##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0001-33800
 SEARCHMEDIA HOLDINGS LIMITED
  Cayman Islands
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    77-0688094
(I.R.S. Employer Identification No.)15A Zhao Feng, Universe Building, 
1800
Zhong Shan Xi Lu, Shanghai, China
(Address of Principal Executive Offices)
    
    200235
(Zip Code)
 86-2164403190
  Title of Each Class
    
    Name of Each Exchange On Which RegisteredORDINARY SHARES
$0.0001 PAR VALUE
    
    NYSE AmexWARRANTS
    
    NYSE Amex
 None
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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EXPLANATORY NOTE
    Restatement of Consolidated Financial Statements
  
    
    Revenue recognition and accounts receivable issues;
 
    
    Disclosure, approval, and documentation of transactions among entities related to prior
owners of acquired subsidiaries (which we refer to as related entity transactions);
 
    
    Proper documentation of transactions;
 
    
    Recording of various erroneous transactions by certain employees;
 
    
    Recording of certain assets and other accounting irregularities related to
acquisitions;
 
    
    Procedures related to diligence and approval of transactions; and
 
    
    Confirmation of payments related to acquisitions.




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Background of the Restatement
       ii




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Management and Audit Committee Findings
  
    
    Revenue recognition and accounts receivable issues;
 
    
    Disclosure, approval, and documentation of related entity transactions;
 
    
    Proper documentation of transactions;
 
    
    Recording of various erroneous transactions by certain employees;
 
    
    Recording of certain assets and other accounting irregularities related to
acquisitions;
 
    
    Diligence and approval of questionable transactions; and
 
    
    Confirmation of payments related to acquisitions.
      Remediation of Material Weaknesses in Internal Control over Financial Reporting
  iii




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Summary of the Restatement Adjustments
  iv




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##### 



SEARCHMEDIA HOLDINGS LIMITED
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2009
 TABLE OF CONTENTS
 PAGEGENERAL
    
    
    1PART I
    
    
    1ITEM 1. BUSINESS
    
    
    1ITEM 1A. RISK FACTORS
    
    
    24ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    46ITEM 2. PROPERTIES
    
    
    46ITEM 3. LEGAL PROCEEDINGS
    
    
    46ITEM 4. (REMOVED AND RESERVED)
    
    
    46PART II
    
    
    46ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    
    
    46ITEM 6. SELECTED FINANCIAL DATA
    
    
    47ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    48ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    72ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    73ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    118ITEM 9A.(T) CONTROLS AND PROCEDURES
    
    
    118ITEM 9B. OTHER INFORMATION
    
    
    122PART III
    
    
    122ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    122ITEM 11. EXECUTIVE COMPENSATION
    
    
    126ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
    
    
    131ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    133ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    137PART IV
    
    
    139ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    
    
    139EX-21.1EX-31.1EX-31.2EX-32.1EX-32.2
  v




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##### Table of Contents



GENERAL
  
 PART I
 
 ITEM 1. BUSINESS
  Business Overview
   
    
    Outdoor billboard platform. As of March 31, 2010, we operate a network of over 1,500
high-impact billboards with over 500,000 square feet of surface display area in 15 cities,
including Beijing, Hong Kong, Qingdao, Shanghai, Shenyang, Shenzhen, Guangzhou, Chongqing
and Chengdu. Our billboards are mostly large format billboards deployed in commercial
centers and other desirable areas with heavy vehicle or foot traffic.
 
    
    In-elevator platform. As of March 31, 2010, our network of over 125,000 printed and
digital poster frames delivered targeted advertising messages inside elevators to captive
audiences in high-rise residential and office buildings in 50 major cities in China. The
in-elevator platform is characterized by its low cost structure and minimal capital
requirements and targets the affluent urban population that is highly desired by
advertisers.
 
