked to the fair value of the underlying preferred shares, and therefore the conversion features of Series A and B preferred shares did not meet the net settlement
criterion of a derivative. Accordingly, the separate accounting at fair value for the conversion features was 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 Cineplex and Beijing Bona Youtang, 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, 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 result, Mr. Dong Yu lost control of Bona Film Group
Limited upon the issuance of Series A preferred shares in July 2007.

In
July 2011, we entered a series of agreements to acquire Alpha Speed Limited, a British Virgin Islands company and Bona Starlight, a PRC company which held five subsidiaries at
the time of the acquisition primarily focused on the movie theater business in the PRC. Prior to the acquisitions, Alpha Speed Limited was owned 51% by Skillgreat Limited, which is wholly owned by
Mr. Dong Yu, and Bona Starlight was also owned 51% by Mr. Dong Yu. We acquired Alpha Speed Limited and Bona Starlight with total cash consideration of US$30.9 million, of which
US$3.1 million was settled as an offset against the amount that our Company was owed by Mr. Dong Yu, and US$2.4 million was not yet paid as of December 31, 2011.

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



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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 years ended December 31,2009

2010

2011US$

% of
revenues

US$

% of
revenues

US$

% of
revenuesNet revenues


38,372,551


100.0
%

52,819,786


100.0
%

126,161,270


100.0
%Cost of revenue


19,888,461


51.8
%

26,501,853


50.2
%

66,458,217


52.7
%Operating expenses:Film participation expense


1,244,848


3.2
%

696,101


1.3
%

321,100


0.3
%Sales and marketing


8,887,971


23.2
%

7,213,519


13.7
%

18,506,262


14.7
%General and administrative expenses


2,789,416


7.3
%

9,305,393


17.6
%

28,371,497


22.5
%Total operating expenses


12,922,235


33.7
%

17,215,013


32.6
%

47,198,859


37.4
%Government subsidies








88,147


0.2
%

220,559


0.2
%Operating income


5,561,855


14.5
%

9,191,067


17.4
%

12,724,753


10.1
%Changes in fair value of derivatives


90,000


0.2
%

(14,528,000
)

(27.5
)%




Other income (loss):


(26,316
)

(0.1
)%

1,193,672


2.3
%

2,318,103


1.8
%Income before income tax provision and equity in earnings (loss) of affiliated companies


5,625,539


14.7
%

(4,143,261
)

(7.8
)%

15,042,856


11.9
%Provision for income taxes


338,647


0.9
%

91,053


0.2
%

473,542


0.4
%Equity in earnings (loss) of affiliated companies


172,773


0.5
%

11,254


0.0
%

3,062


0.0
%Net income (loss)(1)


5,459,665


14.2
%

(4,223,060
)

(8.0
)%

14,572,376


11.6
%Net income (loss) attributable to holders of ordinary shares of Bona Film Group Limited


2,285,278


6.0
%

(6,241,520
)

(11.8
)%

14,432,081


11.4
%Net income (loss) per ordinary share:Basic


0.27





(0.49
)




0.49Diluted


0.27





(0.49
)




0.48Shares used in computation of net income per share:Basic


8,453,842





12,758,575





29,353,936Diluted


8,518,402





12,758,575





29,844,462


(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


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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.


For the years ended December 31,2009

2010

2011(US$)

(US$)

(US$)Net income (loss)


5,459,665


(4,223,060
)

14,572,376Adjustment for share-based compensation


132,902


447,345


3,647,144Adjustment for changes in fair value of warrants


(119,451
)




Adjustment for changes in fair value of derivatives


(90,000
)

14,528,000


Adjusted net income (non-GAAP)


5,383,116


10,752,285


18,219,520




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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.

Movie theater.Cost of revenue for our movie theater business primarily consists of box office split with theater circuits.

The
following tables set 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 year ended December 31, 2011Film
distribution

Film
investment
and
production

Talent
agency

Movie
theater

Intersegment
elimination

Consolidated(US$)

(US$)

(US$)

(US$)

(US$)

(US$)Revenues from external customers


92,598,838


6,176,820


1,349,186


26,036,426





126,161,270Intersegment revenues


2,246,219


44,298,547








(46,544,766
)

Total revenues


94,845,057


50,457,367


1,349,186


26,036,426


(46,544,766
)

126,161,270Cost of revenues


(57,979,720
)

(43,480,636
)

(117,487
)

(11,425,140
)

46,544,766


(66,458,217
)Film participation expense





(321,100
)










(321,100
)Segment profit


36,865,337


6,673,631


1,231,699


14,611,286





59,381,953




For the year ended December 31, 2010Film
distribution

Film
investment
and
production

Talent
agency

Movie
theater

Intersegment
elimination

Consolidated(US$)

(US$)

(US$)

(US$)

(US$)

(US$)Revenues from external customers


36,260,981


3,089,161


2,136,451


11,333,193





52,819,786Intersegment revenues


279,560


17,211,668








(17,491,228
)

Total revenues


36,540,541


20,300,829


2,136,451


11,333,193


(17,491,228
)

52,819,786Cost of revenues


(22,129,328
)

(15,375,079
)

(1,172,549
)

(5,316,125
)

17,491,228


(26,501,853
)Film participation expense





(696,101
)










(696,101
)Segment profit


14,411,213


4,229,649


963,902


6,017,068





25,621,832




For the year ended December 31, 2009Film
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





38,372,551Intersegment revenues





14,063,747





(14,063,747
)

Total revenues


35,331,320


16,102,238


1,002,740


(14,063,747
)

38,372,551Cost 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


Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Net Revenues.Our net revenues increased by 138.9% from US$52.8 million in 2010 to US$126.2 million in 2011. This
increase was mainly
attributable to an increase in net revenues from film distribution and film investment and production of US$59.4 million due mainly to the newly

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released
filmsOverheard 2,The Sorcerer and the White SnakeandThe Flying
Swaords of Dragon Gate, as well as to our movie theater business. The acquisition of Bona Starlight in July 2011 and the net revenues of the movie theaters we acquired
in 2010 also contributed to the increase in net revenues.



Segment revenues from our film distribution segment increased by 159.6% from US$36.5 million in 2010 to US$94.8 million
in 2011. The increase was mainly due to the releases of films such asOverheard 2,The Sorcerer and the White
SnakeandThe Flying Swords of Dragon Gate.

Segment
revenues from our film investment and production segment increased by 148.6% from US$20.3 million in 2010 to US$50.5 million in 2011. This increase was primarily
due to inter-segment revenues from the release of our blockbuster filmThe Flying Swords of Dragon Gatefor which we were the lead distributor.

Segment
revenues from our talent agency segment decreased by 36.8% from US$2.1 million in 2010 to US$1.3 million in 2011. In 2011, we signed a greater portion of our talent
agency contracts together with the artist and the third party, and therefore recognized a greater portion of our talent agency revenues net of the payment to the artists, rather than on a gross basis,
which caused our revenues from our talent agency segment to decrease from 2010 to 2011.

Segment
revenues from our movie theater segment increased by 129.7% from US$11.3 million in 2010 to US$26.0 million in 2011. This increase was primarily due to the
acquisition of Bona Starlight in July 2011 and net revenues generated by the movie theaters we acquired in 2010.

Cost of Revenues.Our cost of revenues increased by 150.8% from US$26.5 million in 2010 to US$66.5 million in 2011,
primarily as a
result of the acquisition of the movie theaters previously owned by Bona Starlight, and an increase in amortization of production costs of films in which we were a lead investor, in particular The Flying Swords of
Dragon Gate.



Segment cost of revenues from our film distribution segment increased by 162.0% from US$22.1 million in 2010 to
US$58.0 million in 2011 mainly due to the increase in remittances to producers in connection with films having high box office receipts, such asThe Sorcerer and the
White Snakeand our blockbuster filmThe Flying Swords of Dragon Gate.

Segment
cost of revenues from our film investment and production segment increased by 182.8% from US$15.4 million in 2010 to US$43.5 million in 2011, primarily as a result
of increased amortization of production costs of films in which we were a lead investor, such asOverheard 2andThe Flying
Swords of Dragon Gate.

Segment
cost of revenues from our talent agency segment decreased by 90.0% from US$1.2 million in 2010 to US$0.1 million in 2011, primarily because we recognized a greater
portion of our talent agency revenues net of the payment to the artists in 2011 and therefore recognized a smaller portion of payments to artists in segment cost of revenues.

Segment
cost of revenues from our movie theater segment increased by 114.9% from US$5.3 million in 2010 to US$11.4 million in 2011, primarily due to the acquisition of Bona
Starlight, as well as costs incurred by the movie theaters we acquired in 2010.

Film Participation Expenses.Our film participation expenses were US$0.7 million in 2010 and US$0.3 million in 2011.
Our film
participation expenses in 2011 were primarily incurred in connection with the syndication of film participation interests in the filmsWhat Women WantandThe Flying Swords of Dragon Gate.

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Segment profit from our film distribution segment increased by 155.8% from US$14.4 million in 2010 to US$36.9 million in
2011, with segment profit margin decreasing slightly over the same period from 39.4% to 38.9%. The increase in segment profit was largely attributable to higher box office receipts of the films we
distributed in 2011, such asOverheard 2,The Sorcerer and the White Snakeand The Flying Swords of Dragon Gate.

Segment
profit from our film investment and production segment increased by 57.8% from US$4.2 million in 2010 to US$6.7 million in 2011, primarily due to higher box office
receipts of films we invested in and produced in 2011, such asOverheard 2andThe Flying Swords of Dragon
Gate. Segment
profit margin decreased over the same period from 20.8% to 13.2%, primarily due to the unpredictable nature of the film production and investment business.

Segment
profit from our talent agency segment increased from US$1.0 million in 2010 to US$1.2 million in 2011 as a result of the representation of an increased number of
new artists, with segment profit margin increasing over the same period from 45.1% to 91.3% largely due to more talent agency segment revenue being booked on a net basis instead of a
gross basis.

Segment
profit from our movie theater segment increased by 142.8% from US$6.0 million in 2010 to US$14.6 million in 2011 as a result of increased segment revenues, with
segment profit margin increasing over the same period from 53.1% to 56.1% largely due to the box office earning maturity of movie theaters that we acquired in 2010.

Other Operating Expenses.Our operating expenses increased by 183.8% from US$16.5 million in 2010 to US$46.9 million
in 2011.



Operating Profit.As a result of the foregoing, our operating profit increased by 38.4% from US$9.2 million in 2010 to
US$12.7 million
in 2011.

Other Income (Loss).We generated other loss of US$13.3 million in 2010 and other income of
US$2.3 million in 2011. We did not recognize any change in fair value of derivatives in 2011 because the redemption terms of the Series A and Series B preferred shares were
amended in August 2010, and as a result we had ceased to recognize derivative liabilities and change in fair value of derivatives from the date of such amendment.

Tax Provision.We made provisions for income tax of US$0.1 million and US$0.5 million in 2010 and 2011, respectively.
The change in
income tax provision from 2010 to 2011 was mainly due to the increase in net income before income tax provision generated by our Hong Kong entities subject to 16.5% income tax rate and our movie
theaters subject to 25% income tax rate in 2011.

Equity in Earnings (Loss) of Affiliated Companies.We recorded equity in earnings of affiliated companies of US$11,254 in 2010
and US$3,062 in 2011
primarily in connection with Beijing Bona Meitao Culture and Media Co, Ltd.

Net Income (Loss).As a result of the foregoing, we generated net loss of US$4.2 million in 2010 and net income of
US$14.6 million in
2011. Excluding share-based compensation, changes in fair value of warrants and changes in fair value of derivatives, our non-GAAP net income was US$10.8 million

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and
US$18.2 million in 2010 and 2011, respectively. See footnote (1) in our selected consolidated operating income information set forth in "Results of
OperationsSelected consolidated financial information."

Net Income (Loss) Attributable to Non-controlling Shareholders.Net income (loss) attributable to non-controlling
shareholders represents non-controlling shareholders' share of our net income based on their equity interest in Cinema Popular Limited, Distribution Workshop (BVI) Ltd.,
Distribution Workshop (HK) Ltd., Beijing Baichuan Film Distribution Co., Ltd. (before the year 2011), Xi'an Huitong Bona Film Culture Media Co, Ltd., Shanghai Bona Yinxing
Cinema Development Co., Ltd. and Changsha Mango Bona Cineplex Management Co., Ltd.
We recorded net loss attributable to non-controlling shareholders of US$0.1 million in 2010 and net income of US$0.1 million in 2011.

Net Income (Loss) Attributable to Our Company.As a result of the foregoing, net loss attributable to our company of
US$4.1 million in 2010,
and net income attributable to our company of US$14.4 million in 2011.

Net Income (Loss) Attributable to Holders of Our Ordinary Shares.As a result of the foregoing, net loss attributable to holders
of our ordinary
shares was US$6.2 million in 2010, and net income attributable to holders of our ordinary shares of US$14.4 million in 2011.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Net Revenues.Our net revenues increased by 37.6% from US$38.4 million in 2009 to US$52.8 million in 2010. This
increase was largely
attributable to the acquisition of the Company's movie theater business in April 2010, which contributed net revenues of US$11.3 million for the year ended December 31, 2010. In
addition, for the year ended December 31, 2010, film distribution and film investment and production also contributed an increase in net revenue of US$2.0 million due to the newly
released films such asJust Call Me Nobody,Triple TapandCurse of
the Deserted.



Segment revenues from our film distribution segment increased by 3.4% from US$35.3 million in 2009 to US$36.5 million in
2010. The increase was mainly due to advertising revenue for the pre-screening and premier release of our blockbuster films such asTriple
TapandJust Call Me Nobody.

Segment
revenues from our film investment and production segment increased by 26.1% from US$16.1 million in 2009 to US$20.3 million in 2010. This increase was primarily due
to a US$3.1 million increase over this period from the inter-segment revenue from distribution of films for which we were the lead distributor and entitled to a percentage of the economic
interest based on our proportionate investment in the production, likeJust Call Me Nobody.

Segment
revenues from our talent agency segment increased significantly from US$1.0 million in 2009 to US$2.1 million in 2010, largely as a result of representing
17 new artists for the year ended December 31, 2010.

Segment
revenues from our movie theater segment, which represented revenues from our movie theater business from April 23, 2010, when we acquired our movie theater business, to
December 31, 2010, amounted to US$11.3 million for the year ended December 31, 2010. We did not operate a movie theater business in 2009.

Cost of Revenues.Our cost of revenues increased by 33.3% from US$19.9 million in 2009 to US$26.5 million in 2010,
primarily as a
result of costs from our movie theater business acquired in April 2010.

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Segment cost of revenues from our film distribution segment increased by 1% from US$21.9 million in 2009 to
US$22.1 million in 2010 mainly due to the increase in remittances to producers based on our agreements in connection with films having high box office receipts such as Just Call Me NobodyandTriple Tap.

Segment
cost of revenues from our film investment and production segment increased significantly from US$11.3 million in 2009 to US$15.4 million in 2010, primarily as a
result of increased amortization of production costs of films in which we were a lead investor, in particular forJust Call Me Nobody.

Segment
cost of revenues from our talent agency segment increased significantly from US$0.7 million in 2009 to US$1.2 million in 2010, primarily due to the signing of new
artists in the year ended December 31, 2010.

Segment
cost of revenues from our movie theater segment amounted to US$5.3 million for the period from April 23 to December 31, 2010.

Film Participation Expenses.Our film participation expenses were US$1.2 million and US$0.7 million in 2009 and 2010,
respectively, the
expenses incurred in 2009 were primarily in connection with the syndication of film participation interests inBodyguards and Assassinsand Overheardwhich
were released in 2009.



Segment profit from our film distribution segment increased by 7.5% from US$13.4 million in 2009 to US$14.4 million in
2010, with segment profit margin increasing over the same period from 37.9% to 39.4%. The increase in segment profit was largely attributable to an increase in profit from our advertising services, in
particular for promotions leading up to the premier ofTriple TapandJust Call Me Nobody.

Segment
profit from our film investment and production segment increased by 20.4% from US$3.5 million in 2009 to US$4.2 million in 2010, primarily due to our investments in
the production ofCaravans with Rings, an episodic television series, with segment profit margin decreasing over the same period from 21.8% to 20.8%,
largely due to lower than expected returns fromLike a Dream.

Segment
profit from our talent agency segment increased significantly from US$0.3 million in 2009 to US$1.0 million in 2010 as a result of the representation of new artists
in the year of 2010 with segment profit margin increasing over the same period from 32.1% to 45.1% largely due to more talent revenue being booked on a net basis instead of gross basis according to
the contracts we signed.

Segment
profit from our movie theater segment amounted to US$6.0 million for the period from April 23 to December 31, 2010, with a segment profit margin
of 53.1%.

Other Operating Expenses.Our operating expenses increased by 41.5% from US$11.7 million in 2009 to US$16.5 million
in 2010.



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Operating Profit (Loss).As a result of the foregoing, our operating profit increased by 65.3% from US$5.6 million in 2009
to
US$9.2 million in 2010.

Changes in fair value of derivatives.For the year ended December 31, 2009, the fair value of the embedded derivatives
associated with our
Series A preferred shares decreased from US$2.7 million to US$2.4 million, resulting in a gain in the income statement of US$0.3 million. We attribute this change in fair
value of embedded derivate primarily to the following factors: (i) the increase in total fair value of our equity interest, which in turn was due to the organic growth of our business,
(ii) the decrease in expected volatility of the equity interest underlying the embedded derivatives from 74% to 39%, and (iii) the increase in expected life of the embedded derivatives
by 1.2 years during the period.

For
the period from January 1 to August 1, 2010, the fair value of the embedded derivative associated with our Series A preferred shares increased from
US$2.5 million to US$13.5 million, resulting in a charge to the income statement of US$11.0 million. The fair value of the embedded derivatives associated with our
Series B-1 and B-2 preferred shares increased from
US$0.4 million to US$3.9 million, resulting in a charge to the income statement of US$3.5 million. The fair value of the embedded derivatives associated with our
Series B-3 preferred shares changed from US$476,000 as of the issuance date of July 26, 2010 to US$477,000 as of August 1, 2010. The total charge due to the change in
fair value of embedded derivatives was US$14.5 million. We attribute this increase in fair value of embedded derivate primarily 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 interests, which in turn was primarily attributable to the following
factors:



On
August 1, 2010, all the Series A and B preferred shareholders and our board of directors passed resolutions to amend the redemption term of the preferred shares.
The resolution changed the redemption price of Series A and B preferred shares to 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 Series A or B preferred shares. As a result of this amendment, the redemption price of the Series A and B preferred shares is
no longer linked to the fair value of the corresponding 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.

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Other Income (Loss).We generated other income of US$0.1 million in 2009 and other loss of US$13.3 million in 2010,
primarily as a
result of the changes in fair value of derivatives, which resulted in a gain of US$0.1 million in 2009, compared to a charge of US$14.5 million in 2010, and partially offset by interest
income of $0.9 million from loan to producer of TV series. The changes in fair value of derivatives we recorded in 2009 and 2010 reflected changes in connection with an embedded derivative
feature of our Series A preferred shares and Series B preferred shares. The redemption terms of the Series A and Series B preferred shares were amended in
August 2010, and as a result we had ceased to recognize derivative liabilities and change in fair value of derivatives from the date of such amendment.

Tax Provision.We made provision for income tax of US$0.3 million and US$0.1 million in 2009 and 2010, respectively.

Equity in Earnings (Loss) of Affiliated Companies.We recorded equity in earnings of affiliated companies of US$0.2 million
in 2009 and
US$0.01 million in 2010 primarily in connection with Beijing Bona Meitao Culture and Media Co. Ltd.

Net Income (Loss).As a result of the foregoing, we generated net income of US$5.5 million in 2009 and net loss of
US$4.2 million in
2010. Excluding share-based compensation, changes in fair value of warrants and changes in fair value of derivatives, our non-GAAP net income was US$5.4 million and
US$10.8 million in 2009 and 2010, respectively. See footnote (1) in our selected consolidated operating income information set forth in "Results of
OperationsSelected consolidated financial information."

Net Loss Attributable to Non-controlling Shareholders.Net loss attributable to non-controlling shareholders represents
non-controlling shareholders' share of our net income based on their equity interest in Cinema Popular Limited, Distribution Workshop (BVI) Ltd., Distribution Workshop
(HK) Ltd. and Beijing Baichuan Film Distribution Co., Ltd.
There was net loss attributable to non-controlling shareholders of US$0.2 million in 2009 and US$0.1 million in 2010.

Net Income (Loss) Attributable to Our Company.As a result of the foregoing, net income attributable to our company amounted to
US$5.6 million
in 2009, and net loss attributable to our company of US$4.1 million in 2010.

Deemed Dividends.We incurred deemed dividends of US$1.0 million and US$0.4 million in 2009 in connection with our
Series A and
Series B preferred shares and deemed dividends of US$1.1 million and US$1.1 million in 2010 in connection with our Series A and Series B preferred shares,
respectively.

Net Income (Loss) Attributable to Holders of Our Ordinary Shares.As a result of the foregoing, net income attributable to
holders of our ordinary
shares was US$2.3 million in 2009, and net loss of US$6.2 million in 2010.



Our primary sources of liquidity have historically been proceeds from issuances of convertible notes and warrants and issuances of Series A and
Series B preferred shares, net proceeds from our initial public offering, proceeds from bank and other borrowings, and film financing participations. As of December 31, 2011, we had
approximately US$20.1 million in cash and cash equivalents. Our cash and cash equivalents generally consist of bank deposits and liquid investments with maturities of three months
or less.

We
require cash to acquire film distribution rights, fund film and television series productions, and undertake distribution and marketing activities in connection with film
distributions. We also require

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cash
for other working capital needs for our daily operations, salary and benefits and other cash needs. We generally fund such cash needs through a combination of:



In
addition, we require cash to operate and expand our movie theater business. We funded the expansion of our movie theater business in 2010 and 2011 using cash from operations and net
proceeds from our initial public offering. We intend to significantly increase the number of movie theaters that we operate in the coming years. We intend to fund such growth with cash generated by
our existing movie theater business and films that we distribute, as well as additional future bank loans

As
we have expanded our business, increased the amount of our financing of film productions and, beginning in 2010, grown our movie theater business, our cash requirements for each of
2009, 2010 and 2011 have correspondingly increased. Our cash requirements exceeded the cash generated from our operations for 2009 and 2010, but our net cash from operations became positive in 2011.
This change was primarily due to cash generated by films financed and distributed in prior periods, as well as cash produced by our movie theater business.

We
believe that our cash and cash equivalents, our anticipated cash flow from operations, our credit facilities and the net proceeds we received from our initial public offering will be
sufficient to meet our anticipated cash needs for the next 12 months. For the next 12 to 24 months, we expect to meet our anticipated cash needs through bank loans and from funds
provided by films in which we are the lead investor and from which we receive film participation fees from other investors, our film distribution business and our movie theater business.

On
October 19, 2011, Bona Film Group Co., Ltd. (PRC), our affiliated consolidated entity, entered into a general credit facility agreement with the Bank of Beijing,
which has agreed to extend a line of credit of RMB100 million (US$15.9 million). The interest rate of the loans to be lent to Bona Film Group Co., Ltd. (PRC) is not
specified in the credit agreement and is to be separately agreed upon between the parties and provided for in the specific loan draw down contracts under the credit agreement. We may draw upon the
line of credit for one year from the date of the agreement and each loan will be payable within 12 months of each drawdown. In order to procure this line of credit, two of Bona Film
Group Co., Ltd. (PRC)'s subsidiaries, Beijing Bona Cineplex 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 from the two subsidiaries and Mr. Yu cover the
entire amount of the loan, interest, and any penalties, damages and related costs, and would be covered by their assets, including cash flows from films they produce, distribute or exhibit. Under the
guarantees provided by the two subsidiaries and the personal guarantee provided by Mr. Yu and pursuant to the PRC Security Law, the two subsidiaries and Mr. Yu have agreed to perform the
obligations under the credit agreement in the event that Bona Film Group Co., Ltd. (PRC) is unable to perform its obligations. In the event that the guarantee is

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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. See "Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryOur founder, chairman and chief executive
officer and the largest holder of our outstanding share capital, Mr. Yu, has provided a personal guarantee using his personal property, including his equity interest in our company, to secure
the obligations of Bona Film Group Co., Ltd. (PRC) under a credit facility. A default under the credit facility could result in a sale by court order of Mr. 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. Yu, who could thereafter have a substantially
smaller or no equity interest in our company, could have less or no personal stake or interest in the commercial success of our company."

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

For the year ended December 31,2009

2010

2011(US$)

(US$)

(US$)Net cash provided by (used in) operating activities


(24,313,363
)

(32,394,544
)

2,239,544Net cash used in investing activities


(616,286
)

(8,429,118
)

(48,826,052
)Net cash provided by (used in) financing activities


27,734,764


117,424,948


(17,640,985
)Effect of exchange rate changes


(158,799
)

228,485


86,858Net increase (decrease) in cash and cash equivalents


2,646,316


76,829,771


(64,140,635
)Cash and cash equivalents at the beginning of the year


4,771,897


7,418,213


84,247,984Cash and cash equivalents at the end of the year


7,418,213


84,247,984


20,107,349


Each
of the 11 theaters we operated as of December 31, 2011 has entered into a lease agreement for the use of the premises where the movie theater is located. These lease
agreements are for periods ranging from 10 to 20 years. Our lease agreements also usually provide us with an initial six-month rent free period. Under the lease agreements, our
movie theaters have agreed to use the premises for theater-related operations, to maintain the premises in accordance with provisions of the leases, to comply with regulatory requirements such as
sanitary standards, fire protection and public security, pay the lease payments by 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 may terminate the lease agreement, require our theaters to return the
leased premises and pay all outstanding expenses and damages. If any of these lease agreements is terminated, our movie theater business, financial condition and results of operations will be
materially and adversely affected. In addition, if our movie theater business does not generate sufficient revenues to service our payment obligations under these leases, our financial condition and
results of operations could be materially and adversely affected. See "Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and
IndustryOur movie theater business has substantial lease obligations, which could impair our financial condition."

Operating Activities

Our net cash provided by operating activities amounted to US$2.2 million in 2011. We had an amortization of production costs of
US$37.1 million, an increase in accounts payable of US$13.1 million and an increase of US$9.8 million in accrued expenses and other current liabilities. The amortization of
production costs were mainly related to the films we distributed and produced, such asOverheard 2and the blockbuster filmThe
Flying Swords of Dragon Gate. The increase of accounts payable was mainly related to profit sharing payments to film-producers of the films we distributed, such as The Sorcerer and the White
Snake. The increase of accrued expenses and other current liabilities are mainly attributable to the advance we received from
network broadcasting sales ofThe Flying Swords of Dragon Gateand television station broadcasting sales of our distributed and

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invested
television series,The King's Battle. These increases were partly offset by production costs of US$40.4 million, an increase in accounts
receivable of US$25.6 million, prepaid expenses and other current assets of US$14.0 million. We incurred production costs primarily in connection with our increased investments in film
projects as a lead investor. The increase in accounts receivable was mainly due toThe Flying Swords of Dragon Gate,which was released on
December 15, 2011. A substantial portion of the box office receipts ofThe Flying Swords of Dragon Gatewere remitted to us in the first quarter
of year 2012.

Our
net cash used in operating activities amounted to US$32.4 million in 2010. We had an increase in production costs of US$61.5 million due to the fact that we have been
increasingly investing in film projects as a lead investor. This is partly offset by the amortization of distribution rights and production costs amounting to US$19.7 million in relation to the
blockbuster films we distributed and produced likeBodyguards and Assassins,Just Call Me Nobody, and Triple Tap. Our decrease in accounts payable of US$3.3 million was largely attributable to the repayment of liabilities in connection with the
capital expenditure of the cinema business we acquired in April 2010. This was partly offset by a decrease in accounts receivable of US$4.9 million, primarily attributable to Bodyguards and Assassins, which was initially exhibited in theaters on December 18, 2009, but for which a substantial portion of the box office
receipts were remitted to us in 2010.

Our
net cash used in operating activities amounted to US$24.3 million in 2009. We had an increase in accounts receivable of US$15.0 million, primarily attributable to Bodyguards and Assassins,
which was initially exhibited in theaters on December 18, 2009, but for which a substantial portion of the box office
receipts were remitted to us in 2010. We also had an increase in production cost of US$25.5 million primarily relating toBodyguards and
AssassinsandOverheard, an increase in distribution rights in the amount of US$6.0 million primarily attributable to Little Big
SoldierandRed Cliff II, an increase in amounts due from related parties of
$3.6 million and an increase in other current assets of US$2.7 million, which were partly offset by an increase in accrued expenses and other current liabilities of US$3.5 million
as a result of an increase in amounts payable to producers and investors for their share of box office receipts of forBodyguards and Assassinsand an
increase in accounts payable of US$4.7 million relating toMulan.

Investing Activities

Our net cash used in investing activities amounted to US$48.8 million in 2011. Our net cash used in investing activities in 2011
was primarily due to (i) acquisition of business of US$24.2 million, which largely related to our acquisition of Alpha Speed Limited and Bona Starlight, (ii) purchase of property
and equipment of US$9.7 million related mostly to purchases of leasehold improvements and equipment such as computers and operating equipment, (iii) an increase in term deposit of
US$6.0 million; (iv) an increase in restricted cash of US$4.1 million and (v) loans to related
parties of US$4.0 million, which primarily related to loans we made to Bona Starlight before the acquisition of such company. This was partly offset by the proceeds of US$2.6 million
from repayment of loans to third parties.

Our
net cash used in investing activities amounted to US$8.4 million in 2010. Our net cash used in investing activities in 2010 was primarily due to (i) loans to third
parties of US$3.9 million, which primarily related to an entrusted loan with Industrial and Commercial Bank of China Limited, (ii) loans to related parties of US$1.7 million,
which primarily related to Beijing Bona Xingguang Cinema Investment Company, (iii) purchase of property and equipment of US$2.7 million mostly related to purchases of leasehold
improvements and equipment such as computers and operating equipment, and investments in affiliates and (iv) loans to a television series producer of US$1.2 million. This was partly
offset by cash acquired on the acquisition of our movie theater business of US$1.5 million.

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Our
net cash provided by investing activities amounted to US$0.6 million in 2009, primarily due to loans to third parties of US$0.6 million.

Financing Activities

In 2011, we had net cash used in financing activities of US$17.6 million, which was primarily due to (i) payments of bank
borrowings of US$22.6 million related to loans for our films, includingJust Call Me Nobody,What Women
WantandThe Flying Swords of Dragon Gate, (ii) repayments of US$6.7 million of loans from related parties and
third parties, and (iii) payment of film participation liabilities principal of US$4.8 million, which mainly resulted from the repayment to film participants for our joint investment in
films, such asBodyguards and AssassinsandThe Road Less Travelled, partly offset by proceeds from bank
borrowing of US$12.3 million.

In
2010, we had net cash provided by financing activities of US$117.4 million, which was primarily due to (i) net proceeds from initial public offering in
December 2010 of US$90.8 million, (ii) proceeds from bank borrowing of US$22.3 million, (iii) proceeds from issuance of Series B-3 preferred
shares of US$5.0 million, (iv) proceeds from film participation of US$10.8 million mainly from our joint investment in the filmThe Flying Swords of Dragon
Gatewhich is expected to be released at the end of 2011, (v) proceeds from exercise of a share option of US$2.0 million, (vi) proceeds from other
borrowings of US$1.3 million and (vii) loans from third parties and related parties of US$3.2 million for the financing of operating cashflow. This was partly offset by
(a) payments of bank borrowing of US$8.1 million,
(b) payments of other borrowings of US$5.9 million and (c) payments of principal of film participation liabilities of US$4.4 million.

In
2009, we had net cash provided by financing activities of US$27.7 million, which primarily consisted of US$9.0 million in proceeds from our issuance of Series B
convertible preferred shares, proceeds from film participations of US$8.6 million, US$6.6 million from bank borrowings and US$5.9 million from other borrowings, partially offset
by payments of US$3.5 million in connection with the repurchases of our ordinary shares.

Inflation

Inflation in China has not materially impacted our results of operations in recent years. According to the National Bureau of
Statistics of China, the change in the Consumer Price Index in China was 5.9%, negative 0.7% and 3.3% in 2008, 2009 and 2010, respectively. The year-over-year percent changes
in the consumer price index for January 2009, 2010 and 2011 were increases of 1.0%, 1.5% and 4.9%, respectively.

Recently Issued Accounting Standards

In May 2011, the FASB issued an authoritative pronouncement on fair value measurement. The guidance is the result of joint
efforts by the FASB and IASB to develop a single, converged fair value framework. The guidance is largely consistent with existing fair value measurement principles in U.S. GAAP. The guidance
expands the existing disclosure requirements for fair value measurements and makes other amendments, mainly including:



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The
guidance is to be applied prospectively and effectively for interim and annual periods beginning after December 15, 2011, for public entities. Early application by public
entities is not permitted. We do not expect the adoption of this pronouncement to have a significant impact on its consolidated financial statements.

In
June 2011, the FASB issued an authoritative pronouncement to allow an entity the option to present the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to
present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive
income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. These amendments do not change the items
that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The guidance should be applied retrospectively. For public
entities, the amendments are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. In December 2011, the FASB
issued a further authoritative pronouncement, Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items out of Accumulated Other Comprehensive Income. Under the
amendments, entities are required to present reclassification adjustments and the effect of those reclassification adjustments on the face of the financial statements where net income is presented, by
component of net income, and on the face of the financial statements where other comprehensive income is presented, by component of other comprehensive income. In addition, the amendments require that
reclassification adjustments be presented in interim financial periods. The amendments supersede changes to those paragraphs that pertain to how, when, and where reclassification adjustments are
presented. The amendments in this update are effective for public entities for fiscal years beginning after December 15, 2011. We do not expect the adoption of these pronouncements to have a
significant impact on its consolidated financial statements.

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In
September 2011, the FASB has issued an authoritative pronouncement related to testing goodwill for impairment. The guidance is intended to simplify how entities, both public
and nonpublic, test goodwill for impairment. The pronouncement permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for annual
and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. We have not early adopted this pronouncement and does not expect
the adoption of this pronouncement has a significant impact on its financial condition or results of operation.



None.



Please refer to "A. Operating Results" for a discussion of the most significant recent trends in our services, sales and marketing since the end of
2011. In addition, please refer to discussions included in this Item for a discussion of known trends, uncertainties, demands, commitments or events that we believe are reasonably likely to have a
material effect on our net sales or operating revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not
necessarily to be indicative of future operating results or financial condition.



We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. In addition, we have not entered
into any derivative contracts that are
indexed to our own shares and classified as shareholder's equity, or that are not reflected in our consolidated financial statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. Moreover, we do not have any variable interest in any unconsolidated entity that
provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.



Other than such obligations and the contractual obligations described below, we have no other long-term contractual obligations or commercial
commitments as of December 31, 2011:

Payments Due by PeriodTotal

2012

2013

2014

2015

2016 and
thereafter(US$ in thousands)Borrowings(1):Principal


14,286,067


14,286,067











Interest


107,397


107,397











Film participation liabilities(2)


16,224,219


16,224,219











Operating lease obligations(3)


106,159,563


8,151,674


7,556,735


7,378,041


7,378,041


75,695,072Total


136,777,246


38,769,357


7,556,735


7,378,041


7,378,041


75,695,072


(1)Borrowings
are primarily related to borrowings from banks and third parties.


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(2)Film
participation obligations are primarily related to funds received from third-party provider to finance the production of films.(3)Operating
lease obligations are primarily related to the minimum lease payments until 2027 under non-cancellable operating leases
entered into by 14 movie theaters, including three movie theaters that we had not yet opened as of December 31, 2011.




This annual report 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:



The
forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no
obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to
reflect the occurrence of unanticipated events. You should read this annual report and the documents that we reference in this annual report and have filed as exhibits to the registration statement
that includes this annual report 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 annual report 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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Item 6.    Directors, Senior Management and Employees



The following table sets forth information regarding our executive officers and directors as of the date of this annual report.

Directors and Executive Officers

Age

Position/TitleDong Yu


41

Chairman of the board of directors and chief executive officerNansun Shi


60

DirectorJeffrey Chan


52

Director, chief operating officerZhong Jiang


43

Independent directorDaqing Dave Qi


47

Independent directorJie Lian


38

Independent directorPeixin Xu


41

Independent directorLiang Xu


36

Chief financial officerHao Zhang


46

General manager, domestic distribution


Dong Yuis the founder, chairman and chief executive officer of our company. Mr. Yu has over 16 years of experience in film
distribution and received numerous recognitions such as "The Most Influential Asian Film Producer" by The Hollywood Reporter in November 2006 and "Outstanding Figure of the Year in Chinese
Creative Enterprises" by Chinese Creative Enterprises in 2008. Before he founded our predecessor company in 2000, Mr. Yu held positions at China Film Group Corporation from 1999 to 2000 and at
Beijing Film Studio from 1994 to 1999. Mr. Yu is also the vice president of the Youth Film Participant Committee of the China Film Association, a standing director of the China Film Producer
Association and a director of the China Film Distribution and Exhibition Association. Mr. Yu received his bachelor's degree in film management from the Beijing Film Academy and his MBA degree
from Cheung Kong Graduate School of Business.

Nansun Shihas been a director of our company since 2006. Ms. Shi has over 30 years of experience in the film and media
industries, including founding Film Workshop Co. Ltd., and producing or co-producing numerous Hong Kong movies, including as the executive producer of Infernal Affairs(which was remade into
the Hollywood film,The Departed) and most recently,Detective Dee and the Mystery of the Phantom Flame(which is in competition in the 2010 Venice Film Festival). In addition, Ms. Shi has held
senior positions in several entertainment and media companies in Hong Kong, including at the CIM Group from 1991 to 1996, where her responsibilities included the establishment of joint ventures in the
PRC and the launch of Chinese Television Network Inc. in 1994. Ms. Shi received her bachelor's degree in Statistics and Computing from the Polytechnic of North London.

Jeffrey Chanhas been our chief operating officer since 2008 and our director since 2009. Mr. Chan has over 20 years of
experience in the film distribution and entertainment industry. Before joining our company, Mr. Chan served as the distribution and sales manager of Media Asia Holdings Limited from 2002 to
2007, a vice president in charge of media, content strategy and special projects of PCCW/Cable & Wireless Ltd. from 1999 to 2002 and a program controller at Asia Television Limited from
1993 to 1999. Mr. Chan holds a bachelor's degree in philosophy from the Chinese University of Hong Kong, a master's degree in philosophy from the University of Tasmania, Australia, a master's
degree in electronic commerce and internet technology from the University of Hong Kong and an MBA degree from the University of Hong Kong.

Zhong Jianghas been our independent director since December 2010. Mr. Jiang has been a general manager at Hengji Jintai
Real Estate Brokerage Co., Ltd., a subsidiary of Vantage Holdings Group, a provider of real estate marketing and brokerage services, since 2008, where his responsibilities include the
development of projects. Mr. Jiang was an assistant general manager at Beijing Wanjing Real Estate Brokerage Co., Ltd., a real estate development company, from 2006 to 2008 and a
general

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manager
at Beijing Shiji Hengfeng Decoration Co., Ltd, a company engaged in the building decorative works business, from 2004 to 2006. Mr. Jiang received his executive MBA degree
from Cheung Kong Graduate School of Business.

Daqing Dave Qihas been our independent director since December 2010. Dr. Qi is a professor of accounting and associate dean
of the Cheung Kong Graduate School of Business, where he has taught since 2002. From 1996 until 2002, Dr. Qi was an associate professor in the School of Accountancy at the Chinese University of
Hong Kong. Dr. Qi also has extensive experience in providing executive training and consulting services in accounting and corporate finance to government departments and private companies,
including the PRC Ministry of Information Industries, the Shanghai Municipal Government, China Mobile, China Unicom, China Telecom, China Netcom, Nokia and Ericsson. Dr. Qi also serves as a
director of Daqo New Energy Corp., a New York Stock Exchange-listed company, Focus Media Holdings Limited, a NASDAQ-listed company, AutoNavi Holdings Limited, a NASDAQ-listed company,
Sohu.com, a NASDAQ-listed company, Honghua Group Limited, a company listed on the Hong Kong Stock Exchange, SinoMedia Holding Limited, a company listed on the Hong Kong Stock Exchange, Huiyuan Juice
Group Limited, a company listed on the Hong Kong Stock Exchange, China Vanke Co., Ltd, a company listed on the Shenzhen Stock Exchange and Focus Technology, a company listed on the
Shenzhen Stock Exchange. Dr. Qi received his B.S. degree in biophysics and his B.A. degree in journalism from Fudan University, his MBA degree from the University of Hawaii Manoa with a
concentration in accounting and finance and his Ph.D. degree in accounting from the Eli Broad Graduate School of Management of Michigan State University.

Jie Lianhas been our independent director since November 2011. Mr. Lian is currently a partner in the Primavera Capital
Group, a China-focused private equity firm. He also serves on the boards of various Primavera Capital Group-invested portfolio companies, including Halogen Limited, a China-based specialty chemical
company. From October 2009 through September 2010, Mr. Lian was a managing director in the investment banking division of China International Capital Corporation in Hong Kong.
From March 2009 through August 2009, he was chief financial officer of Ambow Education Holding Ltd., a China-based education company listed on the Nasdaq Global Market. Prior to
that, Mr. Lian held various positions at Goldman Sachs, including managing director in the investment banking division in Hong Kong, where he worked from 2001 to 2009. Mr. Lian has an
MBA from the Tuck School of Management at Dartmouth College.

Peixin Xuhas been our independent director since November 2011. Mr. Xu is currently chairman of Huasheng Taitong Media
Investment Co., Ltd., a TV production company. He is also founder and chairman of Beijing Redbaby Info-Tech Co., Ltd., a B2C e-commerce company
mainly focusing on the maternal and infant products, a partner of venture capital fund New Enterprise Associates, and a researcher at Peking University. Prior to his current positions,
Mr. Xu was a manager for new business at Beijing Northstar Industrial Group, a state-owned comprehensive real estate development and services business group. Mr. Xu has a B.A. in
business administration from the Tianjin University of Commerce.

Liang Xuhas served as our chief financial officer since June 2010. Prior to joining us, he had served as the chief financial
officer for China Digital TV Holding Co., Ltd., a New York Stock Exchange-listed company, from 2006 to 2010 and also as an executive vice president of that company from 2009 to
2010. Mr. Xu was an investment professional at CDH Venture Partners from 2005 to 2006. He was at Intel (China) Ltd. from 2003 to 2005, where he was a senior financial analyst and then
strategic program manager. Mr. Xu has also held a variety of sales and marketing positions in his earlier career. Mr. Xu holds a bachelor of economics degree in business administration
and a bachelor of arts degree in English from Tsinghua University with highest distinction and an MBA degree from the Harvard Business School. On March 1, 2012, we announced that
Mr. Liang Xu will resign as chief financial officer of our company on May 1, 2012. Following his resignation, Mr. Xu will serve in an

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advisory
capacity on the Company's "Strategy Committee" to help oversee a smooth CFO transition while providing additional insight in support of our company's strategic expansion.

Hao Zhanghas been the general manager of our domestic distribution business since 2009. From 2005 to 2009, Mr. Zhang was the
executive deputy manager of our domestic distribution business. From 1987 until joining our company, Mr. Zhang served in a number of positions in distribution and film operations at the Xi'an
Film Corporation and as vice general manager at the Xi'an Chang'an Cinema Chain. From 1982 through 1986, Mr. Zhang served in the air force of the People's Liberation Army.



For the year ended December 31, 2011, we paid an aggregate of approximately US$0.5 million in cash to our executive officers, two of whom also
served as directors. We did not pay our independent directors any cash compensation in 2011.

Share Incentive Plans

In each of June 2009 and June 2010, we adopted the 2009 share incentive plan and 2010 share incentive plan, respectively,
to attract and retain the best available personnel, provide additional incentives to our employees, directors and consultants, and promote the success of
our business. The share incentive plans provide for the grant of option, restricted shares, and restricted share units, collectively referred to as "awards." Our board of directors has authorized the
issuance of up to 209,163 and 5,410,650 ordinary shares upon exercise of awards granted under the 2009 share incentive plan and 2010 share incentive plan, respectively.

Plan Administration.The compensation committee of our board of directors will administer the share incentive plan. The
compensation committee or the
full board of directors, as appropriate, will determine the participants to receive awards, the type and number of awards to be granted, the terms and conditions of each award grant.

Award Agreements.Awards granted under the share incentive plans are evidenced by an award agreement that sets forth the terms,
conditions and
limitations for each grant, which may include the term of the award, the provisions applicable in the event of the grantee's employment or service terminates, and our authority to unilaterally or
bilaterally amend, modify, suspend, cancel or rescind the award.

Transfer Restrictions.The right of a grantee in an award granted under the share incentive plans may not be transferred in any
manner by the grantee
other than as permitted by the administrator of the plan or by will or the laws of succession and, with limited exceptions, may be exercised during the lifetime of the grantee only by
the grantee.

Option Exercise.The term of options granted under the share incentive plans may not exceed ten years from the date of grant. The
consideration to be
paid for our ordinary shares upon exercise of an option or purchase of shares underlying the option may include cash, check or other cash-equivalent, ordinary shares, consideration
received by us in a cashless exercise, or any combination of the foregoing methods of payment.

Acceleration upon a Change of Control.If a change of control of our company occurs, the award agreement may provide for
acceleration of the vesting
of the awards pursuant to the agreement. Our compensation committee or our board of directors may (i) cancel the awards for fair market value, (ii) provide for issuance of substitute
awards or (iii) provide that for at least 15 days prior to the change of control the awards shall be exercisable as to all shares subject thereto and such awards shall terminate after
the change of control.

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Termination and Amendment.Unless terminated earlier, the share incentive plans will expire after ten years. Our board of
directors has the authority
to amend or terminate the share incentive plan subject to shareholder approval to the extent necessary to comply with applicable law.

Our
board of directors has only granted options to participants in the share incentive plans. As of the date of this annual report, there were 3,816,471 ordinary shares issuable upon the
exercise of outstanding share options at a weighted average exercise price of US$7.86 per share, and there were 1,719,785 ordinary shares available for future issuance upon the exercise of future
grants under the share incentive plans. The following table summarizes the outstanding options our directors and executive officers beneficially own under our share incentive plans, without giving
effect to options that were exercised or terminated.

Name

Options or
Restricted Shares
Awarded

Exercise Price or
Purchase Price
(US$/Share)

Date of Grant

Date of ExpirationDong Yu


138,850

US$
3.36


June 1, 2009


May 31, 201926,991

US$
6.31


June 1, 2010


May 31, 2020435,774

US$
6.31


March 23, 2011


March 22, 2021500,000

US$
10.96


April 2, 2012


March 31, 2021Liang Xu


*

US$
6.31


June 1, 2010


May 31, 2020Hao Zhang


*

US$
3.44


June 1, 2010


May 31, 2020Zhong Jiang


*

US$
11.56


March 23, 2011


March 22, 2021*

US$
8.62


November 14, 2011


November 13, 2021Jie Lian


*

US$
8.62


November 14, 2011


November 13, 2021Daqing Dave Qi


*

US$
11.56


March 23, 2011


March 22, 2021*

US$
8.62


November 14, 2011


November 13, 2021Peixin Xu


*

US$
8.62


November 14, 2011


November 13, 2021Total


1,643,869


*Upon
exercise of all options granted, would beneficially own less than 1% of our outstanding ordinary shares.


As of the date of this annual report, other individuals as a group held options to purchase 2,172,602 ordinary shares of our company, with
exercise prices ranging from US$3.36 to US$10.96 per ordinary share.



Board of Directors

Our board of directors currently consists of seven directors. Our second amended and restated memorandum and articles of association,
provides that our board of directors will consist of at least two directors. Our directors will be elected by the holders of our ordinary shares.

A
director is not required to hold any shares in the company by way of qualification. A director may vote with respect to any contract, proposed contract or arrangement in which he or
she is materially interested. A director may exercise all the powers of our company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities
whenever money is borrowed or as security for any obligation of our company or of any third party.

Committees of the Board of Directors

We have three committees under the board of directors: the audit committee, the compensation committee and the corporate governance and
nominating committee. We have adopted a charter for each of the three committees. Rule 5615(a)(3) of the NASDAQ Listing Rules permits foreign private

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issuers
such as our company to follow "home country practice" with respect to certain corporate governance matters. As a result, we follow the corporate governance practice in our home country, the
Cayman Islands, in respect of the oversight of our executive officer compensation and director nominations matters. As our home country practice does not require independent director oversight of
executive officer compensation and director nominations matters, our compensation committee and corporate governance and nomination committees are not comprised solely of independent directors. Each
committee's members and functions are described below.

Audit Committee.Our audit committee consists of Daqing Dave Qi, Zhong Jiang and Jie Lian. Our board of directors has determined that
each of Daqing
Dave Qi, Zhong Jiang and Jie Lian satisfies the "independence" requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended, and Rule 5605(a)(2) of
the NASDAQ Listing Rules. Daqing Dave Qi is the chairman of our audit committee and meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Our
audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among
other things:



Compensation Committee.Our compensation committee consists of Jie Lian, Peixin Xu and Zhong Jiang. Our board of directors has
determined that each
of Jie Lian, Peixin Xu and Zhong Jiang satisfies the "independence" requirements of Rule 5605(a)(2) of the NASDAQ Listing Rules. Jie Lian is the chairman of our compensation committee. Our
compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our founder,
chairman and chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among
other things:



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Corporate Governance and Nominating Committee.Our corporate and nominating committee consists of Zhong Jiang, Peixin Xu and Jie Lian.
Zhong Jiang is
the chairman of our corporate governance and nominating committee. Our corporate governance and nominating committee assists the board of directors in selecting individuals qualified to become our
directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among
other things:



Strategy Committee.Our strategy committee consists of Peixin Xu, Dong Yu and Nansun Shi. Peixin Xu is the chairman of our strategy
committee. Liang
Xu will serve in an advisory capacity on our strategy committee. Our strategy committee assists the board of directors in the formulation and execution of the Company's mid- to
long-term strategy.

Duties of Directors

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

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



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Terms of Directors and Officers

Our officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office
and hold office until such time as they are removed from office by an ordinary resolution of shareholders. A director will be removed from office automatically if, among other things, the director
(i) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors; or (ii) dies or is found by our company to be or becomes of
unsound mind.



See "Item 4. Information of the CompanyB. Business OverviewEmployees."



The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange
Act, of our ordinary shares, as of the date of this annual report:



The
calculations in the table below assume there are 30,402,346 ordinary shares issued and outstanding as of the date of this annual report. Beneficial ownership is determined in
accordance with Rule 13d-3 of the General Rules and Regulations under the Exchange Act. In computing the number of shares beneficially owned by a person and the percentage ownership
of that person, we have included shares that the person has the right to acquire within 60 days of this date of this annual report, including through the exercise of any option, warrant or
other right or the conversion of any other security. These shares, however, are not included in the computation of the percentage ownership of any other person.

Shares Beneficially
OwnedNumber

%Directors and Executive Officers:Dong Yu(1)


11,306,485


37.1Nansun Shi


*


*Jeffrey Chan


472,589


1.6Zhong Jiang


*


*Daqing Dave Qi


*


*Liang Xu


*


*Hao Zhang


*


*All Directors and Executive Officers as a Group


12,259,263


40.2Principal Shareholders:Skillgreat Limited


11,164,378


36.7Sequoia Funds(2)


3,146,362


10.3SIG China Investments One, Ltd.(3)


3,019,744


9.9Matrix Partners China Funds(4)


2,327,025


7.7Tremblant Capital Group(5)


2,350,692


7.7


*Less
than 1%.


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(1)Includes
10,760,870 ordinary shares held by Skillgreat Limited, options held by Mr. Dong Yu convertible into 406,765 ordinary shares
and options held by Skillgreat Limited for Mr. Dong Yu convertible into 138,850 ordinary shares. Excludes 194,345 ordinary shares held by Skillgreat Limited for other shareholders
and 70,313 shares held for participants of our 2009 share incentive plan. Skillgreat Limited is 100% owned by Mr. Dong Yu. Also excludes 1,500,000 ordinary shares that Skillgreat
Limited has agreed to purchase from Sequoia Capital China I L.P., Sequoia Capital China Partners Fund I L.P., and Sequoia Capital China Principals Fund I L.P. pursuant to a
Securities Transfer Agreement, dated March 30, 2012, or the Securities Purchase Agreement, subject to the terms and conditions of the Securities Purchase Agreement. Skillgreat Limited is a
limited liability company organized under the laws of the British Virgin Islands and its address is P.O. Box 957, Offshore Incorporations Center, Road Town, Tortola, British
Virgin Islands.(2)Information
based on the amended Schedule 13G filed on February 6, 2012 on behalf of Sequoia Capital China I L.P., Sequoia
Capital China Partners Fund I L.P., Sequoia Capital China Principals Fund I L.P., Sequoia Capital China Management I, L.P., SC China Holding Limited, SNP
China Enterprises Limited and Nan Peng Shen. Includes (i) 2,478,078 ordinary shares held by Sequoia Capital China I L.P.; (ii) 284,743 ordinary shares held by Sequoia Capital
China Partners Fund I L.P.; and (iii) 383,541 ordinary shares held by Sequoia Capital China Principals Fund I L.P.. Includes 1,500,000 ordinary shares that
Sequoia Capital China I L.P., Sequoia Capital China Partners Fund I L.P., and Sequoia Capital China Principals Fund I L.P. have agreed to sell to
Mr. Dong Yu pursuant to the Securities Transfer Agreement, subject to the terms and conditions thereof. The general partner of the Sequoia Funds is Sequoia Capital China
Management I, L.P., whose general partner is SC China Holding Limited, a company incorporated in the Cayman Islands. SC China Holding Limited is wholly owned by Max Wealth Enterprises
Limited, a company wholly owned by Neil Nanpeng Shen. Neil Nanpeng Shen disclaims beneficial ownership in all securities shown except to the extent of his pecuniary interests therein. The registered
address of the Sequoia Funds is Cricket Square, Hutchins Dr., P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands.(3)Information
based on the Schedule 13G filed on February 11, 2011 on behalf of SIG China Investments One, Ltd. and SIG Asia Investment,
LLLP. SIG Asia Investment, LLLP, the investment manager of SIG China Investments One, Ltd., has discretionary authority to vote and dispose of the shares held by SIG China Investments
One, Ltd. Arthur Dantchik, in his capacity as president of SIG Asia Investment, LLLP, may also be deemed to have investment discretion over the shares held by SIG China Investments
One, Ltd. Mr. Dantchik disclaims any such investment discretion or beneficial ownership with respect to the shares held by SIG China Investments One, Ltd. The registered address
of SIG China Investments One, Ltd is P.O. Box 309GT, Ugland House, South Church Street, George Town, Grand Cayman, Cayman Islands.(4)Information
based on the Schedule 13G filed on February 14, 2011 on behalf of Matrix Partners China I, L.P. and Matrix Partners China
I-A, L.P. Includes (i) 2,112,933 ordinary shares held by Matrix Partners China I L.P.; and (ii) 214,092 ordinary shares held by Matrix Partners
China I-A L.P. The general partner of the Matrix Partners China Funds is Matrix China Management I, L.P. whose general partner is Matrix China
I GP GP, Ltd. The address of the Matrix Partners China Funds is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104,
Cayman Islands.(5)Information
based on the Schedule 13G filed on February 14, 2012 on behalf of Tremblant Capital Group. Includes 4,701,384 American
Depositary Shares, each two American Depositary Shares representing one ordinary share. The business address of Tremblant Capital Group is 767 Fifth Avenue, New York,
New York 10153.


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One
of our shareholders, SIG China Investments One, Ltd., has informed us that it is affiliated with registered broker-dealers. SIG China Investments One, Ltd. was not
affiliated or otherwise related to us prior to its purchase of our Series A preferred shares. It purchased our Series A preferred shares, which were converted into ordinary shares upon
the closing of our initial public offering, directly from us in the ordinary course of business and at the time of the purchase, SIG China Investments One, Ltd. had no agreements or
understandings, directly or indirectly, with any person to distribute Series A preferred shares.

As
of the date of this annual report, 9,396,838 ordinary shares or 30.9% of our outstanding ordinary shares in the form of ADSs are held by one record holder in the
United States. Because many of these shares are held by brokers or other nominees, we cannot ascertain the exact number of beneficial shareholders with addresses in the United States.

None
of our existing shareholders has different voting rights from other shareholders. We are not aware of any arrangement that may, at a subsequent date, result in a change of control
of our company.

Item 7.    Major Shareholders and Related Party Transactions



See "Item 6. Directors, Senior Management and EmployeesE. Share Ownership"



Transactions Related to Our Corporate Structure

To comply with the applicable PRC laws, rules and regulations, we conduct our operations in China through contractual arrangements
between our wholly owned PRC subsidiary, Bona New World, and our affiliated consolidated entities. See "Item 4. Information of the CompanyC. Organizational
StructureContractual Arrangements with Our Affiliated Consolidated Entities."

Private Placements

Issuances of Ordinary Shares

On December 13, 2006, we issued six ordinary shares to Ms. Nansun Shi upon the establishment of our company in the
British Virgin Islands.

In
July 2007, we issued 5,828,119, 140,625, 187,500 and 93,750 ordinary shares to Mr. Dong Yu, Mr. Hai Yu, Ms. Nansun Shi and Mr. Huang
Hsin-Mao respectively, for no consideration as a result of recapitalization from capital reserve.

In
June 2009, we issued 2,609,269 ordinary shares at par value of US$0.0005 per share to Mr. Dong Yu. In addition, we issued an aggregate of 194,345 ordinary
shares for the benefit of other shareholders. These shares are held by Skillgreat Limited.

In
July 2010, Jeffrey Chan purchased 317,072 of our ordinary shares at a price per share equal to the per-share price of our Series B-3 preferred
shares.

Issuance and Sale of Series A Preferred Shares and Repurchase of Ordinary Shares

In May 2007 and June 2007, we issued convertible notes in the aggregate principal amount of US$3,000,000 to SIG China
Investment One, Ltd. and the Sequoia Funds under the terms of secured convertible note and warrant purchase agreements. In addition, we also issued warrants to purchase
87,888 Series A preferred shares at a purchase price of US$2.56 per share, which was adjusted to US$1.39 per share pursuant to the secured convertible note and warrant purchase
agreements. In

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July 2007,
all of the outstanding principal amount and accrued interest were converted and we issued 1,171,875 Series A preferred shares to SIG China Investment One, Ltd.
and the Sequoia Funds as a result. In June 2009, all of the warrants were exercised and we issued 50,631 Series A preferred shares to SIG China Investment One, Ltd. and the
Sequoia Funds as a result.

In
July 2007, in connection with the conversion of our convertible notes into Series A preferred shares, we issued an aggregate of 1,953,125 Series A
preferred shares to SIG China Investment One, Ltd. and the Sequoia Funds for an aggregate consideration of US$5,000,000 under the terms a share purchase agreement. In addition, we repurchased
585,937 ordinary shares from Mr. Dong Yu for an aggregate consideration of US$1,500,000.

The
Series A preferred shares were automatically converted into our ordinary shares upon the completion of our initial public offering. Each of our Series A preferred
shares is convertible into approximately 1.8421 ordinary shares, subject to certain anti-dilution adjustments.

Issuance and Sale of Series B Preferred Shares and Repurchase of Ordinary Shares

In July 2009, we issued an aggregate of 1,241,958 shares of Series B-1 preferred shares to Matrix
Partners China Funds, the Sequoia Funds and SINA Hong Kong Limited for an aggregate consideration of US$3,500,000 and an aggregate of 1,655,939 shares of Series B-2 preferred
shares to Matrix Partners China Funds, the Sequoia Funds, SINA Hong Kong Limited, Zero2IPOChina Fund II L.P. and Wayford Enterprises Limited for an aggregate consideration of US$6,000,000. In
addition, we repurchased 1,241,958 ordinary shares from Mr. Dong Yu for an aggregate consideration of US$3,500,000.

In
July 2010, we issued a total of 792,680 Series B-3 preferred shares to Matrix Partners China Funds, the Sequoia Funds, SIG China Investment
One, Ltd., Zero2IPOChina Fund II L.P., Wayford Enterprises Limited and Blooming Capital Limited for an aggregate consideration of US$5,000,000.

The
Series B preferred shares were automatically converted into our ordinary shares upon the completion of our initial public offering.

Share Exchange

In November 2010, Bona Film Group Limited entered into a share exchange agreement with the then shareholders of Bona
International Film Group, under the terms of which Bona Film Group Limited issued one preferred or ordinary share in exchange for every 16 of the
respective preferred or ordinary shares that these shareholders held in Bona International Film Group Limited. As a result of the share exchange, Bona Film Group Limited became our ultimate holding
company.

Shareholders' Agreement

In connection with our Series A preferred shares private placement in July 2007, we and our shareholders entered into a
shareholders' agreement, which was amended and restated in connection with our Series B preferred shares private placements in July 2009 and July 2010 and further amended and
restated in November 2010 in connection with 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.

Under
the amended and restated shareholders' agreement, the investors in the private placement of our Series A preferred shares and Series B preferred shares are entitled
to certain registration rights, including demand registration, Form F-3 registration and piggyback registration.

Except
for the registration rights, the shareholders' rights under the amended and restated shareholders' agreement have terminated automatically upon the closing of our initial public
offering.

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In
addition, we have agreed to deliver annual reports and quarterly and interim reports and all other filings with any regulatory agency and securities exchange to the investors in the private
placement of our Series A preferred shares and Series B preferred shares after our initial public offering.

Acquisition of Movie Theater Business

In July 2011, we entered a series of agreements to acquire Alpha Speed Limited, a British Virgin Islands company and Bona
Starlight, a PRC company which held five subsidiaries at the time of the acquisition primarily focused on the movie theater business in the PRC. Prior to the acquisitions, Alpha Speed Limited was
owned 51% by Skillgreat Limited, which is wholly
owned by Mr. Dong Yu, and Bona Starlight was also owned 51% by Mr. Dong Yu. We acquired Alpha Speed Limited and Bona Starlight with total cash consideration of US$30.9 million, of
which US$3.1 million was settled as an offset against the amount that our Company was owed by Mr. Dong Yu, and US$2.4 million was not yet paid as of
December 31, 2011.

In
April 2010, we entered into a series of transactions to acquire Beijing Bona Cineplex and Beijing Bona Youtang, two companies that focus on the movie theater business in the
PRC. At the time of the acquisition, 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 with a fair value of US$4.50 per share as of the acquisition date and the settlement of US$5.3 million that Mr. Dong Yu owed
to us.

Related Party Loans and Other Payments

As of December 31, 2009, we had outstanding loans of US$14,644 due to Poly Wanhe Red Sparrow International Cineplex. These loans
were non-interest bearing and were repaid in March 2010.

As
of December 31, 2009, we had US$3.5 million outstanding for operating expenses and equipment purchases paid on behalf of Beijing Bona Cineplex. These advances have been
eliminated as intercompany transactions on our consolidated financial statements since the acquisition of Beijing Bona Cineplex on April 23, 2010.

As
of December 31, 2009, we had US$0.2 million outstanding for operating expenses paid on behalf of Beijing Bona Xingyi Culture Agency Co., Ltd. The advances
have been eliminated as intercompany transactions on our consolidated financial statements since the acquisition of Beijing Bona Xingyi Culture Agency Co., Ltd. on
July 28, 2010.

As
of December 31, 2009, 2010 and 2011, we had amounts outstanding totaling US$2.3 million, US$6,213 and US$0.1 million, respectively, for payments of
Mr. Dong Yu's individual income tax and loans to Mr. Dong Yu, our chairman and chief executive officer. As of December 31, 2009, 2010 and 2011, we owed US$0.6 million, nil
and nil, respectively, to Mr. Dong Yu for operating expenses and purchases made by him on behalf of us and declared dividends to him.

As
of December 31, 2009, 2010 and 2011, we had amounts outstanding totaling US$0.5 million, US$0.8 million and US$0.8 million, respectively, for distribution
receivables and loans to Bona Meitao Culture Media Co., Ltd. An amount of US$0.8 million of receivables from Bona Meitao Culture Media Co., Ltd. remain outstanding
as of the date of this annual report.

As
of December 31, 2010, there were amounts outstanding of US$1.7 million from Bona Starlight for payments of working capital we paid on behalf of this entity. The amount
due from Bona Starlight was eliminated as inter-company transactions on our consolidated financial statement following the acquisition of Bona Starlight in July 2011.

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We
had amounts due from affiliates of Cinema Popular Limited of US$0.3 million and US$0.2 million as of December 31, 2010 and 2011, respectively, in connection with
receivables from affiliates for operations.

As
of December 31, 2010 and 2011, we had a loan amounts due to HuBei Film Distribution of US$0.3 million and US$0.5 million, respectively.

As
of December 31, 2010, we owed payables of US$0.7 million to Mr. Jiang Zhong, our independent director, related to Mr. Jiang Zhong's withdrawal of
participating principal for a film. These payables were settled in 2011.

As
of December 31, 2010 and 2011, we owed US$0.6 million and US$0.8 million, respectively, to Wuhan Lianzhong Digital Film Technology Co., Ltd. in
payables for film projection equipment we purchased from it.

As
of December 31, 2011, we owned a loan amount of US$0.2 million to Hunan Xiaoxiang Cineplex Investment Management, a non-controlling shareholder of
Changsha Mango.

As
of December 31, 2011, we owned payables of US$0.3 million to Zhongda Helian Marketing Consulting Co., Ltd., a cost-method investee of our
company, for film marketing and consulting expenses.

As
of December 31, 2011, we owned a loan amount of US$0.4 million to Mr. Xiaojian Xu, a non-controlling shareholder of Xi'an Huitong.

As
of December 31, 2011, we owed payables of US$0.4 million to Film Workshop Co., Ltd. for film production services. Nansun Shi, a director of our company, is
a principal shareholder of Film Workshop Co., Ltd.

As
of December 31, 2011, we owed a loan amount of US$0.5 million to Ms. Xiang Li, a non-controlling shareholder of Changsha Mango Bona Cineplex
Management Co., Ltd.

On
September 19, 2011, our affiliated consolidated entity, Bona Film Group Co., Ltd. (PRC) entered into a general credit facility agreement with the Bank of Beijing
under which the bank has agreed to extend us a line of credit of RMB100 million (US$15.9 million). We may draw upon the line of credit for one year from the date of the agreement and
each loan will be payable within 12 months of the drawdown. The interest rate of the loans to be lent to Bona Film Group Co., Ltd. (PRC) is not specified in the credit agreement
and is to be separately agreed upon between the parties and provided for in the specific loan contracts under the credit agreement. In order to procure this line of credit, two of Bona Film
Group Co., Ltd. (PRC)'s subsidiaries, Beijing Bona Cineplex 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 from the two subsidiaries and Mr. Yu cover the
entire amount of the loan, including any interest, penalties and related costs, and would be covered by their assets, including cash flows from films they produce, distribute or exhibit. Under the
guarantees provided by the two subsidiaries and the personal guarantee provided by Yu and pursuant to the PRC Security Law, the two subsidiaries and Mr. Yu have agreed to perform the
obligations under the agreement in the event Bona Film Group Co., Ltd. (PRC) 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 his equity interest in our company held through Skillgreat Limited, to fulfill the obligations under the agreement. See "Item 3. Key
InformationD. Risk FactorsRisks Relating to Our Business and IndustryOur founder, chairman, chief executive officer and the largest holder of our outstanding
share capital, Mr. Yu, has through a personal guarantee, pledged his personal property, including his equity interest in our company, to secure the obligations of Bona Film
Group Co., Ltd. (PRC) under a credit facility. A default under the credit facility could result in the sale by court order of Mr. Yu's property, including

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his
equity interest in us. 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. Yu, who could
thereafter have a substantially smaller or no equity interest in our company, could have less or no personal stake or interest in the commercial success of our company."

Other Related Party Transactions

As of December 31, 2009, we owed US$27,269 to Mr. Hai Yu. This amount was repaid in June 2010.

As
of December 31, 2009, we owed US$4 to Wisdom Group Limited. This amount was repaid in 2010.

In
September 2010, our affiliated consolidated entity, Beijing Bona Cineplex, entered into a management service agreement with Bona Starlight, a development stage movie theater
operator in the PRC whose principal shareholders include Mr. Dong Yu. Under the terms of this agreement, we licensed our "Bona" brand to Bona Starlight and became the exclusive provider of
management services for its current and future movie theaters. We are also entitled to receive a share of the box office receipts and advertising revenues of Bona Starlight's movie theaters. This
agreement was terminated in June 2011.

In
November 2010, we entered into a separate agreement with Bona Starlight, we have a right of first refusal with respect to transfers of movie theaters developed by Bona
Starlight and right of first refusal with respect to transfers of shares of Bona Starlight. This agreement was terminated in July 2011.

Share Incentive Plans

See "Item 6. Directors, Senior Management and EmployeesB. Compensation of Directors, Supervisors and Executive
OfficersShare Incentive Plans."



Not applicable.

Item 8.    Financial Information



Please refer to Item 18 for a list of all financial statements filed as part of this annual report on Form 20-F.



See "Item 4. Information on the CompanyB. Business OverviewLegal and Administrative Proceedings."



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

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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.



In November 2011, we entered into an agreement with China Lion Entertainment Limited to purchase 500,000 Series A preferred shares of China
Lion Entertainment Limited for a total cash consideration of US$1.7 million, which represents 20% of the total issued shares of China Lion Entertainment Limited. In December 2011, we
paid US$1.2 million according to the requirement of the initial closing defined in the above agreement. The initial closing was completed in January 2012, and we obtained
352,941 Series A preferred shares of China Lion Entertainment Limited.

In
January 2012, we drew down a bank loan with a principal of US$3.2 million from Bank of Beijing pursuant to the general credit facility agreement dated October 19,
2011 between Bank of Beijing and Beijing Bona Film Group Co., Ltd. (PRC) on the condition that the loan would be invested in a television series namedThe King's
Battles. The loan is to be repaid by December 27, 2012, and the annual interest rate is 7.87%. The above loan is guaranteed by our chairman, chief executive officer and
principal shareholder, Mr. Dong Yu, Zhejiang Bona Film and Television Production Co., Ltd. and Beijing Bona Cineplex.

In
April 2012, we sold our 51% equity interest in Beijing Bona Meitao Culture and Media Co., Ltd. and distribution receivables from Beijing Bona Meitao Culture and
Media Co., Ltd. to the other shareholder of this company for total cash consideration of $0.6 million, (equivalent of RMB3.5 million), with no investment gain or loss
recognized.

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Item 9.    The Offer and Listing



Our ADSs, two ADSs representing one ordinary share, have been listed on the NASDAQ Global Market since December 9, 2010 under the symbol "BONA". The table
below shows, for the periods indicated, the high and low market prices on the NASDAQ Global Market.

Market Price for Each ADSHigh

LowUS$

US$Annual highs and lows2011

7.89

3.50Quarterly highs and lowsSecond quarter 2011

6.90

3.50Third quarter 2011

5.00

3.55Fourth quarter 2011

4.70

3.73First quarter 2012

6.09

3.86Second quarter 2012 (through April 26, 2012)

6.04

5.00Monthly highs and lowsOctober 2011

4.65

3.89November 2011

4.70

3.86December 2011

4.61

3.73January 2012

4.50

3.86February 2012

5.66

3.98March 2012

6.09

4.68April 2012 (through April 26)

6.04

5.00


Source:
NASDAQ Stock Exchange. (1)As
reported.




Not applicable.



Our ADSs, each representing two of our ordinary shares, have been listed on the NASDAQ Global Market since December 9, 2010 under the symbol "BONA."



Not applicable.



Not applicable.



Not applicable.

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Item 10.    Additional Information



Not applicable.



We incorporate by reference into this annual report the description of our second amended and restated memorandum of association contained in our registration
statement under the heading "Description of Share Capital" on Form F-1 (File No. 333-170657), as amended, initially filed with the SEC on November 17,
2010. Our shareholders adopted our second amended and restated memorandum of association by unanimous resolution on November 17, 2010.



In the past three fiscal years, we have not entered into any material contracts other than in the ordinary course of business or other than those described below
and elsewhere in this annual report.



See "Item 4. Information on the CompanyB. Business OverviewRegulations of Our Industry."



Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there
is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material to holders of ADSs or ordinary
shares. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

Pursuant
to Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the
Governor-in-Council:



The
undertaking for us is for a period of twenty years from July 20, 2010.

People's Republic of China Taxation

The EIT Law provides that enterprises established outside of China whose "de facto management bodies" are located in China are
considered "resident enterprises" of China. 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.

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

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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. Similarly, any gain realized on the transfer of our ordinary shares or ADSs 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 interests 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," 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 tax. It is unclear whether, if we are considered a PRC "resident enterprise," holders of our ordinary shares or ADSs
might be able to claim the benefit of income tax treaties entered into between China and other countries.

Moreover,
non-resident individual investors may be required to pay PRC individual income tax at a rate of 20% on interests or dividends payable to the investors or any
capital gains realized from the transfer of ADSs or ordinary shares if such gains are deemed income derived from
sources within the PRC. Under the IIT Law, non-resident individual refers to an individual who has no domicile in China and does not stay in the territory of China or who has no domicile
in China and has stayed in the territory of China for less than one year. Pursuant to the IIT Law and its implementation rules, for purposes of the PRC capital gains tax, the taxable income will be
the balance of the total income obtained from the transfer of the ADSs or ordinary shares minus all the costs and expenses that are permitted under PRC tax laws to be deducted from the income.
Therefore, if we are considered as a PRC "resident enterprise" and dividends we pay with respect to our ADSs or ordinary shares and the gains realized from the transfer of our ADSs or ordinary shares
are considered income derived from sources within the PRC by relevant competent PRC tax authorities, such gains earned by non-resident individuals may also be subject to PRC withholding
tax at a rate of 20%.

United States Federal Income Tax Consequences

The following discussion describes the material United States federal income tax consequences of the ownership of our ordinary
shares and ADSs as of the date hereof. The discussion is applicable only to United States Holders (as defined below) who hold our ordinary shares or ADSs as capital assets. As used
herein, the term "United States Holder" means a beneficial owner of an ordinary share or ADS that is for United States federal income tax purposes:



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This discussion does not represent a detailed description of the United States federal income tax consequences applicable to you if you are subject to
special treatment under the United States federal income tax laws, including if you are:



The
discussion below is based upon the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings and judicial decisions thereunder as of
the date hereof, which are subject to differing interpretations or change (possibly with retroactive effect) so as to result in United States federal income tax consequences different from
those discussed below. In addition, this discussion is based, in part, upon representations made by the depositary to us and assumes that the deposit agreement, and all other related agreements, will
be performed in accordance with their terms.

If
a partnership holds ordinary shares or ADSs, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. If you are a
partnership or a partner in such partnership that holds our ordinary shares or ADSs, you should consult your tax advisors.

This
discussion does not contain a detailed description of all the United States federal income tax consequences to you in light of your particular circumstances and does not
address the effects of any state, local or non-United States tax laws.If you are considering the purchase, ownership or disposition of our ordinary shares
or ADSs, you should consult your own tax advisors concerning the United States federal income tax consequences to you in light of your particular situation as well as any consequences arising
under the laws of any other taxing jurisdiction.

ADSs

If you hold ADSs, for United States federal income tax purposes, you generally will be treated as the owner of the underlying
ordinary shares that are represented by such ADSs. Accordingly, deposits or withdrawals of ordinary shares for ADSs will not be subject to United States federal income tax.

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Taxation of Dividends

Subject to the discussion under "Passive Foreign Investment Company" below, the gross amount of cash distributions on the
ADSs or ordinary shares
(including any amounts withheld to reflect PRC withholding taxes) will be taxable as dividends, to the extent paid out of our current or accumulated earnings and profits, as determined under
United States federal income tax principles. Such income (including withheld taxes) will be includable in your gross income as ordinary income on the day actually or constructively received by
you, in the case of the ordinary shares, or by the depositary, in the case of ADSs. Such dividends will not be eligible for the dividends received deduction allowed to corporations under
the Code.

With
respect to non-corporate United States Holders, certain dividends received in taxable years beginning before January 1, 2013 from a "qualified foreign
corporation" generally will be subject to reduced rates of taxation at a maximum United States federal tax rate of 15% rather than the marginal tax rates generally applicable to ordinary
income. A non-United States corporation is treated as a qualified foreign corporation with respect to dividends paid by that corporation on shares (or ADSs backed by such
shares) that are readily tradable on an established securities market in the United States. U.S. Treasury Department guidance indicates that our ADSs, which are listed on the NASDAQ
Global Market, are regarded as readily tradable on an established securities market in the United States. Thus, we believe that dividends we pay on our ordinary shares that are represented by
ADSs, but not on our ordinary shares that are not so represented, meet such conditions required for the reduced tax rates. There can be no assurance that our ADSs will be considered readily tradable
on an established securities market in later years. A qualified foreign corporation also includes a foreign corporation that is eligible for the benefits of certain income tax treaties with the
United States. In the event that we are deemed to be a PRC "resident enterprise" under the PRC tax law (see discussion under "`Item 10. Additional
InformationE. TaxationPeople's Republic of China Taxation"), we may be eligible for the benefits of the income tax treaty between the United States and the PRC, and if
we are eligible for such benefits, dividends we pay on our ordinary shares, regardless of whether such shares are represented by ADSs, would be subject to the reduced rates of taxation.
Non-corporate United States Holders that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the
dividend income as "investment income" pursuant to Section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign
corporation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or
related property. This disallowance applies even if the minimum holding period has been met. Furthermore, non-corporate United States Holders will not be eligible for reduced rates
of taxation on any dividends received from us if we are a passive foreign investment company (as discussed below under "Passive Foreign Investment Company") in the taxable year in
which such dividends are paid or in the preceding taxable year. You should consult your own tax advisors regarding the application of these rules given your particular circumstances.

In
the event that we are deemed to be a PRC "resident enterprise" under the PRC tax law and dividends paid to you with respect to the ADSs or ordinary shares are considered as
PRC-sourced income by relevant PRC authorities, you will generally be subject to PRC withholding taxes on such dividends at a rate of 10% if you are deemed to be a
non-resident enterprise or at a rate of 20% if you are deemed to be a non-resident individual. See "Item 4. Information of the CompanyB. Business
OverviewRegulations of Our IndustryRegulations Regarding the Enterprise Income Tax and Dividend Withholding Tax." In that case, however, you may be able to obtain a reduced
rate of PRC withholding taxes under the treaty between the United States and the PRC if certain requirements are met. In addition, subject to certain conditions and limitations, PRC withholding
taxes on dividends, if any, may be treated as foreign taxes eligible for credit against your
United States federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid to you with respect to our

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ordinary
shares or ADSs will be treated as income from sources outside the United States and will generally constitute passive category income. Furthermore, in certain circumstances, if you
have held our ordinary shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you
will not be allowed a foreign tax credit for any PRC withholding taxes imposed on dividends paid on our ordinary shares or ADSs. The rules governing eligibility for the benefits of the income tax
treaty and the foreign tax credit are complex, and will depend upon your particular circumstances. Accordingly, you are urged to consult your tax advisors regarding the availability of the benefits of
the income tax treaty and foreign tax credit under your particular circumstances.

To
the extent that the amount of the distribution exceeds our current and accumulated earnings and profits for a taxable year, as determined under United States federal income tax
principles, the distribution will be treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax
basis, the excess will be taxed as capital gain recognized on a sale or exchange. We do not expect to keep earnings and profits in accordance with United States federal income tax principles.
Therefore, you should expect that a distribution will generally be reported as a dividend (as discussed above).

Passive Foreign Investment Company

Based upon the past and projected composition of our income and valuation of our assets, including goodwill, we do not believe we were
a "passive foreign investment company," or PFIC, for 2011, and we do not expect to become one in the current year or in the future, although there can be no assurance in this regard. 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 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.

In
general, we will be a PFIC for any taxable year in which:



For
this purpose, passive income generally includes dividends, interest, royalties and rents (other than royalties and rents derived in the active conduct of a trade or business and not
derived from a related person). If we own at least 25% (by value) of the stock of another corporation, we will be treated, for purposes of the PFIC tests, as owning our proportionate share of
the other corporation's assets and receiving our proportionate share of the other corporation's income. However, it is not entirely clear how the contractual arrangements between us and our affiliated
consolidated entities will be treated for purposes of the PFIC rules. If it is determined that we do not own the stock of the affiliated consolidated entities for United States federal income
tax purposes (for instance, because the relevant PRC authorities do not respect these arrangements), we would likely be treated as a PFIC.

The
determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may become a PFIC in the current or any future taxable year due to changes in our asset
or income composition. Because we have valued our goodwill based on the market value of our equity, a decrease in the price of our ADSs may also result in our becoming a PFIC. If we are a PFIC for any
taxable year during which you hold our ADSs or ordinary shares, we generally will continue to be treated as a PFIC for all succeeding years during which you hold our ADSs or ordinary shares.

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If
we are a PFIC for any taxable year during which you hold our ADSs or ordinary shares, you will be subject to special tax rules with respect to any "excess distribution" received and
any gain realized from a sale or other disposition, including a pledge, of ADSs or ordinary shares. Distributions received in a taxable year that are greater than 125% of the average annual
distributions received during the shorter of the three preceding taxable years or your holding period for the ADSs or ordinary shares will be treated as excess distributions. Under these special
tax rules:



In
addition, non-corporate United States Holders will not be eligible for reduced rates of taxation on any dividends received from us in taxable years beginning before
January 1, 2013 (as described under "Taxation of Dividends" above) if we are a PFIC in the taxable year in which such dividends are paid or in the preceding taxable year.
You will be required to file Internal Revenue Service Form 8621 if you hold our ADSs or ordinary shares in any year in which we are classified as a PFIC. Furthermore, under recently enacted
legislation, if you hold ADSs or ordinary shares in any year in which we are a PFIC, you are required to file an annual report containing such information as the U.S. Treasury
may require.

If
we are a PFIC for any taxable year during which you hold our ADSs or ordinary shares and any of our non-United States subsidiaries is also a PFIC, a
United States Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. You are
urged to consult your tax advisors about the application of the PFIC rules to any of our subsidiaries.

In
certain circumstances, in lieu of being subject to the excess distribution rules discussed above, you may make an election to include gain on the stock of a PFIC as ordinary income
under a mark-to-market method, provided that such stock is regularly traded on a qualified exchange. Under current law, the mark-to-market election may
be available to holders of ADSs because the ADSs are listed on the NASDAQ Global Market, which constitutes a qualified exchange, although there can be no assurance that the ADSs are or will be
"regularly traded" for purposes of the mark-to-market election. It should also be noted that only the ADSs and not our ordinary shares are listed on the NASDAQ Global Market.
Consequently, if you are a holder of ordinary shares that are not represented by ADSs, you generally will not be eligible to make a mark-to-market election if we are or become
a PFIC.

If
you make an effective mark-to-market election, you will include in each taxable year that we are a PFIC as ordinary income the excess of the fair market value
of your ADSs at the end of the year over your adjusted tax basis in the ADSs. You will be entitled to deduct as an ordinary loss each year the excess of your adjusted tax basis in the ADSs over their
fair market value at the end of the year, but only to the extent of the net amount previously included in income as a result of the mark-to-market election. If you make an
effective mark-to-market election, any gain you recognize upon the sale or other disposition of your ADSs will be treated as ordinary income and any loss will be treated as
ordinary loss, but only to the extent of the net amount previously included in income as a result of the mark-to-market election.

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Your
adjusted tax basis in the ADSs will be increased by the amount of any income inclusion and decreased by the amount of any deductions under the mark-to-market
rules. If you make a mark-to-market election it will be effective for the taxable year for which the election is made and all subsequent taxable years unless the ADSs are no
longer regularly traded on a qualified exchange or the Internal Revenue Service consents to the revocation of the election. You are urged to consult your tax advisor about the availability of the
mark-to-market election, and whether making the election would be advisable in your particular circumstances.

Subject
to certain limitations, you may also avoid the rules described above with respect to the stock you own in a PFIC by electing to treat such PFIC as a "qualified electing fund"
under Section 1295 of the Code. However, this option is not available to you because we do not intend to comply with the requirements necessary to permit you to make this election. You are
urged to consult your tax advisors concerning the United States federal income tax consequences of holding ADSs or ordinary shares if we are considered a PFIC in any taxable year.

Taxation of Capital Gains

For United States federal income tax purposes and subject to the discussion under "Passive Foreign Investment
Company" above, you will recognize taxable gain or loss on any sale or exchange of ADSs or ordinary shares in an amount equal to the difference between the amount realized for the ADSs or ordinary
shares and your tax basis in the ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss. Capital gains of individuals derived with respect to capital assets held for more
than one year are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss recognized by you will generally be treated as
United States source gain or loss. Consequently, you may not be able
to use the foreign tax credit arising from any PRC tax imposed on the disposition of our ADSs or ordinary shares unless such credit can be applied (subject to applicable limitations) against
tax due on other income treated as derived from foreign sources. You are urged to consult your tax advisors regarding the tax consequences if a foreign withholding tax is imposed on a disposition of
ADSs or ordinary shares, including the availability of the foreign tax credit under your particular circumstances.

Information Reporting and Backup Withholding

In general, information reporting will apply to dividends in respect of our ADSs or ordinary shares and the proceeds from the sale,
exchange or redemption of our ADSs or ordinary shares that are paid to you within the United States (and in certain cases, outside the United States), unless you are an exempt
recipient. A backup withholding tax may apply to such payments if you fail to provide a taxpayer identification number or certification of other exempt status or fail to report in full dividend and
interest income.

Any
amounts withheld under the backup withholding rules will be allowed as a refund or a credit against your United States federal income tax liability provided the required
information is timely furnished to the Internal Revenue Service.

YOU
SHOULD CONSULT WITH YOUR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE UNITED STATES FEDERAL INCOME TAX LAWS TO YOUR PARTICULAR SITUATION AS WELL AS ANY ADDITIONAL TAX
CONSEQUENCES RESULTING FROM PURCHASING, HOLDING OR DISPOSING OF ORDINARY SHARES OR ADSS, INCLUDING THE APPLICABILITY AND EFFECT OF THE TAX LAWS OF ANY STATE, LOCAL OR FOREIGN JURISDICTION, INCLUDING
ESTATE, GIFT OR INHERITANCE LAWS.

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Not applicable.



Not applicable.



We have filed this annual report on Form 20-F, including exhibits, with the SEC. As allowed by the SEC, in Item 19 of this annual
report, we incorporate by reference certain information we filed with the SEC. This means that we can disclose important information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is considered to be part of this annual report.

You
may read and copy this annual report, including the exhibits incorporated by reference in this annual report, at the SEC's Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 and at the SEC's regional offices in New York, New York, and Chicago, Illinois. You can also request copies of this annual report, including the exhibits
incorporated by reference in this annual report, upon payment of a duplicating fee, by writing to the SEC's Public Reference Room for information.

The
SEC also maintains a website at www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the SEC. Our annual
report and some of the other information submitted by us to the SEC may be accessed through this website.



Not applicable.

Item 11.    Quantitative and Qualitative Disclosures About Market Risk

Foreign Exchange Risk

The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things,
changes in China's political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People's Bank of China. 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. In 2011, the Renminbi appreciated 4.86% against the U.S. dollar. 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.

We
use the U.S. dollar as our functional and reporting currency for our financial statements. All transactions in currencies other than the U.S. dollar during the year are
re-measured at the exchange

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rates
prevailing on the respective relevant dates of such transactions. Monetary assets and liabilities existing at the balance sheet date denominated in currencies other than the U.S. dollar
are re-measured at the exchange rates prevailing on such date. Exchange differences are recorded in our consolidated income statement. The financial records of our PRC subsidiary
and affiliated consolidated entities are maintained in local currency, the Renminbi, which is their functional currency. Assets and liabilities are translated at the exchange rates at the balance
sheet date, equity
accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year. Translation adjustments are reported as cumulative
translation adjustments and are shown as a separate component of accumulated other comprehensive income in the statement of equity and comprehensive income. Transaction gains and losses are recognized
in the statements of operations in other income (expenses).

Fluctuations
in exchange rates also affect our balance sheet. For example, to the extent that we need to convert U.S. dollars into Renminbi for our operations, appreciation of the
Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount that we receive from the conversion. Conversely, if we decide to convert our Renminbi into
U.S. dollars for the purpose of paying dividends on our ordinary shares or ADSs or for other business purposes, depreciation of the Renminbi against the U.S. dollar would have a negative
effect on the corresponding U.S. dollar amount available to us. Considering the amount of our cash and cash equivalents as of December 31, 2011, a 1% change in the exchange rates between
the Renminbi and the U.S. dollar would result in an increase or decrease of approximately US$0.2 million to our total cash.

Interest Rate Risk

Our exposure to interest rate risk primarily relates to the interest rates for our outstanding debt and the interest income generated
by excess cash invested in liquid investments with original maturities of three months or less. As of December 31, 2011, our total outstanding loans amounted to US$12.6 million with
interest rates of ranging from 6.56% to7.87%. Assuming the same principal amount, a 1% increase in each applicable interest rate would have added US$0.06 million to our interest expense in
2011. We have not used any derivative financial instruments to manage our interest risk exposure. Variable interest-earning instruments carry a degree of interest rate risk.

We
have not been exposed to material risks due to changes in interest rates. However, our future interest income may be lower than expected due to changes in market
interest rates.

Item 12.    Description of Securities Other Than Equity Securities



Not applicable



Not applicable



Not applicable

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Fees and Charges

As an ADS holder, you will be required to pay the following service fees to the depositary bank:

Service:

Fee:Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property

Up to $0.05 per ADS issuedCancellation of ADSs, including in the case of termination of the deposit agreement

Up to $0.05 per ADS cancelledDistribution of cash dividends or other cash distributions

Up to $0.05 per ADS heldDistribution of ADSs pursuant to share dividends, free share distributions or exercise of rights

Up to $0.05 per ADS heldDistribution of securities other than ADSs or rights to purchase ADSs additional ADSs

A fee equivalent to the fee that would be payable if securities distributed to you had been ordinary shares and the ordinary shares had been deposited for issuance of ADSsDepositary services

Up to $0.05 per ADS held on the applicable record date(s) established by the depositary bankTransfer of ADRs

$1.50 per certificate presented for transfer


As
an ADS holder, you will also be responsible to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges
such as:



The
depositary fees payable upon the issuance and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly
issued ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation. The brokers in turn charge these fees to their
clients. Depositary fees payable in connection with distributions of cash or securities to ADS holders and the depositary services fee are charged by the depositary bank to the holders of record of
ADSs as of the applicable ADS record date.

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The
depositary fees payable for cash distributions are generally deducted from the cash being distributed or by selling a portion of distributable property to pay the fees. In the case
of distributions other than cash (i.e., share dividends, rights), the depositary bank charges the applicable fee to the ADS record date holders concurrent with the distribution. In the case of
ADSs registered in the name of the investor (whether certificated or uncertificated in direct registration), the depositary bank sends invoices to the applicable record date ADS holders. In the case
of ADSs held in brokerage and custodian accounts (via DTC), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee is the registered holder of the
ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers and custodians who hold their clients' ADSs in DTC accounts in turn charge their clients' accounts the
amount of the fees paid to the depositary banks.

In
the event of refusal to pay the depositary fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received or may set
off the amount of the depositary fees from any distribution to be made to the ADS holder.

The
depositary has agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations
expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary
collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of ADSs. Neither the depositary nor we can determine the exact amount to
be made available to us because (i) the number of ADSs that will be issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and (iii) our
reimbursable expenses related to the program are not known at this time.

Payments by Depositary

As of the date of this annual report, we have received a payment of US$939,673 from Deutsche Bank Trust Company Americas, the
depositary bank for our ADR program for reimbursement of investor relations expenses and other program related expenses.

PART II

Item 13.    Defaults, Dividend Arrearages and Delinquencies

None of these events occurred in any of the years ended December 31, 2009, 2010 and 2011.

Item 14.    Material Modifications to the Rights of Security Holders and Use of Proceeds

See "Item 10. Additional InformationB. Memorandum and Articles of Association" for a description of the rights of
securities holders, which remain unchanged.

On
December 14, 2010, we completed our initial public offering, in which we offered and sold 11,740,000 ordinary shares in the form of ADSs, raising US$92.8 million
in proceeds to us before expenses but after underwriting discounts and commissions. In connection with our initial public offering, we incurred total expenses of US$10.5 million, including
US$7.0 million in underwriting discounts and commissions and US$3.5 of other expenses.

The
effective date of our registration statement on Form F-1 (File number: 333-170657) was December 8, 2010. J.P. Morgan Securities LLC,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, China International Capital Corporation Hong Kong Securities Limited, Piper Jaffray & Co. and Cowen and Company, LLC
were the underwriters for the initial public offering of our ADSs.

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For the period from the effective date to December 31, 2011, we used approximately US$62.3 million of the net proceeds from our initial public
offering. We used approximately US$33.7 million to invest in film productions, US$4.4 million to acquire distribution rights and US$24.2 million for the acquisitions of Alpha
Speed Limited and Bona Starlight. We still intend to use the remainder of our initial public offering proceeds, as disclosed in our registration statement on Form F-1 (File
number 333-170657), for possible acquisitions and for acquisition of film distribution rights, including additional investment in film productions to secure film distribution rights
and for other general corporate purposes.

Item 15.    Controls and Procedures



We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer
and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rules 13a-15(e)
promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2011, our
disclosure controls and procedures were effective.



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

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

As
required by Section 404 of the Sarbanes-Oxley Act of 2002 and related rules promulgated by the Securities and Exchange Commission, our management assessed the effectiveness of
internal control over financial reporting as of December 31, 2011 using the criteria set forth in the report "Internal ControlIntegrated Framework" published by the Committee of
Sponsoring Organizations of the Treadway Commission (known as COSO). Based on this evaluation, management concluded that our internal control over financial reporting was effective as of
December 31, 2011.

However,
we and our independent registered public accounting firm identified certain significant deficiencies 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, 2011.

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The
significant deficiencies identified were (i) lack of sufficient accounting personnel with appropriate accounting knowledge to achieve and maintain work efficiency, and
(ii) operating ineffectiveness of controls in relation to customers background review for significant sales contracts.

We
have undertaken or are in the process of undertaking a number of steps to improve our internal controls over financial reporting and address the significant deficiencies. Such steps
include:





The effectiveness of our internal control over financial reporting as of December 31, 2011 has been audited by Deloitte Touche
Tohmatsu CPA Ltd., an independent registered public accounting firm, who has audited the financial statements for the year ended December 31, 2011 included in this annual report.

To
the Board of Directors and Shareholders of Bona Film Group Limited,

We
have audited the internal control over financial reporting of Bona Film Group Limited, its subsidiaries, its variable interest entities ("VIEs") and its VIEs' subsidiaries
(collectively the "Group") as of December 31, 2011, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Group's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over
financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Group's internal control over
financial reporting based on our audit.

We
conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of
internal control over

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financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In
our opinion, the Group maintained, in all material respects, effective internal control over financial reporting as of December 31, 2011, based on the criteria established in
Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the
year ended December 31, 2011 of the Group and our report dated April 30, 2012 expressed an unqualified opinion on those financial statements.

Deloitte
Touche Tohmatsu CPA Ltd.
Beijing, the People's Republic of China
April 30, 2012



Other than the changes disclosed above, there were no other changes in our internal control over financial reporting that occurred
during the year ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 16A.    Audit Committee Financial Expert

Daqing Dave Qi is our audit committee financial expert and an independent director. See "Item 6. Directors, Senior Management
and EmployeesC. Board PracticesCommittees of the Board of Directors."

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Item 16B.    Code of Ethics

We have adopted a code of ethics which applies to our directors, employees and officers, including our Chief Executive Officer and
Chief Financial Officers. No changes have been made to the code of ethics since its adoption and no waivers have been granted therefrom to our directors or employees. We have filed this code of ethics
as an exhibit to this annual report, and a copy is available to any shareholder upon request. This code of ethics is also available on our website at http://ir.bonafilm.cn/governance.cfm.

Item 16C.    Principal Accountant Fees and Services

Deloitte Touche Tohmatsu CPA Ltd., PRC has served as our independent public accountant for each of the fiscal years in the
three-year period ended December 31, 2011, for which audited financial statements appear in this annual report.

The
following table presents the aggregate fees for professional services and other services rendered by Deloitte Touche Tohmatsu CPA Ltd., PRC to us in 2010 and 2011.

2010

2011US$
(in thousands)

US$
(in thousands)Audit Fees(1)


507


1,010Audit-related Fees(2)





Tax Fees(3)


14


Total


521


1,010


(1)Audit
fees consist of fees billed for the audit or review of our annual financial statements, internal control over financial reporting, quarterly financial
statements, and related statutory and regulatory filings.(2)Audit-related
fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our
financial statements and are not reported above as "Audit Fees", including consultations of financial accounting and reporting standards.(3)Tax
fees include fees billed for tax compliance services and tax advice services.




Our audit committee is responsible for the oversight of our independent accountants' work. The policy of our audit committee is to
pre-approve all audit and non-audit services provided by Deloitte Touche Tohmatsu CPA Ltd., PRC including audit services, audit-related services, tax services and other
services, as described above.

All
audit and non-audit services performed by Deloitte Touche Tohmatsu CPA Ltd., PRC must be pre-approved by the Audit Committee.

Item 16D.    Exemptions from the Listing Standards for Audit Committees

None.

Item 16E.    Purchase of Equity Securities by the Issuer and Affiliated Purchasers

None.

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Item 16F.    Change in Registrant's Certifying Accountant

Not applicable.

Item 16G.    Corporate Governance

The Company's corporate governance practices have generally followed the requirements of NASDAQ market rules and Sarbanes-Oxley Act
with respect to corporate governance.

PART III

Item 17.    Financial Statements

We have elected to provide the financial statements and related information specified in Item 18.

Item 18.    Financial Statements

The consolidated financial statements of Bona Film Group Limited are included at the end of this annual report.

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Item 19.    Exhibit Index

Exhibit
Number

Description of Exhibits1.1

Second Amended and Restated Memorandum of Association and Articles of Association of Bona Film Group Limited (incorporated by reference to Exhibit 3.2 to our Registration Statement on Form F-1 (File
No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).2.1

Registrant's Specimen American Depositary Receipt (incorporated by reference to Exhibit 4.1 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the
Securities and Exchange Commission on November 17, 2010).2.2

Registrant's Specimen Certificate for Ordinary Shares (incorporated by reference to Exhibit 4.2 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the
Securities and Exchange Commission on November 17, 2010).2.3

Form of Deposit Agreement between the Registrant, the depositary and holders of the American Depositary Receipts (incorporated by reference to Exhibit 4.3 to our Registration Statement on Form F-1 (File
No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).2.4

Subscription Agreement, dated as of July 10, 2007 in respect of the issuance and sale of the Series A preferred shares of predecessor of Bona International Film Group Limited (incorporated by reference to
Exhibit 4.4 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).2.5

Subscription Agreement, dated as of July 7, 2009 in respect of the issuance and sale of the Series B-1 and B-2 preferred shares of Bona International Film Group Limited (incorporated by reference to
Exhibit 4.5 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).2.6

Subscription Agreement, dated as of June 28, 2010 in respect of the issuance and sale of the Series B-3 preferred shares of Bona International Film Group Limited (incorporated by reference to Exhibit 4.6
to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).2.7

Amended and Restated Shareholders' Agreement, dated as of November 8, 2010 by and among the Registrant and the other parties thereto (incorporated by reference to Exhibit 4.7 to our Registration Statement
on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.1

Registrant's 2009 Share Incentive Plan (incorporated by reference to Exhibit 10.1 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and
Exchange Commission on November 17, 2010).4.2

Registrant's 2010 Share Incentive Plan (incorporated by reference to Exhibit 10.2 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and
Exchange Commission on November 17, 2010).4.3

Form of Indemnification Agreement with the Registrant's directors (incorporated by reference to Exhibit 10.3 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed
with the Securities and Exchange Commission on November 17, 2010).4.4

Form of Employment Agreement between the Registrant and an Executive Officer of the Registrant (incorporated by reference to Exhibit 10.4 to our Registration Statement on Form F-1 (File No. 333-170657),
 as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).


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Exhibit
Number

Description of Exhibits4.5

Form of Exclusive Technology and Consulting Service Agreement by and between Beijing Bona New World Media Technology Co., Ltd. and the affiliated consolidated entity (incorporated by reference to
Exhibit 10.5.1 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.6

Form of Amendment to Exclusive Technology and Consulting Service Agreement by and between Beijing Bona New World Media Technology Co., Ltd. and the affiliated consolidated entity (incorporated by reference
to Exhibit 10.5.2 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.7

Form of Voting Trust and Equity Purchase Agreement by and between Bona International Film Group Limited, Beijing Bona New World Media Technology Co., Ltd., the affiliated consolidated entity, Mr. Dong
Yu and the shareholders of the affiliated consolidated entity (incorporated by reference to Exhibit 10.5.3 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and
Exchange Commission on November 17, 2010).4.8

Form of Equity Interest Pledge Agreement by and among Beijing Bona New World Media Technology Co., Ltd., Mr. Dong Yu and other the shareholders of the affiliated consolidated entity (incorporated by
reference to Exhibit 10.5.4 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.9

English translation of Form of Confidentiality, Non-Competition and Intellectual Property Rights Agreement between the Beijing Bona New World Media Technology Co., Ltd. and an employee of thereof
(incorporated by reference to Exhibit 10.6 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.10

English translation of General Credit Facility Grant Contract, dated as of September 15, 2010, between Bank of Beijing, Chaowai Branch and Bona Film Group Co., Ltd. (PRC) (incorporated by reference to
Exhibit 10.7 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.11

English translation of Guarantee, dated as of September 15, 2010, between Bank of Beijing, Chaowai Branch and Mr. Dong Yu (incorporated by reference to Exhibit 10.8 to our Registration Statement on
Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.12

English translation of Form of Fixed Assets Loan Contract, between Industrial and Commercial Bank of China, Dongcheng Branch and Bona Film Group Co., Ltd. (PRC) (incorporated by reference to Exhibit 10.9
to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).4.13

English translation of Management Service Agreement, dated as of September 1, 2010, by and between Beijing Bona International Cineplex Investment and Management Co., Ltd. and Beijing Bona Starlight Cineplex
Management Co., Ltd (incorporated by reference to Exhibit 10.10 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17,
 2010).


150

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Table of Contents

Exhibit
Number

Description of Exhibits4.14

English translation of Right of First Refusal Agreement, dated as of November 5, 2010, by and among Beijing Bona International Cineplex Investment and Management Co., Ltd., Dong Yu, Yang Xu, Zhejiang
Intime Rich Investment Co., Ltd., Zhejiang Kunyuan Investment Consulting Co., Ltd. and Guoheng Fashion Media Science & Technology Group Corp. and Beijing Bona Starlight Cineplex Management Co., Ltd (incorporated
by reference to Exhibit 10.11 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the Securities and Exchange Commission on November 17, 2010).*4.15

Schedule of material differences between (i) the General Credit Facility Contracts, dated as of September 15, 2010 and October 19, 2011, respectively, each between Bank of Beijing, Chaowei Branch and Bona
Film Group Co., Ltd. (PRC), and (ii) the Guarantees, dated as of September 15, 2010 and October 19, 2011, respectively, each between Bank of Beijing, Chaowei Branch and Mr. Dong Yu.*8.1

List of Significant Subsidiaries of Bona Film Group Limited.11.1

Code of Business Conduct and Ethics of the Registrant (incorporated by reference to Exhibit 99.1 to our Registration Statement on Form F-1 (File No. 333-170657), as amended, initially filed with the
Securities and Exchange Commission on November 17, 2010).*12.1

Certification of our Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*12.2

Certification of our Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*13.1

Certification by our Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*13.2

Certification by our Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*15.1

Consent of Independent Registered Accounting Firm.*15.2

Consent of Han Kun Law Offices.


*filed
herewith.


151

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Table of Contents

SIGNATURES

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

BONA FILM GROUP LIMITEDBy:

/s/ Liang XuName:

Liang XuTitle:

Chief Financial Officer


Date:
April 30, 2012

152

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Table of Contents

BONA FILM GROUP LIMITED        INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



Contents

Page(s)REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


F-2CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2010 AND 2011


F-3CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011


F-5CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2009,
2010 AND 2011


F-6CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011


F-7NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


F-9


F-1

---





Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO
THE BOARD OF DIRECTORS AND SHAREHOLDERS OFBONA FILM GROUP LIMITED

We
have audited the accompanying consolidated balance sheets of Bona Film Group Limited, its subsidiaries, its variable interest entities ("VIEs"), and its VIEs' subsidiaries
(collectively, the "Group") as of December 31, 2010 and 2011, and the related consolidated statements of operations, equity and comprehensive income (loss), and cash flows for each of the three
years in the period ended December 31, 2011. These consolidated financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In
our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2010 and 2011 and the
results of its operations and its cash flows for each of the three years in the period ended December 31, 2011 in conformity with accounting principles generally accepted in the
United States of America.

We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as
of December 31, 2011, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report
dated April 30, 2012 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE
TOUCHE TOHMATSU CPA LTD.
Beijing, the People's Republic of China
April 30, 2012

F-2

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Table of Contents



BONA FILM GROUP LIMITED

CONSOLIDATED BALANCE SHEETS

(In U.S. dollars, except share data)

December 31,2010

2011AssetsCurrent assetsCash and cash equivalents


84,247,984


20,107,349Term deposits





6,038,107Restricted cash





4,066,162Accounts receivable, net of allowance for doubtful accounts of $22,727 and $697,246 as of December 31, 2010 and 2011, respectively


15,225,792


41,642,787Prepaid expenses and other current assets


15,659,415


27,335,348Amounts due from related parties, net of allowance for doubtful accounts of nil and $174,819 as of December 31, 2010 and 2011,
respectively


2,815,147


1,183,083Current deferred tax assets


7,885


15,697Inventory


96,639


228,412Total current assets


118,052,862


100,616,945Distribution rights


2,265,601


3,663,966Production costs


64,815,878


69,844,822Prepaid film costs


484,848


6,340,770Property and equipment, net


14,498,304


40,208,447Acquired intangible assets, net


2,293,744


3,993,152Non-current deferred tax assets


6,732


320,670Cost method investment


30,303


95,330Investment in equity affiliates


231,854


55,340Goodwill


28,536,410


48,612,487Total assets


231,216,536


273,751,929Accounts payable (including accounts payable of the consolidated VIEs without recourse to Bona Film Group Limited of $8,404,491 and $26,499,111 as of
December 31, 2010 and 2011, respectively)


9,533,672


27,807,118Accrued expenses and other current liabilities (including accrued expenses and other current liabilities of the consolidated VIEs without recourse to Bona
Film Group Limited of $8,454,866 and $22,689,668 as of December 31, 2010 and 2011, respectively)


19,577,066


27,239,987Amounts due to related parties-current (including amounts due to related parties of the consolidated VIEs without recourse to Bona Film Group Limited of
$1,587,121 and $2,621,348 as of December 31, 2010 and 2011, respectively)


1,587,121


3,027,872Income tax payable (including income tax payable of the consolidated VIEs without recourse to Bona Film Group Limited of $276,004 and $593,802 as of
December 31, 2010 and 2011, respectively)


377,019


795,229Bank borrowing (including bank borrowing of the consolidated VIEs without recourse to Bona Film Group Limited of $22,012,560 and $9,361,543 as of
December 31, 2010 and 2011, respectively)


22,012,560


12,561,806Other borrowing (including other borrowing of the consolidated VIEs without recourse to Bona Film Group Limited of $1,445,150 and $1,831,658 as of
December 31, 2010 and 2011, respectively)


1,445,150


1,831,658Current film participation financing liabilities (including current film participation financing liabilities of the consolidated VIEs without recourse to
Bona Film Group Limited of $8,784,015 and $12,942,687 as of December 31, 2010 and 2011, respectively)


10,209,351


16,224,219Total current liabilities


64,741,939


89,487,889


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

F-3

---



Table of Contents

BONA FILM GROUP LIMITED

CONSOLIDATED BALANCE SHEETS (Continued)

(In U.S. dollars, except share data)

December 31,2010

2011Deferred income (including deferred income of the consolidated VIEs without recourse to Bona Film Group Limited of nil and nil as of December 31, 2010
and 2011, respectively)





1,056,676Non-current film participation financing liabilities (including non-current film participation financing liabilities of the consolidated VIEs without
recourse to Bona Film Group Limited of $6,306,818 and nil as of December 31, 2010 and 2011, respectively)


6,306,818


Deferred tax liability (including deferred tax Liabilities of the consolidated VIEs without recourse to Bona Film Group Limited of $95,613 and $413,219 as
of December 31, 2010 and 2011, respectively)


95,613


413,219Total liabilities


71,144,370


90,957,784Commitments (Note 27)EquityBona Film Group Limited's ordinary shares ($0.0005 par value; 85,000,000 shares authorized, 29,349,481 issued and outstanding as of
December 31, 2010, and 30,402,346 and 29,389,089 shares issued and outstanding respectively as of December 31, 2011)


14,675


14,695Additional paid-in capital


165,975,336


169,519,847Statutory reserves


1,975,715


2,044,870Accumulated (deficit) profit


(12,030,124
)

2,332,802Accumulated other comprehensive income


2,034,154


5,436,305Total Bona Film Group Limited's equity


157,969,756


179,348,519Noncontrolling interests


2,102,410


3,445,626Total equity


160,072,166


182,794,145Total liabilities and equity


231,216,536


273,751,929


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

F-4

---



Table of Contents



BONA FILM GROUP LIMITED

CONSOLIDATED STATEMENT OF OPERATIONS

(In U.S. dollars, except share and per share data)

Years ended December 31,2009

2010

2011Net revenue


38,372,551


52,819,786


126,161,270Cost of revenue


19,888,461


26,501,853


66,458,217Gross profit


18,484,090


26,317,933


59,703,053Operating expenses:Film participation expenses


1,244,848


696,101


321,100Sales and marketing


8,887,971


7,213,519


18,506,262General and administrative


2,789,416


9,305,393


28,371,497Total operating expenses


12,922,235


17,215,013


47,198,859Government subsidies





88,147


220,559Operating income


5,561,855


9,191,067


12,724,753Other income:Interest income from bank deposits


17,035


16,125


248,266Interest income from loan to producer of TV series





856,788


141,545Interest expense


(42,333
)

(409,599
)

(589,833
)Gain on extinguishment of liability





488,799


Exchange (loss) gain


(120,469
)

16,464


1,748,044Other income





225,095


770,081Changes in fair value of warrants


119,451





Changes in fair value of derivatives


90,000


(14,528,000
)

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


5,625,539


(4,143,261
)

15,042,856Provision for income taxes


338,647


91,053


473,542Equity in earnings of affiliated companies, net of taxes


172,773


11,254


3,062Net income (loss)


5,459,665


(4,223,060
)

14,572,376Less: Net (loss) income attributable to the noncontrolling interests


(168,429
)

(131,686
)

140,295Net income (loss) attributable to Bona Film Group Limited.


5,628,094


(4,091,374
)

14,432,081Deemed dividend on Series A convertible redeemable preferred shares


973,399


1,053,766


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


1,570,096





Deemed dividend on Series B convertible redeemable preferred shares


421,586


1,096,380


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


377,735





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


2,285,278


(6,241,520
)

14,432,081Net income (loss) per ordinary shareBasic


0.27


(0.49
)

0.49Diluted


0.27


(0.49
)

0.48Weighted average shares used in calculating net income per ordinary shareBasic


8,453,842


12,758,575


29,353,936Diluted


8,518,402


12,758,575


29,844,462Share-based compensation expensesSelling and marketing





40,418


General and administrative


132,902


406,927


3,647,144


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

F-5

---





BONA FILM GROUP LIMITED
CONSOLIDATED STATEMENT OF EQUITY AND COMPREHENSIVE INCOME (LOSS)
(In U.S. dollars, except share data)

Bona Film Group Limited's shareholders'Ordinary shares







Accumulated
other
comprehensive
incomeAdditional
paid-in
capital

Statutory
reserves

Accumulated
profit
(deficit)

Total Bona
Film Group
Limited's equity

Noncontrolling
interests

Total
equity

Comprehensive
income (loss)
for the yearShares

AmountBalance at January 1, 2009


6,250,000


3,125


3,969,227


740,036


(5,288,021
)

617,591


41,958


765,489


807,447Issuance of ordinary shares


2,803,614


1,402


3,084











4,486





4,486Repurchase and cancellation of shares


(1,241,958
)

(621
)

(1,366
)




(3,498,013
)




(3,500,000
)




(3,500,000
)Deemed dividend of Series A preferred shares














(973,399
)




(973,399
)




(973,399
)Deemed dividend of Series B preferred shares














(421,586
)




(421,586
)




(421,586
)Net income














5,628,094





5,628,094


(168,429
)

5,459,665


5,459,665Share-based compensation








132,902











132,902





132,902Transfer to statutory reserves











1,008,419


(1,008,419
)










Foreign currency translation adjustments

















(142,676
)

(142,676
)

1


(142,675
)

(142,675
)Balance at December 31, 2009


7,811,656


3,906


4,103,847


1,748,455


(5,561,344
)

474,915


769,779


597,061


1,366,840


5,316,990Issuance of ordinary shares for acquisition of movie theaters


5,810,320


2,905


26,120,287











26,123,192





26,123,192Exercise of options


317,072


158


1,999,842











2,000,000





2,000,000Elimination of derivatives liabilities








17,907,000











17,907,000





17,907,000Conversion of series A preferred shares to ordinary shares


5,849,856


2,926


10,778,706











10,781,632





10,781,632Conversion of series B preferred shares to ordinary shares


3,690,577


1,845


14,692,691











14,694,536





14,694,536Issuance of ordinary shares on initial public offering ("IPO") (net of issuance cost of US$3,559,581)


5,870,000


2,935


89,242,184











89,245,119





89,245,119Deemed dividend of Series A preferred shares














(1,053,766
)




(1,053,766
)




(1,053,766
)Deemed dividend of Series B preferred shares














(1,096,380
)




(1,096,380
)




(1,096,380
)Net loss














(4,091,374
)




(4,091,374
)

(131,686
)

(4,223,060
)

(4,223,060
)Share-based compensation








447,345











447,345





447,345Transfer to statutory reserves











227,260


(227,260
)










Foreign currency translation adjustments

















1,559,239


1,559,239


6,761


1,566,000


1,566,000Acquisition of movie theaters























2,071,408


2,071,408Capital contribution by a noncontrolling shareholder























364,421


364,421Acquisition of equity interests from a noncontrolling shareholder








683,434











683,434


(805,555
)

(122,121
)Balance at December 31, 2010


29,349,481


14,675


165,975,336


1,975,715


(12,030,124
)

2,034,154


157,969,756


2,102,410


160,072,166


(2,657,060
)IPO cost








(350,000
)










(350,000
)




(350,000
)Exercise of options


39,608


20


247,367











247,387





247,387Net income














14,432,081





14,432,081


140,295


14,572,376


14,572,376Share-based compensation








3,647,144











3,647,144





3,647,144Transfer to statutory reserves











69,155


(69,155
)










Foreign currency translation adjustments

















3,402,151


3,402,151


47,800


3,449,951


3,449,951Noncontrolling interests resulted from acquisition of movie theaters























1,155,121


1,155,121Balance at December 31, 2011


29,389,089


14,695


169,519,847


2,044,870


2,332,802


5,436,305


179,348,519


3,445,626


182,794,145


18,022,327


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

F-6

---





BONA FILM GROUP LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS

(In U.S. dollars)

Years ended December 31,2009

2010

2011Cash flows from operating activities:Net income (loss)


5,459,665


(4,223,060
)

14,572,376Adjustments to reconcile net income to net cash used in operating activitiesEquity in gain of affiliated companies


(172,773
)

(11,254
)

(3,062
)Changes in fair value of warrants


(119,451
)




Changes in fair value of derivatives


(90,000
)

14,528,000


Share-based compensation


132,902


447,345


3,647,144Provision for bad debt





690


826,078Other income








(285,714
)Depreciation and amortization


143,001


1,074,059


2,711,958Loss from disposal of property and equipment








191,705Amortization of distribution rights


4,335,053


3,233,192


2,331,266Amortization of production costs


9,348,111


16,502,364


37,116,065Changes in assets and liabilities:Accounts receivable


(15,015,167
)

4,861,044


(25,593,187
)Prepaid expenses and other current assets


(2,730,647
)

(2,075,312
)

(13,991,376
)Distribution rights


(6,034,348
)

105,155


(3,643,433
)Production costs


(25,461,588
)

(61,507,608
)

(40,367,979
)Inventory





161


(47,732
)Amount due from related parties


(3,609,089
)

(5,572,960
)

1,289,087Accounts payable


4,659,775


(3,339,904
)

13,062,884Deferred income








939,673Accrued expenses and other current liabilities


3,484,597


(388,702
)

9,773,047Amount due to related parties


48,399


4,255,386


(674,011
)Income taxes payable


193,977


(723,163
)

396,418Deferred income taxes


(960
)

(65,296
)

(88,364
)Film participation liabilities


1,115,180


505,319


76,701Net cash (used in) provided by operating activities


(24,313,363
)

(32,394,544
)

2,239,544Cash flows from investing activities:Acquisition of business, net of cash acquired of nil, US$2,221,266 and US$1,379,343 respectively





1,778,462


(24,205,450
)Purchase of property and equipment


(61,277
)

(2,729,922
)

(9,722,708
)Deposits paid for acquisition of property and equipment








(2,478,320
)Prepayment for an investment








(1,200,000
)Purchase of cost method investment








(62,909
)Distribution from investment in affiliates


87,873





Acquisition of noncontrolling interests of Baichuan





(762,098
)

Loan to a producer of TV series





(1,168,683
)

386,835Amounts loaned to third parties


(642,882
)

(3,878,796
)

2,571,208Amounts loaned to related parties





(1,668,081
)

(4,010,439
)Term deposit








(6,038,107
)Restricted cash








(4,066,162
)Net cash used in investing activities


(616,286
)

(8,429,118
)

(48,826,052
)


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

F-7

---



BONA FILM GROUP LIMITED

CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)

(In U.S. dollars)

Years ended December 31,2009

2010

2011Cash flows from financing activities:Proceeds from IPO





92,804,700


Payment of issuance cost in connection with IPO





(1,989,843
)

(350,000
)Proceeds from exercise of options





2,000,000


172,324Proceeds from issuance of Series B convertible preferred shares


8,953,684


4,999,886


Repurchase of shares


(3,500,000
)




Amount due to related parties and third parties


1,524,766


3,237,497


(6,690,382
)Proceeds from bank borrowing


6,587,615


22,303,808


12,302,434Payments of bank borrowing





(8,113,214
)

(22,566,691
)Proceeds from film participation


8,622,547


10,772,250


3,998,964Payments of film participation liabilities principal


(309,506
)

(4,354,761
)

(4,849,323
)Proceeds from other borrowings


5,855,658


1,342,799


1,572,723Payments of other borrowings





(5,942,595
)

(1,231,034
)Capital contribution by a noncontrolling shareholder





364,421


Net cash provided by (used in) financing activities


27,734,764


117,424,948


(17,640,985
)Effect of foreign exchange rate changes


(158,799
)

228,485


86,858Net (decrease) increase in cash


2,646,316


76,829,771


(64,140,635
)Cash, beginning of year


4,771,897


7,418,213


84,247,984Cash, end of year


7,418,213


84,247,984


20,107,349Supplement disclosure of cash flow informationIncome taxes paid


129,080


858,322


196,565Interests paid


191,868


999,247


1,502,957Film participation expenses paid


129,668


190,782


244,399Supplement disclosure of non-cash investing activities:Ordinary shares issued in connection with business acquisition (Note 3(a))





26,123,194


Cash consideration for business acquisition settled as an offset against the amount due from Mr. Dong Yu (Note 3(a) & (d))





5,337,243


3,064,993Outstanding consideration payable for business acquisition (Note 3(d))








2,383,260Payable for purchase of property and equipment





1,792,983


5,668,211


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

F-8

---





Table of Contents

BONA FILM GROUP LIMITED        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS        FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011        (In U.S.
dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

Introduction

Bona International Film Group Limited ("Bona International") was incorporated in British Virgin Islands ("BVI") on December 13,
2006. Bona International, together with its subsidiaries, variable interest entities (the "VIEs") and VIEs' subsidiaries, are engaged in film related activities and a talent agency business in
the People's Republic of China (the "PRC").

Bona
Film Group Limited (the "Company") was established in the Cayman Islands in July 2010, which became the holding company of Bona International upon the completion of a
16 to 1 share exchange on November 10, 2010 with the existing shareholders of Bona International for all shares of equivalent classes. This share exchange was treated as a reorganization
of entities under common control in a manner akin to a pooling-of-interest as if the Company had always existed and owned Bona International since the establishment of Bona
International. The share capital after the share exchange has been reflected retrospectively as if it were the historical share capital for all the periods presented. The Company together with its
VIEs and subsidiaries are referred to as the "Group".

Subsidiaries, VIEs and VIEs' subsidiaries

As of December 31, 2011, the Company's subsidiaries, VIEs and VIEs' subsidiaries included the following entities:

Date of
incorporation/
acquisition

Place of
incorporation

Percentage
of legal
ownershipSubsidiaries:Bona International Film Group Limited ("Bona International")

December 13, 2006

BVI


100%Alpha Speed Limited

July 1, 2011

BVI


100%Beijing Bona New World Media Technology Co., Ltd. ("Bona New World")

June 7, 2007

PRC


100%Bona Entertainment Company Limited ("Bona Entertainment")

July 1, 2008

Hong Kong


100%Distribution Workshop (BVI) Ltd. ("Distribution Workshop BVI")

June 29, 2007

BVI


51%Distribution Workshop (HK) Ltd. ("Distribution Workshop HK")

May 31, 2007

Hong Kong


51%Bona Productions Co., Ltd. ("Bona Production")

July 21, 2010

Hong Kong


100%VIEs:Beijing Baichuan Film Distribution Co., Ltd. ("Baichuan") (previously named "Beijing PolyBona Film Distribution Co. Ltd.")

November 18, 2003

PRC


0%Bona Film Group Co., Ltd (PRC). ("Bona Film") (previously named "Beijing Bona Film and Culture Communication Co., Ltd.")

August 1, 2003

PRC


0%Beijing Bona Advertising Co., Ltd. ("Bona Advertising")

April 28, 2005

PRC


0%


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

Date of
incorporation/
acquisition

Place of
incorporation

Percentage
of legal
ownershipCinema Popular Limited ("Cinema Popular")

October 15, 2008

Hong Kong


50%VIEs' subsidiaries:Zhejiang Bona Film and Television Production Co., Ltd. ("Zhejiang Bona")

December 5, 2008

PRC


0%Beijing Bona Xingyi Culture Agency Co., Ltd. ("Bona Xingyi") (previously named "Beijing Bona Yinglong Culture Agency Co. Ltd.")

June 25, 2008

PRC


0%Beijing Bona International Cineplex Investment and Management Co., Ltd. ("Beijing Bona Cineplex")

November 14, 2005

PRC


0%Beijing Bona Youtang Cineplex Management Co., Ltd. ("Bona Youtang").

April 13, 2009

PRC


0%Shijiazhuang Bona Cinema Investment Management Co., Ltd. ("Shijiazhuang Cinema")

August 27, 2009

PRC


0%Shenzhen Bona Shidai Cinema Investment Management Co., Ltd. ("Shenzhen Cinema")

December 11, 2009

PRC


0%Shanghai Bona Yinxing Cinema Development Co., Ltd. ("Shanghai Cinema")

March 5, 2008

PRC


0%Xi'an Huitong Bona Film Culture Media Co., Ltd. ("Xi'an Huitong")

October 18, 2010

PRC


0%Beijing Bona Starlight Cineplex Management Co., Ltd. ("Bona Starlight")

July 1, 2011

PRC


0%Beijing Bona Shunjing Cineplex Management Co., Ltd. ("Shunjng Cinema")

July 1, 2011

PRC


0%Beijing Bona Huixin Cineplex Management Co., Ltd. ("Huixin Cinema")

July 1, 2011

PRC


0%Tianjin Bona Jinkang Cineplex Management Co., Ltd. ("Jinkang Cinema")

July 1, 2011

PRC


0%Chongqing Bona Yuexin Cineplex Management Co., Ltd. ("Yuexin Cinema")

July 1, 2011

PRC


0%Changsha Mango Bona Cineplex Management Co., Ltd. ("Mangguo Cinema")

July 1, 2011

PRC


0%Beijing Bona Jingpin Cineplex Management Co., Ltd. ("Jingpin Cinema")

November 8, 2011

PRC


0%Beijing Bona Tianshi Cineplex Management Co., Ltd. ("Tianshi Cinema")

November 29, 2011

PRC


0%Dongguan Bona Dongsheng Cineplex Investment Co., Ltd. ("Dongsheng Cinema")

December 1, 2011

PRC


0%


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

The VIE arrangements

The Group operates its businesses in the PRC through its affiliated entities due to PRC regulations that restrict foreign investments
in the film, television program, movie theaters, talent agency and advertising industries. The Group has three affiliated consolidated entities that operate its businesses in the PRC, each of which is
an entity duly formed under PRC law.

These
affiliated consolidated entities were established in the years set forth below:

Year of establishment

PRC affiliated entities

Principal activities2003

Beijing Baichuan Film Distribution Co., Ltd.

Films distribution2003

Bona Film Group Co., Ltd. (PRC)

Movie theater business, talent agency services and television production2005

Beijing Bona Advertising Co., Ltd.

Film related advertising sales


In
July 2007, Bona New World, the Group's PRC subsidiary, entered into a series of contractual arrangements with each of the affiliated consolidated entities and their
respective shareholders to govern the Group's relationships with the affiliated consolidated entities and ensure the Group's business operations in the PRC. These contractual arrangements allow the
Group to effectively control the affiliated consolidated entities and to derive substantially all of the economic benefits from them. Accordingly, the Group treats these affiliated entities as VIEs
and because the Group is the primary beneficiary the Group has consolidated these affiliated entities.

The
contractual arrangements comprise:



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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)



Corporate reorganization

At the time that the Company's wholly-owned subsidiary, Bona New World, entered into the series of contractual arrangements
above with the Company's VIEs, the Company was controlled (and had been since incorporation) by Mr. Dong Yu who held 93.5% of the issued equity. Immediately before entering into the
contractual arrangements, the VIEs were also controlled by Mr. Dong Yu. This was therefore a transaction between entities under common control. Accordingly, the consolidated financial
statements of the Company have been prepared as if the Company had been in existence and was the primary beneficiary of the VIEs throughout the periods presented.

Cinema Popular

In October 2008, Bona Entertainment entered an agreement with Hurry Up Limited, a Hong Kong based company engaged in film
production, to set up Cinema Popular Limited ("Cinema

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

Popular")
in Hong Kong to invest in films and hold copyright of films (the "Joint-venture Agreement"). Bona Entertainment and Hurry Up Limited each own 50% of the equity interest in
Cinema Popular.

Through
its control of the board of directors of Cinema Popular, Bona Entertainment controls Cinema Popular. As Bona Entertainment controls Cinema Popular and absorbs all of the expected
losses of Cinema Popular, Bona Entertainment is the primary beneficiary of Cinema Popular and therefore has consolidated Cinema Popular.

In
June 2009, the FASB issued an authoritative pronouncement to amend the accounting rules for VIEs. The amendment effectively replaces the quantitative-based
risks-and-rewards calculation for determining which reporting entity, if any, has a controlling financial interest in a VIE with an approach focused on identifying which
reporting entity has (1) the power to direct the activities of a VIE that most significantly affect the entity's economic performance and (2) the obligation to absorb losses of, or the
right to receive benefits from, the entity. Additionally, an enterprise is required to assess whether it has an implicit financial responsibility to ensure that a VIE operates as designed when
determining whether it has the power to direct the activities of the VIE that most significantly impact the entity's economic performance. The new guidance also requires additional disclosures about a
reporting entity's involvement with VIEs and about any significant changes in risk exposure as a result of that involvement.

The
new guidance is effective at the start of a reporting entity's first fiscal year beginning after November 15, 2009, and all interim and annual periods thereafter. The Company
adopted the new guidance on January 1, 2010 and the disclosure requirements of the new guidance were retrospectively applied for all the periods presented in this consolidated financial
statements.

The
Company has four VIEs, which it has consolidated under the authoritative literature prior to the amendment discussed above because it was the primary beneficiary of the VIEs. Because
the Company, through its subsidiaries, has (1) the power to direct the activities of the VIEs that most significantly affect the entity's economic performance and (2) the obligation to
absorb losses of, or the right to receive benefits from the VIEs. The Company continues to consolidate the VIEs upon the adoption of the new guidance which therefore, other than for additional
disclosures, had no accounting impact.

Risks in relation to the VIEs' structure

The Company believes that Bona New World's contractual arrangements with the VIEs are in compliance with PRC law and are legally
enforceable. The shareholders of the VIEs are also shareholders of the Company therefore have no current interest in seeking to act contrary to the contractual arrangements. However, uncertainties in
the PRC legal system could limit the Company's ability to enforce these contractual arrangements and if the shareholders of the VIEs were to reduce their interest in the Company, their interests may
diverge from that of the Company and that may potentially increase the risk that they would seek to act contrary to the contractual terms, for example by influencing the VIEs not to pay the
service fees when required to do so.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)

The
Company's ability to control the VIEs also depends on the power of attorney the Bona New World has to vote on all matters requiring shareholder approval in the VIEs. As noted
above, the Group believes this power of attorney is legally enforceable but may not be as effective as direct equity ownership.

In
addition, if the legal structure and contractual arrangements were found to be in violation of any existing PRC laws and regulations, the PRC government
could:

The
imposition of any of these penalties may result in a material adverse effect on the Group's ability to conduct its business. In addition, if the imposition of any of these penalties
causes the Group to lose
the rights to direct the activities of the VIEs and their subsidiaries or the right to receive their economic benefits, the Group would no longer be able to consolidate the VIEs.

The
following consolidated information of the VIEs and their subsidiaries was included in the accompanying consolidated financial statements with intercompany balance eliminated:

December 31,2010

2011Total current assets


36,224,564


59,616,184Total non-current assets


74,605,128


96,409,193Total assets


110,829,692


156,025,377Total current liabilities


50,964,207


76,539,817Total non-current liabilities


6,402,431


413,219Total liabilities


57,366,638


76,953,036




Years ended December 31,2009

2010

2011Net revenue


36,111,044


44,326,027


116,911,572Net income


5,825,288


11,210,654


18,046,991


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES (Continued)



Years ended December 31,2009

2010

2011Net cash (used in) provided by operating activities


(21,067,130
)

(17,350,381
)

33,427,159Net cash used in investing activities


(613,335
)

(3,245,910
)

(17,137,921
)Net cash provided by (used in) financing activities


22,281,080


19,006,317


(12,406,973
)


There
are no consolidated VIEs' assets that are collateral for the VIE's obligations and can only be used to settle the VIEs' obligations.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The
consolidated financial statements of the Group have been prepared in accordance with accounting principles generally accepted in the United States of America
("US GAAP").

The
Group's consolidated financial statements included the financial statements of Bona Film Group Limited, its subsidiaries, VIEs and VIEs' subsidiaries. All intercompany transactions
and balances were eliminated in consolidation.

The
preparation of the consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and revenue and expenses in the consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Group's consolidated financial statements
include fair value of the Company's ordinary shares, fair value of warrants, impairment of property and equipment and intangible assets, impairment of goodwill, impairment of distribution rights and
production costs, valuation allowance for deferred tax assets, film participation liabilities, film participation expense, amortization of distribution rights and production costs, share-based
compensation, and purchase price allocation for business acquisition.

The
Group evaluates each lease for classification as either a capital lease or an operating lease. The Group assesses a lease to be a capital lease if substantially all of the benefits
and risks of ownership have been transferred to the lessee at its inception. The Group performs this evaluation at the inception of the lease and when a modification is made to a lease. If the lease
agreement calls for a scheduled rent increase during the lease term, the Group recognizes the lease expense on a straight-line basis over the lease term as deferred lease expense. The
Group determines the straight-line rent expense impact of an operating lease upon inception of the lease. In leases containing both scheduled rent increases and contingent rents on the box
office sales, only the fixed component of

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

the
lease payments are recognized on a straight-line basis over the lease term. Contingent rents are expensed or accrued in the period when the box office sales are recognized.

Cash
and cash equivalents consist of cash on hand and highly liquid investments which are unrestricted as to withdrawal or use, or have original maturities of three months or less
when purchased.

Term
deposits consist of deposits placed with financial institutions with original maturity terms of greater than three months but less than one year.

Restricted
cash is related to the box office receipts from certain films deposited in specific accounts required by the banks as guarantees for short-term loans with
the banks.

Distribution
rights include the unamortized costs of films for which the Group has acquired distribution rights, including completed films and films in production. In certain cases, the
Group also shares the net profit of the film with the producers but does not receive any proportionate interest in the copyright of the film.

Costs
of acquiring film distribution rights are amortized using the individual-film-forecast method, whereby these 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, including revenues associated with theatrical release of the film, revenues associated with home
video sales, licensing sales to broadcast or cable networks. Film ultimate revenues forecasts include estimates over a period not to exceed ten years following the date of the film's initial release.
Estimated ultimate revenues are revised at least annually.

Production
costs include expenditures for the production and acquisition of proportional copyright of films by the Group. Production costs include costs of productions and acquired
proportional copyright of films which have been completed and costs of productions which are still in production. For films completed and on release, the related capitalized costs are amortized using
the individual-film-forecast method, whereby these 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 licensing of the films.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Most
of the Group's bank borrowing and other borrowings are dedicated to fund the production of its films. Capitalization of interest costs commences when a film is set for production
and ends when a film is substantially complete and ready for distribution. The interest eligible for capitalization includes interest expense on bank borrowing and other borrowing.

The
Group enters into arrangements with third parties to jointly finance the production of some of its films and the Group distributes the film. The Group 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. The Group records the amount
received from the investor as a reduction of its capitalized film costs, as the investor assumes full risk for that portion of the film asset acquired in these transactions.

The
Group reviews the distribution rights and production costs for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of the
distribution rights and production costs may no longer be recoverable. The valuation of distribution rights and production costs is reviewed on a title-by-title basis. The fair
value of the film is determined using management's future revenues and costs estimates and a discounted cash flow approach. Additional amortization is recorded in the amount by which the unamortized
costs exceed the estimated fair value of the film. The Group will not subsequently restore any amounts written off in previous fiscal years.

Property
and equipment, net are carried at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the
following estimated useful lives:

Film projection equipment

15 yearsFurniture and office equipment

5 yearsTransportation equipment

5 yearsLeasehold improvements

lesser of original lease term or
estimated useful life


Acquired
identifiable intangible assets with definite lives are carried at cost less accumulated amortization. Amortization of definite-lived intangible assets is computed based on the
straight-line method over the following estimated average useful lives, which are as follows:

Membership


1.8 yearsFavorable lease


1-4.5 years


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

If
an acquired intangible asset is determined to have an indefinite life, it should not be amortized until its useful life is determined to be no longer indefinite. An intangible asset
that is not subject to amortization is evaluated annually or more frequently if event and circumstances indicate that it might be impaired. Such impairment test consists of comparing the fair values
of assets with their carrying value amounts and an impairment loss is recognized if and when the carrying amounts exceed the fair values. The estimates of fair values of intangible assets not subject
to amortization are determined using various discounted cash flow valuation methodologies. Significant assumptions are inherent in this process, including estimates of discount rates. Intangible
assets with indefinite life represent movie theater licenses acquired through business acquisition of 10 movie theaters.

Long-lived
assets, such as property and equipment and definite-lived intangible assets, other than distribution rights and production costs, are stated at cost less
accumulated depreciation or amortization. The Group evaluates the recoverability of long-lived assets, including identifiable intangible assets, with determinable useful lives, other than
distribution rights and production costs, whenever events or changes in circumstances indicate that a long-lived asset's carrying amount may not be recoverable. The Group measures the
carrying amount of long-lived asset against the estimated undiscounted future cash flows associated with it expected to result from the use and eventual disposition of the asset.
Impairment exists when the sum of the expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying
value of the asset exceeds its fair value. Fair value is estimated based on various valuation techniques, including the discounted value of estimated future cash flows. The evaluation of asset
impairment requires the Group to make
assumptions about future cash flows over the life of the asset being evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.

For
investment in an investee over which the Group does not have a significant influence, the Group carries the investment at cost and recognizes as income dividends received that are
distributed from net accumulated earnings of the investee since the date of acquisition by the investor. The Group reviews the cost method investment for impairment whenever events or changes in
circumstances indicate that the carrying value may no longer be recoverable. An impairment loss is recognized in earnings equal to the difference between the investment's cost and its fair value at
the balance sheet date of the reporting period for which the assessment is made. The fair value of the investment would then become the new cost basis of the investment.

A
company that is not consolidated, but over which the Group exercises significant influence, is accounted for under the equity method of accounting. Whether or not the Group exercises
significant

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

influence
with respect to an affiliate depends on an evaluation of several factors including, among others, representation on the affiliated company's board of directors, impact of commercial
arrangements, and ownership level, which is generally a 20% to 50% interest in the voting securities of the affiliated company. Under the equity method of accounting, the affiliated company's accounts
are not reflected within the Group's consolidated balance sheets and statements of operations; however, the Group's share of the earnings or losses of the affiliated company is reflected in the
caption "Equity in (loss) earnings of affiliated companies" in the consolidated statements of operations.

When
the Group's carrying value in an equity method affiliated company is reduced to zero, no further losses are recorded in the Group's consolidated financial statements unless the
Group guaranteed obligations of the affiliated company or has committed additional funding. When the affiliated company
subsequently reports income, the Group will not record its share of such income until it equals the amount of its share of losses not previously recognized.

An
impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary.

The
excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill.

Goodwill
is not amortized but is evaluated annually or more frequently if event and circumstances indicate that they might be impaired. The Group performs a two-step process.
The first step compares the fair values of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit exceeds its carrying amount, goodwill is not
considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to
the carrying value of a reporting unit's goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed
fair value determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities
is the implied fair value of goodwill. An impairment loss is recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill.

To
fund production of its films, the Group obtains financing through bank borrowings, and a variety of arrangements with other investors which are described below.

Other borrowings

If the Group guarantees the third party provider of finance a fixed rate of return on the principal over a fixed term of period, the
cash received from these investors is classified on the balance sheet as other borrowings. The Group accrues interest expense on other borrowings using the fixed rate of return.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Film participation liabilities

For other financing, where the Group gives the third party provider of finance a fixed percentage of the film's worldwide net income,
or a fixed percentage of the film's worldwide net income with guarantee of minimum rate of return on the principal, the cash received from these investors is accounted for as film participation
liabilities, as the Group retains 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 worldwide net income, the Group records the participant's share of net income in film
participation expense based on an effective interest rate method on an individual film-by-film basis. The Group starts 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
the Group using the same estimates of revenue determined in using the individual-film-forecast method as discussed above under amortization of its own production costs. The
rate is then applied to the outstanding film participation liabilities balance specific to the film to determine the current period's film participation expense related to that film.

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 net income with guarantee of a minimum rate of return on the principal, if at any
point of time, the management determines that the accrued film participation financing liability is not sufficient to cover the guaranteed minimum rate, an additional liability will be accrued based
on the guaranteed minimum rate of return.

Film
participation liabilities that are expected to be paid in one year after the period end are classified as current liabilities. The remaining film participation liabilities are
classified as non-current liabilities.

The
Group recognizes film-related revenues from the arrangements described as follows:

Film Distribution revenues

The Group acquires film distribution rights as the principal or a participating distributor in mainland China and overseas from
film producers.

As
the principal distributor, the Group recognizes 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

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

office
sales, the remaining amount (the "Distributable Amount") is remitted to the Group which the Group accounts for as its distribution revenues.

The
Group then shares the Distributable Amount with the film producer pursuant to the terms of the distribution agreement under which the Group is typically entitled to a fixed
percentage of the Distributable Amount as its fees (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.

The
Group also generates 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.

The
Group also cooperates with other distributors to distribute films as a participating distributor but is not the primary obligor under the distribution arrangement and shares a fixed
percentage of the distribution fees received by the principal distributor as the Group's commissions pursuant to its arrangement with the principal distributor. The Group records these commissions as
its distribution revenues.

For
certain films the distribution rights of which are acquired by the Group, the Group sub-licenses 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 the Group, (iii) licensing fees are either fixed or determinable and (iv) collectability of the fee is reasonably assured.

Copyright and participation revenues

When the Group is not the principal distributor, but participates in the financing of film production in which the Group may also
acquire all, a portion or none of the legal copyright in relation to the film, and bears 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, it generates revenues from such film production participation as follows:



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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Talent agency revenues

The Group also acts as a talent agent for certain artists, where in certain cases the Group signs the service contract with the third
party and in other cases, the Group and the artist together sign the service contract with the third party.

Where
the Group signs the service contract with third parties and is the primary obligor, the Group reports the gross amount of the service as revenue. Where the Group and the artist
together sign the contract with a third party, the Group reports revenue at the total service amount net of the payment to the artist. For arrangements where the Group records the gross amount as its
revenue, cost of talent agency service primarily consists of compensation paid to artists.

Movie theater revenues

Revenues are recognized when admissions and concession sales are received at the box office. Other revenues primarily consist of screen
advertising. Screen advertising revenues are recognized over the period that the related advertising is delivered on-screen or in-theatre. The Group records proceeds from the
sale of prepaid membership cards and other prepaid certificates in deferred revenues and recognizes admissions revenue and concession revenue when the card or certificate is consumed. The Group
recognizes unredeemed prepaid certificates as revenue upon expiration of the membership cards or certificates.

From
2004 to 2013, Baichuan and Zhejiang Bona's share of movie theaters' box office revenues in the PRC are exempted from business tax. The Group's other PRC subsidiaries, VIEs and VIEs'
subsidiaries are subject to business taxes at the rate of 3.3%-5.5% on certain types of services and the related revenues are presented net of business taxes incurred. Business taxes
deducted in arriving net revenue for the years ended December 31, 2009, 2010 and 2011 totaled $349,172, $1,012,573 and $2,076,930, respectively.

In
addition, movie theater revenues is subject to mandatory contribution to film industry development fund levied at the rate of 5% on box office receipts and the related revenues are
presented net of mandatory contribution to film industry fund incurred. Film industry development fund deducted in arriving net revenue during 2009, 2010 and 2011 totaled nil, $533,209 and $1,230,836,
respectively.

F-22

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Current
income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are provided using the asset and liability method. Under this
method, deferred income taxes are recognized for tax credits and net operating losses available for carry-forwards and significant temporary differences. Deferred tax assets and liabilities are
classified as current or non-current based upon the classification of the related asset or liability in the financial statements or the expected timing of their reversal if they do not
relate to a specific asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of the
deferred tax assets will not be realized. Current income taxes are provided for in accordance with the laws and regulations applicable to the Group as enacted by the relevant tax authorities.

The
impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than not to be sustained upon
audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be
classified as a component of the provisions for income taxes. The Group did not recognize any income tax due to uncertain tax position or incur any interest and penalties related to potential
underpaid income tax expenses for the years ended December 31, 2009, 2010 or 2011, respectively.

Comprehensive
income includes net income and foreign currency translation adjustments. Comprehensive income is reported in the consolidated statement of equity and comprehensive income.

Effective
January 1, 2009, the Group adopted an authoritative pronouncement issued by the Financial Accounting Standards Board (the "FASB") regarding the noncontrolling
interest in consolidated financial statements. The pronouncement requires noncontrolling interest to be separately presented as a component of equity of the consolidated financial statements. The
presentation regarding noncontrolling interest was retroactively applied for all the presented period.

For
convertible instruments, a beneficial conversion feature is calculated at its intrinsic value (that is, the difference between the conversion price and the fair value of the ordinary
stock into which the instrument is converted into, multiplied by the number of shares into which the instrument is convertible) at the commitment date. A portion of the proceeds from issuance of the
convertible instruments, equal to the intrinsic value, is then allocated to additional paid-in capital.

For
convertible instruments that have a stated redemption date (such as debt and mandatorily redeemable preferred share), the discount resulting from recording a beneficial conversion
option is accreted from the date of issuance to the stated redemption date of the convertible instrument, regardless of when the earliest conversion date occurs. In circumstances in which the
instrument is

F-23

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

converted
prior to amortization of the full amount of the discount, the remaining unamortized discount at the date of conversion is immediately recognized as interest expense or as a dividend,
as appropriate.

The
functional currency of the Company is the United States dollar ("U.S. dollars"). The financial records of the Group's subsidiaries and VIEs located in the PRC and Hong
Kong are maintained in their local currencies, the Renminbi ("RMB"), and Hong Kong Dollar ("HK$"), respectively, which are also the functional currencies of these entities.

Monetary
assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance
sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the applicable rates of exchange prevailing when the transactions
occurred. Transaction gains and losses are recognized in the statements of operations.

The
Group's entities with functional currency of RMB and HK$ translate their operating results and financial position into the U.S. dollar, the Company's reporting currency.
Assets and liabilities are translated using the exchange rates in effect on the balance sheet date. Revenues, expenses, gains and losses are translated using the average rate for the year. Translation
adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income.

RMB
is not a freely convertible currency. The State Administration for Foreign Exchange, under the authority of the People's Bank of China, controls the conversion of RMB into foreign
currencies. The value of RMB is subject to changes in central government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange
Trading System market. The cash and cash equivalents, term deposits and restricted cash of the Group included aggregate amounts of $2,471,529 and $7,624,166, which were denominated in RMB, at
December 31, 2010 and 2011, respectively, representing 3% and 25% of the cash and cash equivalents, term deposits and restricted cash at December 31, 2010 and 2011, respectively.

Share-based
payment transactions with employees, such as share options are measured based on the grant date fair value of the equity instrument. The Group recognizes the compensation
costs net of an estimated forfeiture rate using the straight-line method, over the requisite service period of the award, which is generally the vesting period of the award. The estimate
of forfeitures will be adjusted over the requisite service period to the extent that actual forfeitures differ, or are expected to differ, from such estimates. Changes in estimated forfeitures will be
recognized through a cumulative catch-up adjustment in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.

F-24

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Share-based
payments issued to non-employees, such as advisors, are measured at fair value at the earlier of the commitment date or the date the service is completed and
recognized over the period the service is provided.

Financial
instruments that potentially expose the Group to concentrations of credit risk consist primarily of cash and accounts receivable. The Group places its cash and cash equivalents
and term deposits with financial institutions located in the PRC and Hong Kong.

The
Group conducts credit evaluations of its customers and generally does not require collateral or other security from them. The Group establishes an allowance for doubtful accounts
primarily based upon the age of the receivables and factors surrounding the credit risk of specific customers. Information relating to the Group's major customers is summarized in Note 25.

Basic
net income (loss) per ordinary share is computed by dividing net income (loss) attributable to ordinary shareholders of the Company by the weighted average number of ordinary
shares outstanding during the period.

Diluted
net income (loss) per ordinary share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into
ordinary shares.

The
Group had convertible redeemable preferred shares, warrants and share options, which could potentially dilute basic earnings per share. To calculate the number of shares for diluted
income per share, the effect of the convertible redeemable preferred shares is computed using the as if-converted method; the effect of the warrants and stock options is computed using the
treasury stock method.

Fair
value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When
determining the fair
value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and it
considers assumptions that market participants would use when pricing the asset or liability.

Authoritative
literature provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the
hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement
as follows:



F-25

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)



Financial
instruments include cash and cash equivalents, term deposit, restricted cash, accounts receivable, cost method investment, equity method investment, accounts payable, amounts
due from/to related parties, warrants, bank borrowings, other borrowings and film participation liabilities.

The
warrants are carried at fair value. The carrying values of cash and cash equivalents, term deposit, restricted cash, accounts receivable, accounts payable and amounts due from/to
related parties approximate their fair values due to short-term maturities. The fair value of bank borrowings, other borrowings and film participation liabilities approximates their
carrying value. Estimates of fair values of cost and equity method investments other than those subjected to other than temporary impairment are not readily available.

Business
combinations are recorded using the acquisition method of accounting. Acquisition costs are allocated to the assets and liabilities the Group acquired based on their fair values
with goodwill being the excess value over the net identifiable assets acquired.

The
assets acquired, the liabilities assumed, and any noncontrolling interest of the acquiree at the acquisition date, if any, are measured at their fair values as of that date. Goodwill
is recognized and measured as the excess of the total consideration transferred plus the fair value of any noncontrolling interests of the acquiree, if any, at the acquisition date over the fair
values of the identifiable net assets acquired.

Common
forms of the consideration made in acquisitions include cash and common equity instruments. Consideration transferred in a business acquisition is measured at the fair value as at
the date of acquisition. For shares issued in a business combination, the Company has estimated the fair value as of the date of acquisition.

Where
the consideration in an acquisition includes contingent consideration the payment of which depends on the achievement of certain specified conditions post-acquisition,
the contingent consideration is recognized and measured at its fair value at the acquisition date and if recorded as a liability it is subsequently carried at fair value with changes in fair value
reflected in earnings.

F-26

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
May 2011, the FASB issued an authoritative pronouncement on fair value measurement. The guidance is the result of joint efforts by the FASB and IASB to develop a single,
converged fair value framework. The guidance is largely consistent with existing fair value measurement principles in U.S. GAAP. The guidance expands the existing disclosure requirements for
fair value measurements and makes other amendments, mainly including:



The
guidance is to be applied prospectively and effectively for interim and annual periods beginning after December 15, 2011, for public entities. Early application by public
entities is not permitted. The Group does not expect the adoption of this pronouncement to have a significant impact on its consolidated financial statements.

F-27

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

In
June 2011, the FASB issued an authoritative pronouncement to allow an entity the option to present the total of comprehensive income, the components of net income, and the
components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to
present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive
income. The guidance eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders' equity. These amendments do not change the items
that must be reported in other comprehensive income or when an item of other comprehensive income must be
reclassified to net income. The guidance should be applied retrospectively. For public entities, the amendments are effective for fiscal years and interim periods within those years, beginning after
December 15, 2011. Early adoption is permitted. In December 2011, the FASB issued a further authoritative pronouncement, Deferral of the Effective Date for Amendments to the Presentation
of Reclassification of Items out of Accumulated Other Comprehensive Income. Under the amendments, entities are required to present reclassification adjustments and the effect of those reclassification
adjustments on the face of the financial statements where net income is presented, by component of net income, and on the face of the financial statements where other comprehensive income is
presented, by component of other comprehensive income. In addition, the amendments require that reclassification adjustments be presented in interim financial periods. The amendments supersede changes
to those paragraphs that pertain to how, when, and where reclassification adjustments are presented. The amendments in this Update are effective for public entities for fiscal years beginning
after December 15, 2011. The Group does not expect the adoption of these pronouncements to have a significant impact on its consolidated financial statements.

In
September 2011, the FASB has issued an authoritative pronouncement related to testing goodwill for impairment. The guidance is intended to simplify how entities, both public
and nonpublic, test goodwill for impairment. The pronouncement permits an entity to first assess qualitative factors to determine whether it is "more likely than not" that the fair value of a
reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The guidance is effective for annual
and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted. The Group has not early adopted this pronouncement and does not
expect the adoption of these pronouncements has a significant impact on its financial condition or results of operation.

F-28

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

3. ACQUISITION

On
April 23, 2010, the Group, through Bona Film and Culture, acquired Beijing Bona International Cineplex Investment & Management Co., Ltd. ("Beijing Bona
Cineplex"), a PRC based company which holds three subsidiaries and focuses on cineplex business in the PRC. Beijing Bona Cineplex holds 60% of the equity of one of the subsidiaries, Shanghai Bona
Yinxing Cinema Development Co., Ltd., and 100% of the equity of the other two subsidiaries. At the same time, the Group acquired Beijing Bona Youtang Cineplex
Management Co., Ltd. ("Bona Youtang"), which also focuses on cineplex business in the PRC. Both Beijing Bona Cineplex and Bona Youtang were owned by Skillgreat Limited, which is 100%
owned by the Group's primary shareholder, Mr. Dong Yu. The total consideration comprised of 5,810,320 ordinary shares of the Company with a fair value of $4.50 per share issued to
Skillgreat Limited and cash of $5,337,243 which was settled as an offset against the amount that the Company was owed by Mr. Dong Yu. The acquisition-related transaction costs of $20,000 were
expensed as general and administrative expenses when incurred.

The
fair value of the Company's ordinary shares as of the date of acquisition was estimated by management with the assistance of American Appraisal China Limited, an independent valuer.
The discounted cash flow method of the income approach was used to assess the fair value of the Company's ordinary shares as of the date of acquisition. The determination of the fair value of the
Company's ordinary shares requires complex and subjective judgments to be made regarding the Company's projected financial and operating results, unique business risks, the liquidity of the ordinary
shares, and operating history and prospects at the time of valuation.

The
major assumptions used in calculating the fair value of ordinary shares as of the date of acquisition of $4.50 per ordinary share included:

Weighted average cost of capital, or WACC


22
%Discount for lack of marketability, or DLOM


16
%


The income approach involves applying appropriate discount rates to estimated cash flows that are based on earnings forecasts. The assumptions
used in deriving the fair values are consistent with the Company's business plan. These assumptions include: no material changes in the existing political, legal and economic conditions in China; the
Company's ability to retain competent management, key personnel and staff to support its ongoing operations; and no material deviation in market conditions from economic forecasts. These assumptions
are inherently uncertain. The risk associated with achieving the Company's forecasts were assessed in selecting the appropriate discount rates.

The
acquisitions were completed in April 2010 and the results of Beijing Bona Cineplex and Bona Youtang have been included in the Group's consolidated financial statements since
the acquisition date. A net revenue of $11,333,193 and a net income of $388,985 generated by the acquired movie theaters after the acquisition date were included in the Group's consolidated financial
statements for the year ended December 31, 2010.

F-29

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

3. ACQUISITION (Continued)

The
Group has accounted for these transactions as an acquisition and not as a reorganization of entities under common control. Pursuant to the Company's 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 the Company's 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 the Company's 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 the Company's 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, indemnity or security for or in connection
with any indebtedness of liabilities of any director or shareholder of any of the Company's 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 the Company's
business and prevent the majority ordinary shareholder, Mr. Yu, from exercising control over the Company's operating and financial policy decisions. As a consequence, Mr. Dong Yu lost
control of the Company upon the issuance of Series A preferred shares in July 2007.

Total purchase price:Cash consideration


5,337,243Fair value of shares issued


26,123,19431,460,437




Estimated
useful lifeCash and cash equivalents


1,483,252Inventory


93,832Current liabilities


(10,661,554
)Property and equipment, net


12,714,8666 movie theater licenses


1,911,290

IndefiniteMembership


58,651

1.8 yearsFavorable lease


557,185

2 yearsNon-current deferred tax liability


(153,959
)Total net assets acquired


6,003,563Noncontrolling interests


(2,071,408
)Goodwill


27,528,282


F-30

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

3. ACQUISITION (Continued)

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



The
goodwill is mainly attributable to intangible assets that cannot be recognized separately as identifiable assets under U.S. GAAP, and comprise (a) group of customers
(most movie theater customers are walk-in) that are not known or identifiable to Beijing Bona Cineplex and Bona Youtang;

F-31

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

3. ACQUISITION (Continued)

(b) presence
in geographic market and locations. The acquired goodwill is not deductible for tax purposes.

On
July 28, 2010, to further expand the Group's talent agency business the Group through Bona Film and Culture acquired the remaining 60% equity interest of Beijing Bona Yinglong
Culture Agency Company Ltd. ("Bona Yinglong", has been renamed to Beijing Bona Xingyi Culture Agency Company Ltd.) with a total cash consideration of $442,804 (equivalent to
RMB3 million). After the acquisition, it became a 100% consolidated VIE's subsidiary of the Group. A net revenue of nil and a net loss of $1,242 generated by Bona Yinglong after the acquisition
date were included in the Group's consolidated financial statements for the year ended December 31, 2010.

The
purchase price allocation of the transaction was determined by the Group, and the following table summarizes the fair values of the assets acquired and liabilities assumed at the
date of acquisition.

Total purchase price:Cash consideration


442,804Fair value of investment in Yinglong


203,130645,934Cash and cash equivalents


738,014Other receivable


6,839Current liabilities


(230,309
)Total net assets acquired


514,544Goodwill


131,390


On
November 22, 2010, the Group acquired the remaining 10% equity interest in Baichuan with a total cash consideration of $762,098 (equivalent to RMB 5,061,400) which resulted in
an increase of $683,434 in additional paid-in capital and after the acquisition, it became a 100% consolidated VIE of the Group.

On
July 1, 2011, the Group, through the Company and Beijing Bona Cineplex, acquired Alpha Speed Limited, a BVI company and Bona Starlight, a PRC company which holds five
subsidiaries and focuses on cineplex business in the PRC with a total cash consideration of $30,938,201, of which $3,064,993 was settled as an offset against the amount that the Group was owed by
Mr. Dong Yu and $2,383,260 was not paid yet as of December 31, 2011. Prior to the acquisition, Alpha Speed Limited was 51% owned by Skill Great Limited, which is 100% owned by the
Group's primary shareholder, Mr. Dong Yu, and Bona Startlight was also 51% owned by the Group's primary shareholder, Mr. Dong

F-32

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

3. ACQUISITION (Continued)

Yu.
After the acquisition, The Group holds 100% of the equity interest of Alpha Speed Limited and Bona Starlight, which holds 51% of the equity of one of the subsidiaries, Mangguo Cinema, and 100% of
the equity of the other four subsidiaries.

The
Group has accounted for these transactions as a business acquisition. A net revenue of $5,207,607 and a net loss of $2,286,838 generated by the acquired movie theaters after the
acquisition date were included in the Group's consolidated financial statements for the year ended December 31, 2011.

The
following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:

Total purchase price:Cash consideration


30,938,201




Estimated
useful lifeCash and cash equivalents


1,379,343Net current liabilities


(7,912,067
)Construction in Progress


1,831,707Property and equipment, net


16,758,4004 movie theater licenses


417,666

IndefiniteFavorable lease


1,902,699

1-4.5 yearsNon-current deferred tax liability


(475,675
)Total net assets acquired


13,902,073Noncontrolling interests


(1,160,492
)Goodwill


18,196,620


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



F-33

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

3. ACQUISITION (Continued)



The
goodwill is mainly attributable to intangible assets that cannot be recognized separately as identifiable assets under U.S. GAAP, and comprise (a) group of customers
(most movie theater customers are walk-in) that are not known or identifiable to Bona Starlight; (b) presence in geographic market and locations. The acquired goodwill is not
deductible for tax purposes.

The
following pro forma consolidated financial information reflects the results of operations for the years ended December 31, 2010 and 2011 as if the acquisitions of
Beijing Bona Cineplex and Alpha Speed Limited & Bona Starlight had occurred on January 1, 2010. The following pro forma financial information has been prepared for comparative
purpose only and is not necessarily indicative of the results that would have been had the acquisitions been completed at the beginning of the periods presented, nor is it indicative of future
operating results:

For the year ended
December 31,2010

2011(Unaudited)

(Unaudited)Pro forma net revenue


56,530,358


128,145,040Pro forma net income (loss)


(6,115,273
)

12,019,253


F-34

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

4. ACCOUNTS RECEIVABLES

Net accounts receivable consists of the following as of December 31, 2010 and 2011:

December 31,2010

2011Accounts receivable


15,248,519


42,340,033Allowance for doubtful accountsBeginning balance as of January 1


21,968


22,727Reversal of allowance against profit and loss


(21,968
)

Additional allowance during the year


22,727


673,414Exchange effect





1,105Less: ending balance of allowance for doubtful accounts


22,727


697,246Accounts receivable, net


15,225,792


41,642,787


As the Group generally does not have credit risk in movie theaters box office sales, allowance for doubtful accounts primarily relates to accounts
receivable from film licensing revenues, advertising and talent agency services.

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following at:

December 31,2010

2011Amounts due from third parties


8,261,813


5,690,605Prepaid film costs on behalf of other investors





6,370,486Prepaid film costs


484,848


1,319,074Promotion and print costs paid on behalf of film producers


2,216,551


2,264,984Loan and interest receivable from producers of TV series


1,969,697


1,811,278Interests receivable





171,861Prepaid advertising expenses


964,591


1,122,180Rental deposits and prepaid rental expenses


891,583


2,667,121Deposit for acquisition


303,030


317,768Prepayment for an investment





1,200,000Advances to employees


237,262


849,191Deposits paid for acquisition of property and equipment





2,478,320Prepaid sales tax





447,514Other prepaid expenses


330,040


624,966Total


15,659,415


27,335,348


Amounts
due from a third party represent receivables from third parties for working capitals and expenses the Group paid on behalf of an independent third party. Prepaid film cost
represents amounts

F-35

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS (Continued)

paid
to secure the service of individuals to be the directors or actors or actresses of films over the next year. The prepaid film cost will be included in the production cost and amortized on a
film-by-film basis upon the completion of related films. The one-year loans and interest receivables from producers of TV series represent the Group's investment in
TV series, which currently has a fixed rate of return. The deposit for acquisition is the deposit paid in November 2010 for acquiring the remaining 10% equity interest in Baichuan from Poly
Film Investment Co. Ltd and will be returned in 2012.

6. DISTRIBUTION RIGHTS

2010

2011Released:Beginning balance as of January 1


1,095,324


850,155Addition


2,959,996


1,744,977Amortization


(3,233,192
)

(2,331,266
)Exchange difference


28,027


27,177Ending balance as December 31


850,155


291,043In production and not released


1,415,446


3,372,923Total


2,265,601


3,663,966


In
the year 2011, based on the economic performance and public acceptance of the films, the management decreased the estimate of the ultimate oversea revenue expected to be realized for
three films, as a result, the Group incurred additional amortization of $514,227 for the year ended December 31, 2011. The portion of the costs of the completed films that are expected to be
amortized during the twelve months after December 31, 2011 is $266,819, and the Group expects to amortize 100% of such costs within three years from December 31, 2011.

F-36

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

7. PRODUCTION COSTS

2010

2011Beginning balance for completed films as of January 1


9,662,234


7,714,809Addition


14,347,688


57,705,841Amortization


(16,502,364
)

(37,116,065
)Exchange difference


207,251


521,054Subtotal for completed films


7,714,809


28,825,639Beginning balance for films in production and not released as of January 1


9,866,326


57,101,069Addition


61,375,450


40,236,802Transfer to completed films


(14,347,688
)

(57,705,841
)Exchange difference


206,981


1,387,153Subtotal for films in production and not released


57,101,069


41,019,183Ending balance as December 31


64,815,878


69,844,822


In
the year 2011, based on the economic performance and public acceptance of the films, the management decreased the estimate of the ultimate oversea revenue expected to be realized for
three films and a TV series. As a result, the Group incurred additional amortization of $1,602,701 for the year ended December 31, 2011. The portion of the costs of the completed films that are
expected to be amortized during the twelve months after December 31, 2011 is $16,961,177, and the Group expects to amortize 81% of such costs within three years from
December 31, 2011.

8. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consists of the following at:

December 31,2010

2011Film projection equipment


5,778,810


14,326,138Furniture and office equipment


561,942


1,153,175Transportation equipment


545,443


670,068Leasehold improvements


10,202,639


26,015,89517,088,834


42,165,276Less: accumulated depreciation


(2,590,530
)

(5,113,981
)14,498,304


37,051,295Construction in progress





3,157,152Property and equipment, net


14,498,304


40,208,447


Depreciation
expense for the years ended December 31, 2009, 2010 and 2011 was $143,001, $840,677 and $2,032,836, respectively.

F-37

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

9. COST METHOD INVESTMENT

In April 2008, the Group invested $28,565 for 16.67% of equity interest in Wuhan Lianzhong Digital Film Technology Co., Ltd. ("Wuhan Lianzhong"), a company
established in the PRC that is mainly engaged in digital film production and distribution. In October 2011, the Group invested $62,909 for 10% of equity interest in Zhongda Helian Marketing
Consulting Co., Ltd. ("Zhongda Helian"), a company established in the PRC that is mainly engaged in economic and trade advisory. The investments are accounted for using the cost method
of accounting as the Group has no significant influence over the operation of Wuhan Lianzhong and Zhongda Helian. There was no gain or loss on the cost method investment recognized for the years ended
December 31, 2009, 2010 and 2011.

10. INVESTMENT IN EQUITY AFFILIATES

The Group's equity method investee includes:

Investee

Amount
invested

Legal
ownership

Date
invested

BusinessWisdom Sea Group Limited (BVI)(1)

$
4


40%


January 2008

Shell companyBeijing Bona Yinglong Culture Agency Company Limited ("Bona Yinglong")(2)

$
289,737


40%


June 2008

Artist agencyBeijing Bona Meitao Culture and Media Company Limited ("Bona Meitao")(3)

$
573,235


51%


June 2008

Artist agency, film and television and television content production


(1)Wisdom
Sea Group Limited was dissolved in July 2010.(2)In
July 2010, Bona Film and Culture acquired the remaining 60% equity shares of Bona Yinglong with consideration of $440,736 (equivalent to
RMB3 million). As a result, Bona Yinglong became a subsidiary of the Group, and is consolidated in the consolidated financial statements starting from the year ended December 31, 2010.
The fair value of the investment in 40% equity interest as of the acquisition date of the remaining 60% equity interest approximated its carry amount, and therefore, no remeasurement gains or losses
were recognized in earnings.(3)As
51% shareholder, the Group is entitled to nominate three out of five board members of Bona Meitao. However any significant board resolutions related to
operating and financing activities of Bona Meitao need two-third board members' approval. The Group concludes it does not have control over Bona Meitao, and has accounted for this
investment on the equity basis.


F-38

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

10. INVESTMENT IN EQUITY AFFILIATES (Continued)

The Group's share of the equity method investees' profit or loss and distributions in 2010 and 2011 are as below:

Bona Yinglong

Bona MeitaoBalance as of January 1, 2010


198,466


364,584Share of (loss) profit for the year ended
December 31, 2010


(21
)

11,275Distribution





(156,611
)Exchange difference


4,685


12,606Elimination of equity investment due to the acquisition of remaining 60% interest


(203,130
)

Balance as of December 31, 2010





231,854Share of profit for the year ended
December 31, 2011





3,062Distribution





(185,712
)Exchange difference





6,136Balance as of December 31, 2011





55,340


11. ACQUIRED INTANGIBLE ASSETS, NET

The Group's acquired intangible assets were generated from the acquisition of 100% equity interest in Beijing Bona Cineplex on April 23, 2010 and Alpha Speed Limited and Bona
Starlight on July 1, 2011 (Note 3). Acquired intangible assets, net consist of the following:

December 31,2010

2011Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

Gross
carrying
amount

Accumulated
amortization

Exchange
difference

Net
carrying
amountAcquired intangible assets with definite livesMembership


58,651


(24,438
)

34,213


58,651


(57,022
)




1,629Favorable lease


557,185


(208,944
)

348,241


2,459,884


(855,482
)

46,844


1,651,246Total intangible assets definite lives


615,836


(233,382
)

382,454


2,518,535


(912,504
)

46,844


1,652,875Acquired intangible assets with indefinite livesMovie theater licenses


1,911,290





1,911,290


2,328,956





11,321


2,340,277Total


2,527,126


(233,382
)

2,293,744


4,847,491


(912,504
)

58,165


3,993,152


The amortization expenses for the years ended December 31, 2009, 2010 and 2011 were nil, $233,382 and $679,122, respectively. The Group
expects to record amortization expenses of $816,628, $745,351 and $90,896 for the years ended December 31, 2012, 2013 and 2014, respectively.

F-39

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

12. GOODWILL

The Group's goodwill was generated from the acquisition of 100% equity interest in Bona Entertainment on July 1, 2008, the acquisition of 100% equity interest in Beijing Bona
Cineplex on April 23, 2010, the acquisition of the remaining 60% equity interest of Bona Yinglong on July 28, 2010 and the acquisition of 100% equity interest in Alpha Speed Limited and
Bona Starlight on July 1, 2011.

Changes
in the carrying amount of goodwill by reporting units, which are the same as reportable segments, for the year ended December 31, 2011 were as follows:

Film
distribution

Film
production

Talent
agency

Movie
theaters

TotalGross balance as of January 1, 2010





34,880








34,880Goodwill acquired during the year








131,390


27,528,282


27,659,672Exchange difference due to translation





(115
)

3,483


838,490


841,858Gross goodwill carrying amount





34,765


134,873


28,366,772


28,536,410Less: accumulated impairment of goodwill














Net goodwill carrying amount at December 31, 2010





34,765


134,873


28,366,772


28,536,410Gross balance as of December 31, 2010





34,765


134,873


28,366,772


28,536,410Goodwill acquired during the period











18,196,620


18,196,620Exchange difference due to translation





66


6,560


1,872,831


1,879,457Gross goodwill carrying amount





34,831


141,433


48,436,223


48,612,487Less: accumulated impairment of goodwill














Net goodwill carrying amount at December 31, 2011





34,831


141,433


48,436,223


48,612,487


The
Group performed its annual goodwill impairment tests on December 31 of each year and has not recorded any impairment loss of goodwill.

F-40

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

13. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following at:

December 31,2010

2011Advance from third parties


7,320,415


79,442Advance from customers


5,814,694


16,369,726Other account payable to third parties


1,058,649


571,292Payables for rental expenses


2,014,875


4,348,253Business taxes and other tax payable


1,172,379


1,457,394Accrued payroll, welfare and other social expenses


528,448


1,198,252Accrued professional fee


1,667,606


832,368Payables for acquisition of Alpha Speed Limited and Bona Starlight





2,383,260Total


19,577,066


27,239,987


Advance
from third parties represents amounts payable to third parties for working capital. Advance from customers represents upfront payments received from customers for licensing fees.
Other account payable to third parties primarily represents payables for film developing, printing, and advertising fees. Payables for rental expenses represent rental expense payable for cinemas.
Accrued welfare and other social expenses were for the payments of miscellaneous welfare expense, pension, and other social
insurance to employees of the Group. Accrued professional fee represent amounts payable to auditors and lawyers for professional services primarily.

14. BANK BORROWING

In May 2009, the Group borrowed two bank loans with principals totaling $6,590,317 (equivalent of RMB45 million) from a PRC commercial bank on the condition that the loans
would be invested in two specific films. The loans were repaid in 2010. The annual interest rate was 5.94% for the first 12 months, and then was adjusted to 110% of the annual interest rate
published by People's Bank of China in May 2010. The two loans were personally guaranteed by the Company's principal shareholder, Mr. Dong Yu and his wife. The Group also pledged
copyright to three films, including Bodyguards and Assassins, The Road Less Travelled and Overheard, as collateral.

In
March 2010, the Group borrowed a bank loan with a principal of $544,758 (equivalent of RMB3.7 million) from a PRC commercial bank. The loan was repaid in
March 2011. The annual interest rate is 6.37%. Mr. Dong Yu pledged his personal property for this loan.

During
May to December 2010, the Group borrowed bank loans with a total principal of $22,303,808 (equivalent of RMB151.3 million) from two PRC commercial banks on the
condition that the loans would be invested in six specific films. These loans were fully repaid in 2011. The annual interest rate is from 5.94% to 6.97% and from 5.94% to 7.27% for the year ended
December 31, 2010 and 2011, respectively. The loans were repaid on a first priority basis with the box office receipts from such films and personally guaranteed by the Company's principal
shareholder, Mr. Dong Yu.

F-41

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

14. BANK BORROWING (Continued)

During
January to February 2011, the Group borrowed bank loans with a total principal of $2,584,254 (equivalent of RMB17 million) from a PRC commercial bank on the
condition that the loans would be invested in a film. These loans are to be repaid by February 11, 2012. The annual interest rate is from 6.97% to 7.87%. The loans are repaid on a first
priority basis with the box office receipts from such film and personally guaranteed by the Company's principal shareholder, Mr. Dong Yu.

In
May 2011, the Group borrowed a bank loan with a principal of $3,077,586 (equivalent of RMB20 million) from a PRC commercial bank on the condition that the loan would be
used for building cineplex. The loan is to be repaid by May 22, 2012. The annual interest rate is from 6.31% to 6.56%. The loan is guaranteed by the Bona Culture and $4 million of the
Company's term deposit.

In
August 2011, the Group borrowed a bank loan with a principal of $4,676,175 (equivalent of RMB30 million) from a PRC commercial bank on the condition that the loan would
be invested in a film. $31,454 (equivalent of RMB0.2 million) of the loan was repaid in December 2011, and the rest is to be repaid from April 12, 2012 to June 1, 2013. The
annual interest rate is 7.32%. The loan is repaid on a first priority basis with the box office receipts from such film and guaranteed by the Company's principal shareholder, Mr. Dong Yu, and
Zhejiang Bona.

In
December 2011, the Group borrowed a bank loan with a principal of $1,887,267 (equivalent of RMB12 million) from a PRC commercial bank on the condition that the loan
would be invested in a TV series. The loan is to be repaid by December 27, 2012. The annual interest rate is 7.87%. The loan is guaranteed by the Company's principal shareholder,
Mr. Dong Yu, Zhejiang Bona and Beijing Bona Cineplex.

During
March to September 2011, the Group borrowed bank loans with a total principal of $77,152 (equivalent of RMB0.5 million) from PRC commercial banks on the condition
that the loans would be used for daily operation. These loans were all repaid by October 11, 2011. The annual interest rate is from 6.44% to 6.71%.

Changes
in the balances of bank borrowings for the years ended December 31, 2010 and 2011 are as follows.

2010

2011Beginning balances as of January 1


6,590,317


22,012,560Additional bank borrowings


22,303,808


12,302,434Bank borrowing acquired upon acquisition of movie theaters


544,758


Accrued interest


592,349


1,376,547Payments of principal during the year


(8,113,214
)

(22,566,691
)Payments of interest during the year


(550,577
)

(1,379,854
)Exchange difference


645,119


816,810Ending balances as of December 31


22,012,560


12,561,806


Interest
expenses accrued for loans were $164,157, $592,349 and $1,376,547 for years ended December 31, 2009, 2010 and 2011, respectively, in which $145,792, $403,795 and
$1,081,178 were capitalized to production costs as of December 31, 2009, 2010 and 2011, respectively.

F-42

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

15. OTHER BORROWINGS

In June 2010, the Company entered into a film financing agreement with a third party investor. Under the agreement, the investor invested $1,175,295 (equivalent of
RMB8 million) and the Company guaranteed a return of 10% on the investment. The Group accrued an interest of $54,298 and $57,676 on this borrowing for the year ended December 31, 2010
and 2011, respectively using the effective interest rate of 10%. The loan and related interest was fully repaid in June 2011.

In
December 2010, the Group entered into a film financing agreement with a third party investor. Under the agreement, the investor paid $167,504 (equivalent of RMB1,115,075) to
invest in production of a film and the investor will share the awards bonus related to the film with the Company as the investment return. There is no interest on this borrowing in 2011.

The
Company also entered into two similar agreements with other investors in October 2011. Under the agreements, the investors paid a total amount of $1,572,723 (equivalent of
RMB10 million) to invest in production of a TV series. The Group guaranteed to pay the investor principal and accumulated interest of $1,866,887 (equivalent of RMB11.75 million) no later
than October 2012. The Group accrued interest of $64,984 on this borrowing in 2011 using the effective interest rate from 15% to 20%.

Changes
in the balances of other borrowings for the years ended December 31, 2010 and 2011 are as follows.

2010

2011Beginning balance as of January 1


6,089,373


1,445,150Received from investors


1,342,799


1,572,723Accrued interest


271,654


122,660Payments of principal made during the year


(5,942,595
)

(1,231,034
)Payments of interest made during the year


(448,670
)

(123,103
)Exchange difference


132,589


45,262Ending balances as of December 31


1,445,150


1,831,658


Interest
expenses accrued for the other borrowing were $231,314, $271,654 and $122,660 for years ended December 31, 2009, 2010 and 2011, respectively, in which $207,333, and
$50,740 and $64,984 were capitalized to production costs as of December 31, 2009, 2010 and 2011, respectively.

16. FILM PARTICIPATION FINANCING LIABILITIES

In the film production financing arrangements, the initial participation amounts provided by the third party investor for a fixed percentage of the film's worldwide net income of the
invested film for 10 years from the initial exhibition of the film in the mainland China, and the amounts are reflected as a film participation liability. A film's worldwide net income is
defined as the film's distribution revenue, less promotion and print costs, and distribution fees. The difference between the ultimate film participation expenses expected to be paid to participants
and the amount provided by participants is

F-43

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

16. FILM PARTICIPATION FINANCING LIABILITIES (Continued)

amortized
as a charge to or a reduction of film participation expense under the individual film-forecast-method.

The
table below summarizes the movement of film participation liabilities:

2010

2011Beginning balance as of January 1


9,899,787


16,516,169Received from participants


10,772,250


3,998,964Film participation expenses


696,101


321,100Payments made during the year


(4,545,543
)

(5,093,722
)Gain on extinguishment of liability(1)


(488,799
)

Withholding tax





(118,721
)Exchange difference


182,373


600,429Ending balances as of December 31


16,516,169


16,224,219


(1)The
participation agreement with one of the investors of film Bodyguards and Assassins was terminated in March 2010. As a result of a renegotiation,
the Group only needs to repay the principal of $2,709,508 (equivalent RMB18.4 million) in September 2010, and the accrued interest expenses were waived. This was accounted for as an
extinguishment of debt and resulted in a gain of US$488,799 for the year ended December 31, 2010.


Film
participation expenses accrued for the years ended December 31, 2009, 2010 and 2011 were $1,244,482, $696,101 and $321,100, respectively.

Payments
made during the year ended December 31, 2010 include film participation expenses of $190,782 and principal of $4,354,761 and payments made during the year ended
December 31, 2011 include film participation expenses of $244,399 and principal of $4,849,323. The Group expects to pay $16,224,219 of the film participation financing liabilities during the
twelve months after December 31, 2011.

F-44

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

17. INCOME TAXES

The current and deferred components of income tax expenses (benefits) are as follows:

For the years ended December 31,2009

2010

2011Income taxes expenses/(benefits):CurrentPRC


330,302


64,453


462,022Hong Kong


9,305


91,966


99,884DeferredPRC


(960
)

(65,366
)

(88,364
)338,647


91,053


473,542


Cayman Islands

The Company is a tax-exempt entity incorporated in the Cayman Islands.

British Virgin Islands

Under the current BVI law, income from Bona International is not subject to taxation.

Hong Kong

Hong Kong adopts a territorial source principle of taxation. Only profits sourced in Hong Kong are taxable and those sourced elsewhere
are not subject to Hong Kong Profits Tax. Provision of $9,305, $91,966 and $99,884 for Hong Kong Profits Tax were made for the years ended December 31, 2009, 2010 and 2011 at the Hong Kong
profit tax rate of 16.5%, respectively.

PRC

The EIT Law applies a uniform 25% enterprise income tax rate to both foreign invested enterprises and domestic enterprises. The EIT
rate for the Group's entities operating in the PRC was 25% with the following exceptions.

Bona
Advertising was subject to income tax at a special concession. The taxable income is deemed to be 6% of its revenues, for the year of 2009 as approved by the relevant local
tax authority.

Zhejiang
Bona was established in Zhejiang in December 2008 as a cultural enterprise and it was exempted from income tax for the years of 2009, 2010 and 2011 pursuant to an
approval by the relevant local tax authority in June 2009.

F-45

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

17. INCOME TAXES (Continued)

The
principle components of the Group's deferred income tax assets and liabilities are as follows:

December 31,2010

2011Deferred tax assetsAllowance for doubtful accounts


5,682


218,016Accrued Payroll


31,903


105,718Less: valuation allowance


(29,700
)

(308,037
)Total current deferred tax assets


7,885


15,697Property and equipment


88,826


31,560ADR reimbursement





317,003Net operating loss carry forwards


728,300


2,373,502Less: valuation allowance


(810,394
)

(2,401,395
)Total non-current deferred tax assets


6,732


320,670Deferred tax liabilitiesAcquired intangible assets


95,613


413,219Total non-current deferred tax liabilities


95,613


413,219


The
Group had net operating losses of $3,296,556 and $10,497,931 from the Group's PRC and Hong Kong entities as of December 31, 2010 and 2011, respectively. The net operating loss
carry forwards generated by a particular entity in the Group cannot be transferred or utilized by other entities within the Group. As of December 31, 2010 and 2011, valuation allowance was
$728,300 and $2,373,502, respectively, which were provided against deferred tax assets arising from net operating losses of certain PRC and Hong Kong entities due to the uncertainty
of realization.

The
net operating loss carry forwards for the Group's PRC entities as of December 31, 2011 will expire on various dates through 2016. The net operating loss generated by
the Group's Hong Kong entities as of December 31, 2011 will be carried forward permanently.

F-46

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

17. INCOME TAXES (Continued)

A
reconciliation between the provision for income tax computed by applying statutory PRC enterprise income tax rate of 25%, and the actual provision of income taxes is as follows:

For the years ended December 31,2009

2010

2011Net income (loss) before income tax provision


5,625,539


(4,143,261
)

15,042,856Statutory tax rate in the PRC


25
%

25
%

25
%Income tax expense (benefit) at statutory tax rate in the PRC


1,406,385


(1,035,815
)

3,760,714Non-deductible expenses


224,644


4,023,013


(296,707
)Effect of tax holidays and concessions


(1,327,546
)

(3,245,281
)

(5,113,717
)Effect of income tax rate difference in other jurisdictions


59,506


169,024


1,298,988Changes in valuation allowance


(24,342
)

180,112


824,264Income tax expenses


338,647


91,053


473,542


If
the tax holidays and concessions primarily including tax exemption and preferential tax rates granted to Bona Advertising and Zhejiang Bona were not available, changes in provisions
for income taxes and net income per share would have been as follows:

For the years ended December 31,2009

2010

2011Changes in income tax expenses


1,327,546


3,245,281


5,113,717Decrease in net income per ordinary sharebasic


0.11


0.25


0.17Decrease in net income per ordinary sharediluted


0.11


0.25


0.17


There
are no ongoing examinations by taxing authorities at this time. Tax years of each of the Group's PRC entities from 2006 through 2011 remain subject to review and potential recourse
by the PRC tax authorities.

The
Group did not identify significant unrecognized tax benefits for the years ended December 31, 2009, 2010 and 2011. The Group did not incur any interest and penalties related
to potential underpaid income tax expenses and also does not anticipate any significant change in unrecognized tax benefits within 12 months from December 31, 2011.

Uncertainties
exist with respect to how the current income tax law in the PRC applies to the Group's overall operations, and more specifically, with regard to tax residency
status. The EIT Law includes a provision specifying that legal entities organized outside of the PRC will be considered residents for Chinese Income tax purposes if the place of effective management
or control is within the PRC. The implementation rules to the New EIT Law provide that non-resident legal entities will be

F-47

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

17. INCOME TAXES (Continued)

considered
PRC residents if substantial and overall management and control over the manufacturing and business operations, personnel, accounting and properties occurs within the PRC. On
April 22, 2009, the State Administration of Taxation (the "SAT") issued the Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident
Enterprises on the Basis of De Facto Management Bodies, or Circular 82, which provides certain specific criteria for determining whether the "de facto management body" of a Chinese-controlled
offshore-incorporated enterprise is located in China. In addition, on August 3, 2011, the SAT issued a bulletin to made clarification in the areas of resident status determination,
post-determination administration, as well as competent tax authorities. The Group does not believe that the legal entities organized outside of the PRC within the Group should be
treated as residents for EIT law purposes. However, if the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed resident
enterprises, the Company and its subsidiaries registered outside the PRC will be subject to the PRC income taxes, at a rate of 25%.

If
any entity within the Group that is outside the PRC were to be a non-resident for PRC tax purposes dividends paid to it out of profits earned after
January 1, 2008 would be subject to a withholding tax at a rate of 10%, subject to reduction by an applicable tax treaty with the PRC. Since the Group's subsidiary located in the
PRC had aggregate accumulated losses of $233,712 and $427,624 as of December 31, 2010 and 2011, respectively, no provision has been made for the Chinese dividend withholding taxes. In the
future, any aggregated undistributed earnings generated by the Company's subsidiary and VIEs located in the PRC that are available for distribution to the Company will be considered to be indefinitely
reinvested, and accordingly, no provision would be made for the Chinese dividend withholding taxes that would be payable upon the distribution of those amounts to the Company. The Chinese tax
authorities have also clarified that distributions made out of pre January 1, 2008 retained earnings will not be subject to the withholding tax.

Zhejiang
Bona, as a cultural enterprise, was exempted from income tax for the year of 2011 as approved by a local tax authority in June 2009. However, according to a notice issued by the
State Administration of Taxation, the tax exemptions for cultural enterprises were terminated on December 31, 2010. The Group has confirmed with the local tax authority that the tax exemption
approval obtained from them is legally valid and therefore the Group believes this tax exemption benefit is more likely than not to be sustained upon examination and did not recognize any tax expense
for Zhejiang Bona for 2011.

F-48

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

18. CONVERTIBLE REDEEMABLE PREFERRED SHARES

In July 2007, the Holders of the Convertible Notes converted $3,000,000 in principal and $21,499 in accrued interest into 1,171,875 shares of Series A convertible
redeemable preferred shares ("Series A preferred shares "). The Company also issued 1,953,125 shares of Series A preferred shares at $2.56 per share to the Holders for $5,000,000
of cash before issuance costs of $112,845.

In
July 2009, the Company issued a total of 2,897,897 Series B convertible redeemable preferred shares ("Series B preferred shares "), in which
1,241,958 shares of Series B-1 preferred shares at the price of $2.82 per share for a cash consideration of $3,500,000, and 1,655,939 shares of
Series B-2 preferred shares at the price of $3.62 per share for a cash consideration of $6,000,000, respectively. The issuance cost was $546,316.

In
July 2010, the Company issued a total of 792,680 Series B-3 convertible redeemable preferred shares ("Series B-3 preferred shares")
at the price of $6.31 per share for a total cash consideration of $5,000,000.

In
December 2010, upon the completion of the Company's IPO, Each Series A convertible redeemable preferred shares had been automatically converted into
1.8421 ordinary shares and each Series B convertible redeemable preferred shares had been automatically converted into one ordinary share.

The
significant terms of the Series A and B preferred shares during the periods when they were outstanding are summarized as follows:

Voting rights

The Series A and B preferred shares voted together with the ordinary shares on an as-converted basis, and not
as a separate class.

Dividends

No dividend could be paid on ordinary shares at a rate greater than the rate at which dividends were paid on Series A
and B preferred shares. Series A and B preferred shares were participating securities.

Liquidation preference

In the event of any liquidation, dissolution or winding up of the Company, Series B preferred shareholders had preference to
Series A preferred shareholders. Out of the proceeds, Series B preferred shareholders would first receive an amount equal to 150% of Series B original issue price and all
declared but unpaid dividends, then Series A preferred shareholders would receive an amount equal to 150% of Series A original issue price and all declared but unpaid dividends. The
remaining balance of any proceeds would be distributed ratably among the holders of the ordinary shares and the holders of the Series A and B preferred shares (on an
as-converted basis).

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

18. CONVERTIBLE REDEEMABLE PREFERRED SHARES (Continued)

Conversion



Redemption rights

At any time on or after 48 months from July 2007 ("Maturity Date") or 48 months from the Series B original
issue date in the case of Series B preferred shares, and in the event that a Qualified IPO had not occurred prior to such date, the Series A or B preferred shares holders had the
right to request the Company to redeem all of the Series A or B preferred shares for an aggregate consideration, equal to the higher of: (i) 140% of the issuance price, plus any
declared but unpaid dividends, or (ii) the fair market value of the Series A or B preferred shares (exclusive of liquidity event, fire sale or minority ownership discounts) as
determined by an independent appraiser mutually agreeable to the Company and the lead investor.

Because
the redemption price of Series A preferred shares and Series B preferred shares was linked to the fair value of the underlying preferred shares, the conversion
feature was a derivative and required to be bifurcated from Series A preferred shares and Series B preferred shares, and recognized at fair value.

F-50

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

18. CONVERTIBLE REDEEMABLE PREFERRED SHARES (Continued)

The
following table summarizes the bifurcated derivative liabilities at the issuance date of Series A and Series B preferred shares:

Derivative liabilitiesRelating to Series A preferred shares issuance on July 10, 2007


729,000Relating to Series B-1 and B-2 preferred shares issuance on July 7, 2009


301,000Relating to Series B-3 preferred shares issuance on July 26, 2010


476,000


Change
in fair value of $1,994,000, $(90,000), and $14,528,000 were recorded in the consolidated statements of operations for the years ended December 31, 2008, 2009 and 2010,
respectively.

The
ability of holders to redeem Series A preferred shares and Series B preferred shares on or after July 2011 and July 2013, respectively, was contingent
upon a Qualified IPO not occurring in four years after issuance date of such shares. Because the exercise of the redemption rights is outside of the control of the Company, the Group deemed redemption
to be probable and was accreted the Series A preferred shares and Series B preferred shares to their redemption value. Management elected to recognize the change in the redemption value
over the period from the date of issuance to the earliest redemption date of the Series A preferred shares and Series B preferred shares using the effective interest rate method. As a
result, the Group recognized $873,652, $973,399 and $1,053,766 as deemed dividends on Series A preferred shares during the years ended December 31, 2008, 2009 and 2010, respectively, and
$421,586 and $1,096,380 during the years ended December 31, 2009 and 2010 as deemed dividends on Series B preferred shares, respectively, which reflects the accretion changes in
redemption value assuming the redemption value is 140% of the issuance price.

The
table below summarizes the movement of Series A and B convertible and redeemable preferred shares:

Series A
preferred sharesEnding balances at January 1, 2010


9,727,866Accretion of redemption value


1,053,766Converted to ordinary shares upon qualified IPO


(10,781,632
)Ending balances as of December 31, 2010 and 2011







Series B
preferred sharesEnding balances as of January 1, 2010


9,074,270Issuance of Series B-3 preferred shares


4,523,886Accretion of redemption value


1,096,380Converted to ordinary shares upon qualified IPO


(14,694,536
)Ending balances as of December 31, 2010 and 2011





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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

19. FAIR VALUE MEASUREMENTS

Measured at fair value on recurring basis

The
Company determined 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 American Appraisal China Limited, an independent third party valuation firm. The Company used "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 was to determine the fair value of the Company's equity interest as of various valuation dates. In determination of fair values of the Company's equity
interest, the Company considered both market approach and income approach, and selected the methodology that was the most indicative of its fair value in an orderly transaction between the Company and
market participants as of the measurement dates.

The
equity value was then allocated using option pricing method among the different classes of shares of the Company to determine the fair value of ordinary shares, Series A and
Series B preferred shares under the scenario where the conversion option was not in place and the scenario where the conversion was in place, taking into account the guidance prescribed by the
AICPA Audit and Accounting Practice Aid "Valuation of Privately Held Company Equity Securities Issued as compensation".

The
option pricing model considered the Series A preferred shares, Series B preferred shares, and ordinary shares as call options on the 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 was not in place, if, at the time of
redemption occurs, the value of equity interest exceeded the sum of redemption price of the preferred shares, the holders of preferred shares would 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 was in place, if, at the time redemption
occurs, the value of equity interest went up further to a point (the "Conversion Point") that the interest shared by the holders of preferred shares exceeded the redemption price the when they
selected to convert the preferred shares into ordinary shares, each dollar of value in excess of the Conversion Point should 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 IPO, that would trigger the exercise of the conversion right.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

19. FAIR VALUE MEASUREMENTS (Continued)

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

December
2008

December
2009

July(1)
2010

August(2)
2010Total fair value of equity interest (USD' million)


44.0


63.3


136.7


138.7Expected life (years)(3)


2.3


3.5


3.0


2.9Expected volatility(4)


74
%

39
%

48
%

48
%Risk free interest rate(5)


3.0
%

2.8
%

2.0
%

2.0
%Minimum redemption price of the preferred shares


140% of original issuance price plus any declared but unpaid dividendEstimated probability of events that trigger the exercise of conversion option(6)


20
%

20
%

60
%

60
%


(1)The
Series B 3 preferred shares were issued in July 2010.(2)In
August 2010, the redemption price of Series A and Series B preferred shares was amended and as a result of the amendment, the
separate accounting at fair value for the conversion features is no longer required. The change in fair value of derivative liabilities from January 1, 2010 through August 2010 was
recorded in the earnings for the year ended December 31, 2010.(3)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 as 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 as 48 months from the issuance date of Series B preferred shares. (4)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. (5)Risk-free
interest rate Risk
free interest rate was estimated based on the yield to maturity of PRC international government bonds with maturity term close to the life of the embedded derivatives. (6)Estimated
probability of events that trigger the exercise of conversion option The
estimated probability of events that trigger the exercise of conversion option was determined with consideration of the Company's stage of development, potential liquidity events, such as
redemption or IPO, the plans of the Company's board of directors and management, and the total


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

19. FAIR VALUE MEASUREMENTS (Continued)

fair
value of equity interest relative to the redemption price of the preferred shares, as of the valuation dates.




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



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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

19. FAIR VALUE MEASUREMENTS (Continued)

The
Company believed the principal reasons for the change in fair value of the embedded derivatives of Series A and Series B preferred shares during the period from
January 1, 2010 to August 1, 2010 were the increase in the estimated probabilities of the events that would trigger the exercise of the conversion option and the increase in the fair
value of its equity interest, which, in turn, were primarily attributable to the following:



The
Group had no financial instruments measured at fair value on recurring basis as of December 31, 2010 and 2011.

The
following table summarizes the movements of the balance of derivative liabilities:

Years ended December 31,Derivative liabilities

2009

2010

2011Beginning balance


2,692,000


2,903,000


Addition relating to Series B preferred shares issuance


301,000


476,000


Loss (gain) on changes in fair value of derivative liabilities


(90,000
)

14,528,000


Transfer to additional paid-in capital upon the amendment of the redemption term of preferred shares





(17,907,000
)

Ending balance


2,903,000








Measured at fair value on a non-recurring basis

The
Group measured fair value of assets and liabilities acquired in business acquisitions using various valuation methods, primarily consisting of the "cost,"
"income approachexcess earnings" and "with & without" valuation methods. These purchased assets and liabilities are considered Level 3 assets and liabilities because the
Company used unobservable inputs, reflecting the Company's assessment of the assumptions that market participants would use in valuing these assets and liabilities (Note 3).

F-55

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

19. FAIR VALUE MEASUREMENTS (Continued)

The
Group measured the equity method investment and cost method investment at fair value on a nonrecurring basis when it wrote down the carrying amounts of the investments to their fair
value as a result of the impairment assessments (Note 9 and Note 10). The determination of fair value of the investment involves judgment as to the severity and duration of the decline
below fair value. The fair value was determined using models with significant unobservable inputs (Level 3 inputs), primarily the management estimation on the future performance of the
investees and the recoverability of the investment.

The
Group measured the intangible assets at fair value on a nonrecurring basis when the carrying amount of an asset may no longer be recoverable as results of the impairment assessment
(Note 11). The fair value was determined using models with significant unobservable inputs (Level 3 inputs), primarily the management projection on the discounted future cash flow and
the discount rate.

The
Group measured the goodwill at fair value on a nonrecurring basis when it is annually evaluated or whenever events or changes in circumstances indicate that carrying amount of a
reporting unit exceeds its fair value as a result of the impairment assessments (Note 12). The fair value was determined using models with significant unobservable inputs (Level 3
inputs), primarily the management projection on the discounted future cash flow and the discount rate.

20. GOVERNMENT SUBSIDIES

For the years ended December 31, 2009, 2010 and 2011, the Group received nil, $88,147, $220,559 of government subsidies, respectively, mainly include subsidy from a government
authority to encourage the Company's production in one specific film. There is no limitation on the use of the subsidies and the receipt of such subsidies does not subject the Group to any additional
governmental regulations or future obligations. These amounts are recognized as subsidy income when received.

21. ORDINARY SHARES

In December 2006, the Company authorized 24,479,231 ordinary shares with par value of $0.0005 per share and issued 6 ordinary shares at par value at incorporation.

In
July 2007, the Company issued 6,835,931 ordinary shares for no consideration as a result of recapitalization. This issuance was considered as a stock split and the
computations of basic and diluted net income per share were adjusted retroactively for all periods presented. Contemporaneously, the
Company repurchased 585,937 ordinary shares from Mr. Dong Yu for $1,500,000 using the proceeds from the issuance of the Series A preferred shares. These shares were cancelled
immediately after the repurchase.

In
June 2009, the Company issued 2,803,614 ordinary shares at par value to all ordinary shareholders for cash consideration of $4,486 with the consent of the preferred
shareholders. This issuance was considered as an issuance with nominal consideration and therefore was treated in a manner akin to a stock split and the computations of basic and diluted net income
per share were adjusted retroactively for all periods presented.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

21. ORDINARY SHARES (Continued)

In
July 2009, contemporaneously with the issuance of the Series B preferred shares, as approved by all the directors of the Company, the Company repurchased
1,241,958 ordinary shares from Skillgreat Limited, a company wholly owned by Mr. Dong Yu, for $3,500,000 using the proceeds from the issuance of the Series B preferred shares.
These shares were cancelled immediately after the repurchase.

In
April 2010, the Company issued 5,810,320 ordinary shares with a fair value of $4.50 per share as part of the acquisition consideration of movie theaters
(Note 3(a)).

In
July 2010, the Company issued 317,072 ordinary shares to Mr. Jeffrey Chan for a total cash consideration of $2,000,000 due to the exercise of his options.

Upon
the completion of the Company's IPO in December 2010, 11,740,000 American Depositary Shares (representing 5,870,000 ordinary shares) were issued with proceeds
of US$89,245,119 (net of issuance cost of 3,559,581). At the same time, 3,175,631 Series A convertible redeemable preferred shares and 3,690,577 Series B convertible
redeemable preferred shares were automatically converted into 5,849,856 and 3,690,577 ordinary shares at the conversion ratio of 1:1.8421 and 1:1, respectively.

On
June 10, 2011, the Company issued a total of 1,052,865 ordinary shares which are held by a depositary bank for future delivery to the employees and
non-employees upon exercise of vested share options or vesting of nonvested shares granted. The issued ordinary shares are not considered as outstanding shares until they are delivered to
the employees or non-employees upon exercise of vested share options or vesting of nonvested shares granted. During the years ended December 31, 2011, 39,608 ordinary shares
out of such 1,052,865 shares had been delivered to the employees upon exercise of their share options. As a result, 1,013,257 issued
ordinary shares were excluded from the outstanding shares as of December 31, 2011, and also were excluded from the computation of basic and diluted EPS.

22. SHARE-BASED COMPENSATION

Options to employees

On
June 1, 2009, the Group's board of directors approved the Bona Film Group Limited 2009 Stock Incentive Plan (the "2009 Plan"). The maximum
number of ordinary shares that may be granted under this plan is 209,163 shares. Upon the approval of the 2009 Plan, the Group granted 209,163 share options to purchase ordinary shares
to an officer and an employee on June 1, 2009. 69,721 options vested on the date of grant. The remaining options vest ratably over 32 months from the date of grant and are
exercisable up to 10 years from the date of grant. The exercise price is $3.36 per share. The estimated fair value of the options granted was $1.47 on the date of grant using the Binomial
option pricing model. A zero forfeiture rate was estimated.

On
June 1, 2010, the Group's board of directors approved the Bona Film Group Limited 2010 Stock Incentive Plan (the "2010 Plan"). The maximum number of ordinary shares that
may be granted under this plan is 5,410,650 shares. Upon the approval of the 2010 Plan, the Group granted 324,245 share options to three officers of the Group, and 650,631 share
options to purchase ordinary

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

22. SHARE-BASED COMPENSATION (Continued)

shares
to 49 employees on June 1, 2010. 35,671 options granted to one officer vested on the closing of the IPO of the Company. 5,615 options granted to the officer vested
on the date of grant, and 196,518 options granted to the officer vest ratably over 35 months from the date of grant. 14,117 options granted to the other officers and employees
vested on the date of grant, and the remaining 722,955 options vest ratably over 47 months from the date of grant. The contract life was 10 years from the date of grant. The
exercise price was $3.44 or $6.31 per share. The weighted average grant-date fair value of options granted during 2010 was $2.26 per share. The forfeiture rate of 8.93%
was estimated.

In
July 2010, the Group issued an option to Mr. Jeffrey Chan, the chief operation officer of the Group, to purchase a total of 317,072 ordinary shares at an exercise
price of $6.31 per share. The option could be exercised within five business days after the option issuance date. The fair value of the option was determined to be $616 which was recognized as
share-based compensation cost in July 2010. The option was exercised by Mr. Jeffrey Chan in July 2010.

In
March 2011, under the 2010 Plan, the Group granted 435,774 share options to an officer of the Group, 125,708 share options to an artist and 110,000 share
options to two independent directors of the Group with exercise prices of $6.31, $6.31 and $11.56, respectively. 236,687 options granted to the officer and artist vested on the date of grant,
and the remaining 434,795 options vest ratably over the range from 20 to 22 months from the date of grant. The contract life was 10 years from the date of grant. The weighted
average grant-date fair value of options granted during 2011 was $6.97 per share. A zero forfeiture rate was estimated.

In
November 2011, under the 2010 Plan, the Group granted 135,000 share options to four independent directors of the Group, 150,000 share options to two directors of
the Group, and 289,000 share options to 34 employees with exercise prices of $8.62. 14,424 options vested on the date of grant, and the remaining 559,576 options vest
ratably over the range from 23 to 47 months. The contract life was 10 years from the date of grant. The weighted average grant-date fair value of options granted during 2011
was $4.13 per share. The forfeiture rate of 2.5% was estimated for the options granted to the 34 employees and a zero forfeiture rate was estimated for the rest options.

The
Group recognizes compensation cost on the options using the straight-line attribution method. Total share-based compensation cost recognized was $447,345 and $3,560,194
for the year ended 2010 and 2011, respectively.

Options to non-employees

In
November 2011, under the 2010 Plan, the Group granted 470,000 to eight consultants with exercise prices of $8.62. 13,056 options vested on the
date of grant, and the remaining 456,944 options vest ratably over 35 months from the date of grant on a monthly basis. The contract life was 10 years from the date of grant. The
weighted average grant-date fair value of options granted during 2011 was $3.33 per share. A zero forfeiture rate was estimated.

The
Group recognizes compensation cost on the options using the straight-line attribution method. Total share-based compensation cost recognized was $86,950 for the year
ended 2011.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

22. SHARE-BASED COMPENSATION (Continued)

With
the assistance of American Appraisal China Limited, an independent valuer, the fair value of each option granted to employees was estimated on the date of grant and the fair value
of each option granted to non-employees was estimated on the date of vesting. The fair value of each option granted to employees and non-employees was determined using the Binomial option pricing
model with the following assumptions for the years ended December 31, 2009, 2010 and 2011:

June
2009

June
2010

July
2010

March
2011

November
2011

December
2011Expected volatility(1)


42
%

44
%

44
%
44%


44
%

44
%Risk-free interest rate(2)


4.49
%

4.36
%

1.26
%
2.89%


2.78
%

2.77
%Expected dividend yield(3)


0
%

0
%

0
%
0%


0
%

0
%Exercise multiple(4)


2.00


2.00


2.00

2.00 and 2.30


2.00


2.00Fair value of the underlying ordinary shares(5)


3.15


4.75


5.66

12.37


8.88


7.60










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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

22. SHARE-BASED COMPENSATION (Continued)

Summary of share options to employees and non-employees

A
summary of option activity, including grants to both employees and non-employees, under the 2009 Plan and 2010 Plan as of December 31,
2011, and the changes during the year then ended is presented below:

Options

Number of
share options

Weighted
average
exercise price

Weighted average
remaining
contractual life

Aggregate
intrinsic
valueOutstanding as of January 1, 2011


1,184,039


4.77


9.2


7,284,825Granted


1,715,482


8.05


9.6


725,590Exercised


(39,608
)

6.25


8.4


(53,632
)Forfeited


(38,395
)

6.31


8.4


(49,617
)Outstanding as at December 31, 2011


2,821,518


6.72


9.1


3,976,157Exercisable as at December 31, 2011


1,029,821


5.70


8.6


2,249,606Expected to vest


1,791,697


7.31


9.3


1,726,551


As
of December 31, 2011, there was $6,688,862 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the
2009 Plan and 2010 Plan. That cost is expected to be recognized over a weighted-average period of 2.21 years.

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

23. NET INCOME (LOSS) PER SHARE

The calculation of the net income (loss) per share is as follows:

For the years ended December 31,2009

2010

2011Numerator used in basic and diluted net income (loss) per share:Net income (loss) attributable to Bona Film Group Limited


5,628,094


(4,091,374
)

14,432,081Deemed dividend on Series A convertible redeemable preferred shares


(973,399
)

(1,053,766
)

Deemed dividend on Series B convertible redeemable preferred shares


(421,586
)

(1,096,380
)

Undistributed earnings allocated to Series A preferred shares(i)


(1,570,096
)




Undistributed earnings allocated to Series B preferred shares(i)


(377,735
)




Net (loss) income attributable to ordinary shareholders for computing basic net income (loss) per ordinary share


2,285,278


(6,241,520
)

14,432,081Shares (denominator):Weighted average ordinary shares outstanding used in computing basic net income per ordinary share


8,453,842


12,758,575


29,353,936Warrants (treasury effect)


237





Employee share options (treasury effect)


64,323





490,526Weighted average ordinary shares outstanding used in computing diluted net income (loss) per ordinary share


8,518,402


12,758,575


29,844,462Net income (loss) per ordinary share-basic


0.27


(0.49
)

0.49Net income (loss) per ordinary share-diluted


0.27


(0.49
)

0.48








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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

23. NET INCOME (LOSS) PER SHARE (Continued)



24. STATUTORY RESERVES

As stipulated by the relevant laws and regulations in the PRC, each member of the Group is required to maintain non-distributable reserves which include a statutory surplus
reserve and a statutory public welfare reserve. Subject to certain cumulative limits, the statutory surplus reserve requires annual appropriations of 10% of profit after taxes as reported in company
statutory financial statements prepared under accounting principle general accepted in PRC. An amount to be appropriated to the statutory public welfare reserve is to be determined at the discretion
of the Group's boards of directors. These reserves can only be used for the specified purposes and once
appropriated, the amounts are not available for future distribution to owners. The statutory surplus reserve may be applied against prior year losses, if any, and may be applied to increase capital
upon the boards of directors' approval.

Total
amount appropriated to statutory reserves were $1,008,419, $227,260 and $69,155 for the years ended December 31, 2009, 2010 and 2011, respectively.

25. CUSTOMER INFORMATION

There was no customer who accounted for 10% or more of net revenue for the years 2009, 2010 and 2011.

Details
of customers accounting for 10% or more of accounts receivable were as follows:

December 31,2010

2011A*


39.72%


52.93%


*A
is a theater circuit that is responsible for collecting the Group's distribution revenue from certain other theater circuits and then remitting the
collected amount to the Group. Accordingly, accounts receivable with A relate to distribution revenue generated by both A and certain other theater circuits.


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

26. NONCONTROLLING INTEREST

Baichuan

Distribution
Workshop
(BVI&HK)

Cinema
Popular

Xi'an
Huitong

Shanghai
Cinema

Mango
Cinema

TotalBalance as of January 1, 2009


877,517


(92,509
)

(19,519
)










765,489Foreign currency translation adjustment


225


(185
)

(39
)










1Net income (loss)


8,411


47,310


(224,150
)










(168,429
)Balance as of December 31, 2009


886,153


(45,384
)

(243,708
)










597,061Acquisition of Beijing Bona Cineplex (Note3(a))














2,071,408





2,071,408Acquisition of 10% equity interest of Baichuan (Note3(c))


(805,555
)
















(805,555
)Capital injection in Xi'an Huitong(1)











364,421








364,421Foreign currency translation adjustment





(480
)

1,014


6,703


(476
)




6,761Net income (loss)


(80,598
)

182,468


(74,806
)

(10,264
)

(148,486
)




(131,686
)Balance as of December 31, 2010





136,604


(317,500
)

360,860


1,922,446





2,102,410Acquisition of Alpha Speed Limited and Bona Starlight (Note3(d))

















1,155,121


1,155,121Foreign currency translation adjustment





1,459


(614
)

15,355


(792
)

32,392


47,800Net income (loss)





505,742


(5,430
)

(90,727
)

29,324


(298,614
)

140,295Balance as of December 31, 2011





643,805


(323,544
)

285,488


1,950,978


888,899


3,445,626


---

27. COMMITMENTS

The Group has a number of operating leases for its facilities and offices. Rental expenses under operating leases for the years ended December 31, 2009, 2010, and 2011 were
$478,620, $3,433,603 and $6,913,422, respectively. The group recognized rent expenses under such arrangements on a straight-line basis over the term of the lease. The future aggregate
minimum lease payments under non-cancelable operating lease agreements are as follows:

Years ending December 31:2012


8,151,6742013


7,556,7352014


7,378,0412015


7,378,0412016 and thereafter


75,695,072Total


106,159,563


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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

28. EMPLOYEE BENEFIT PLAN

Full time PRC employees of the Group are eligible to participate in a government-mandated defined contribution plan under which certain pension benefits, medical care, unemployment
insurance, employee housing fund and other welfare benefits are provided to these employees. The PRC labor regulations require the Group to accrue for these benefits based on a percentage of each
employee's
salary. Total provisions for employee benefits were $236,774, $587,714 and $873,744 for the years ended December 31, 2009, 2010 and 2011, respectively, were reported as a component of general
and administrative expense when incurred.

29. RELATED PARTY BALANCES AND TRANSACTIONS

Nature of the relationships with related parties:

Name

Relationship with the GroupMr. Dong Yu

Chairman, CEO and principal shareholderMr. Zhong Jiang

Independent DirectorBona Meitao

Equity method investeeHuBei Film Distribution and Exhibition Co., Ltd. ("HuBei Film Distribution")

Noncontrolling shareholderWuhan Lianzhong

Cost method investeeZhongda Helian

Cost method investeeMs. Xiang Li

Noncontrolling shareholderHunan Xiaoxiang Cineplex Investment Management Co., Ltd. ("Hunan Xiaoxiang")

Noncontrolling shareholderFilm Workshop Co., Ltd. ("Film Workshop")

Ms. Shi Nansun is the principal shareholderMr. Xiaojian Xu

Noncontrolling shareholder


As
well as being the Group's Chairman and CEO, Mr Dong Yu is the Group's founder and therefore has substantial influence over the Group's business, including decisions regarding
mergers, consolidations and the sale of all or substantially all of the Group's assets, election of directors, declaration of dividends and other significant corporate actions.

F-64

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

29. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)

As
of December 31, 2010 and 2011, the following balances were due from the related parties:

December 31,2010

2011Amounts due from Mr. Dong Yu(i)


6,213


116,827Amounts due from affiliates of Cinema Popular(ii)


348,128


219,135Amounts due from Bona MeiTao(iii)


792,725


847,121Amounts due from Bona Starlight(iv)


1,668,081


2,815,147


1,183,083






All
the amounts due from related parties are unsecured and non-interest bearing.

As
of December 31, 2010 and 2011, the following balances were due to the related parties:

December 31,2010

2011Amounts due to Hunan Xiaoxiang(i)





238,326Amounts due to Zhongda Helian(ii)





285,991Amounts due to Mr. Xiaojian Xu(i)





389,266Amounts due to Film Workshop(iii)





406,524Amounts due to HuBei Film Distribution(i)


303,030


476,652Amounts due to Ms. Xiang Li(i)





476,652Amounts due to Wuhan Lianzhong(iv)


556,818


754,461Amounts due to Mr. Zhong Jiang(v)


727,273


1,587,121


3,027,872






F-65

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

29. RELATED PARTY BALANCES AND TRANSACTIONS (Continued)



All
the amounts due to related parties are unsecured and non-interest bearing.

Other
related parties transactions during the year ended December 31, 2009, 2010 and 2011 include:

2009

The Group gave Hurry Up Limited, 50% shareholder of Cinema Popular, the distribution right ofBodyguard
and Assassinsin the markets other than the mainland China. Hurry Up Limited charges 15% of the distribution revenue of the film in markets other than the mainland China. No revenue from the markets other than the mainland
China has been generated as of December 31, 2009.2010

Acquisition of Beijing Bona Cineplex (see Note 3(a))In September 2010, Beijing Bona Cineplex entered into a management service agreement with Bona Starlight, a development
stage movie theater operator in the PRC whose principal shareholders include Mr. Dong Yu. Under the terms of this agreement, the Group licensed the "Bona" brand to Bona Starlight and became the exclusive provider of management services for its
current and future movie theaters. The Group is also entitled to receive a share of the box office receipts and advertising revenues of Bona Starlight's movie theaters. For the years ended December 31, 2010 and 2011 before the acquisition of
Bona Starlight, the Group generated revenue of nil and $84,439, respectively, under this agreement (see Note 3(a)).Acquisition of the remaining 10% equity interest in Baichuan (see Note 3(c))2011

Acquisition of Alpha Speed Limited and Bona Starlight (see Note 3(d))


30. SEGMENT INFORMATION

The Group's chief operating decision maker ("CODM") is the Chief Executive Officer who as of December 31, 2011 reviews the results of four operating segments when making decisions
about allocating resources and assessing performance. The segments are film distribution, film investment and production, movie theater, and talent agency.

The
film distribution segment generates revenue from external customers. Its revenues comprise the Group's share of movie theater box office sales for the Group's distribution services
and, to the extent the Group has distribution rights outside the PRC, the revenues the Group derives from those arrangements.

F-66

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

30. SEGMENT INFORMATION (Continued)

Its
cost of revenues includes:



The
film investment and production segment generates revenues both from external customers and, through inter-segment transactions, from the Group's own distribution entities.

The
film investment and production segment generates revenues from external customers where the Group invested in a film but does not act as the principal distributor. For films in which
the Group acquires all or part of the copyright, these include revenues from the sale of distribution rights and licensing fees to third-party distributors. For films in which the Group does not
acquire any copyright, these include revenues from the Group's share of the net profit from distribution agreements with third-party producers.

Revenue
from internal customers comprises revenues received from the distribution entities within the Group who distribute the film.

Its
cost of revenues includes the amortization of production costs.

The
talent agency segment generates revenues from external customers for its talent agency related business. The movie theater segment generates admissions and concession revenues at the
box office from external customer, and other revenues which primarily consist of screen advertising revenues. Its cost of revenue mainly includes film rental costs.

The
profitability measure employed by the Group and its CODM for making decisions about allocating resources to segments and assessing segment performance is gross profit less film
participation expense. Segments follow the same accounting policies as those described in Note 2.

The
Group's CODM does not assign assets to these segments. Currently, it is not practical to show assets by reportable segments.

F-67

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

30. SEGMENT INFORMATION (Continued)

The
following table presents selected financial information relating to the Group's segments:

For the year ended December 31, 2009(1)Film
distribution

Film
investment and
production

Talent
agency

Intersegment
elimination

ConsolidatedRevenues from external customers


35,331,320


2,038,491


1,002,740





38,372,551Intersegment revenues





14,063,747





(14,063,747
)

Cost of revenues


(21,925,682
)

(11,345,790
)

(680,736
)

14,063,747


(19,888,461
)Film participation expenses





(1,244,848
)







(1,244,848
)Segment profit


13,405,638


3,511,600


322,004





17,239,242


---

For the year ended December 31, 2010Film
distribution

Film
investment
and production

Talent
agency

Movie
theater

Intersegment
elimination

ConsolidatedRevenues from external customers


36,260,981


3,089,161


2,136,451


11,333,193





52,819,786Intersegment revenues


279,560


17,211,668








(17,491,228
)

Cost of revenues


(22,129,328
)

(15,375,079
)

(1,172,549
)

(5,316,125
)

17,491,228


(26,501,853
)Film participation expenses





(696,101
)










(696,101
)Segment profit


14,411,213


4,229,649


963,902


6,017,068





25,621,832




For the year ended December 31, 2011Film
distribution

Film
investment
and production

Talent
agency

Movie
theater

Intersegment
elimination

ConsolidatedRevenues from external customers


92,598,838


6,176,820


1,349,186


26,036,426





126,161,270Intersegment revenues


2,246,219


44,298,547








(46,544,766
)

Cost of revenues


(57,979,720
)

(43,480,636
)

(117,487
)

(11,425,140
)

46,544,766


(66,458,217
)Film participation expenses





(321,100
)










(321,100
)Segment profit


36,865,337


6,673,631


1,231,699


14,611,286





59,381,953


F-68

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

30. SEGMENT INFORMATION (Continued)

Reconciliation from consolidated segment profit to consolidated financial statements:

For the years ended December 31,2009

2010

2011Consolidated segment profit


17,239,242


25,621,832


59,381,953Sales and marketing


(8,887,971
)

(7,213,519
)

(18,506,262
)General and administrative


(2,789,416
)

(9,305,393
)

(28,371,497
)Government subsidies





88,147


220,559Net interest and exchange loss


(145,767
)

(377,010
)

1,406,477Gain on extinguishment of liability





488,799


Interest income from TV series investment





856,788


141,545Other income





225,095


770,081Changes in fair value of warrants


119,451





Changes in fair value of derivatives


90,000


(14,528,000
)

Income (loss) before income tax provision


5,625,539


(4,143,261
)

15,042,856




The Group operates in the PRC and all of the Group's long lived assets are located in the PRC.

Revenues,
classified by the major geographic areas in which the Group's customers are located (based on the address of the customer who contracted with the Group), were
as follows:

For the years ended December 31,2009

2010

2011Revenues from the PRC


38,026,450


47,153,418


115,478,174Revenues from countries other than the PRC


346,101


5,666,368


10,683,096Total


38,372,551


52,819,786


126,161,270


31. SUBSEQUENT EVENTS

In November 2011, the Group entered into an agreement with China Lion Entertainment Limited to purchase up to 500,000 Series A preferred shares of China Lion
Entertainment Limited for a total cash consideration of US$1,700,000, which represents 20% of total issued shares of China Lion Entertainment Limited. In December 2011, the Group paid
US$1,200,000 according to the requirement
of the initial closing defined in the above agreement. The initial closing was completed in January 2012, and the Group obtained 352,941 Series A preferred shares of China Lion
Entertainment Limited.

In
January 2012, the Group drew down a bank loan with a principal of $3,177,680 (equivalent of RMB20 million) from Bank of Beijing pursuant to the general credit facility
agreement dated October 19, 2011 between Bank of Beijing and Bona Film on the condition that the loan would be invested in a TV series namedThe King's
Battles. The loan is to be repaid by December 27, 2012, and

F-69

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Table of Contents

BONA FILM GROUP LIMITED

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

FOR THE YEARS ENDED DECEMBER 31, 2009, 2010 AND 2011

(In U.S. dollars, except share and per share data)

31. SUBSEQUENT EVENTS (Continued)

the
annual interest rate is 7.87%. The above loan is guaranteed by the Company's principal shareholder, Mr. Dong Yu, Zhejiang Bona and Beijing Bona Cineplex.

In
April 2012, the Group sold its 51% equity interests in Bona Meitao and distribution receivables from Bona Meitao to the shareholder of Bona Meitao for a total cash
consideration of $552,916 (equivalent of RMB3,480,000), with no investment gain or loss recognized.

F-70

---