    
    Transit advertising platform. As of March 31, 2010, we operate a network of light
boxes in concourses of 11 major subway lines in Shanghai. According to the Metro
Authority of Shanghai, in March 2010, these subway lines carried an aggregate average
daily traffic of approximately 5.65 million commuters. In addition, we also operate a bus
advertising network of 5,000 buses in Beijing.
   1




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Industry Background
  Chinas Economy
 
    
    Large, Fast Growing Chinese Economy. China is the worlds most populous country,
with a population of 1.3 billion as of the end of 2009 according to the National Bureau
of Statistics of China. Chinas gross domestic product, or GDP, grew from $2.6
trillion in 2005 to $4.7 trillion in 2009, representing a compound annual growth rate,
or CAGR, of 15.5% and is expected to reach $6.4 trillion in 2012, representing a CAGR
of 10.9% from 2009 to 2012, according to ZenithOptimedia.
 
    
    Urbanization Trend. China has witnessed a growing trend toward urbanization in the
past decade. According to the China Statistical Yearbook, the urban population
represented approximately 47% of the overall population in China as of December 31,
2009 compared to approximately 29% as of December 31, 1995. Furthermore, according to
an article by Xinhua News, the official press agency of China, the urban population
will represent approximately 50% of Chinas total population by the end of 2010 and
reach 70% of Chinas total population by the end of 2030.
 
    
    Increasingly Affluent Urban Population. The National Bureau of Statistics of China
reported that the annual disposable income per capita in urban households increased
from RMB8,472 in 2003 to RMB17,175 in 2009, representing a CAGR of 12.5%.
 2




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Chinas Advertising Market
 
    
    Large Size and High Growth.China has the largest advertising market in Asia,
excluding Japan, and the fifth largest advertising market in the world, as measured by
total advertising expenditure.
According to ZenithOptimedia, advertising spending in China in 2007 was approximately
$16.6 billion, accounting for 28.6% of the total advertising spending in Asia,
excluding Japan. While the total advertising expenditure in Asia, excluding Japan,
grew only 7% from $58.2 billion in 2007 to $62.3 billion in 2009, China advertising
expenditure grew 22% from $16.6 billion in 2007 to $20.3 billion in 2009.
ZenithOptimedia also projected that the advertising market in China will be one of
the fastest growing advertising markets in the world in the next three years, growing
at a CAGR of 12.9% from 2008 to 2012. By 2011, China is projected to account for
34.5%, and 36.6% in 2012, of the total advertising spending in Asia, excluding Japan.
 Advertising expenditures (in billions of U.S. dollars)
 CAGR2010
    
    2011
    
    2012
    
    2008-2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    (E)
    
    (E)
    
    (E)
    
    2012 (E)China
    
    $
    12.1
    
    
    $
    14.6
    
    
    $
    16.6
    
    
    $
    18.9
    
    
    $
    20.3
    
    
    $
    22.7
    
    
    $
    26.1
    
    
    $
    30.7
    
    
    
    12.9
    %India
    
    
    2.8
    
    
    
    3.4
    
    
    
    4.1
    
    
    
    4.9
    
    
    
    5.0
    
    
    
    5.4
    
    
    
    5.9
    
    
    
    6.6
    
    
    
    7.7
    %Singapore
    
    
    1.3
    
    
    
    1.4
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    1.4
    
    
    
    1.5
    
    
    
    1.5
    
    
    
    1.6
    
    
    
    (1.7
    )%Indonesia
    
    
    1.7
    
    
    
    2.0
    
    
    
    2.4
    
    
    
    2.9
    
    
    
    3.4
    
    
    
    3.9
    
    
    
    4.6
    
    
    
    5.3
    
    
    
    16.2
    %Japan
    
    
    45.0
    
    
    
    46.4
    
    
    
    46.8
    
    
    
    44.9
    
    
    
    39.3
    
    
    
    39.0
    
    
    
    39.2
    
    
    
    39.8
    
    
    
    (4.5
    )%South Korea
    
    
    7.3
    
    
    
    7.8
    
    
    
    8.4
    
    
    
    8.0
    
    
    
    7.1
    
    
    
    7.9
    
    
    
    8.5
    
    
    
    8.9
    
    
    
    3.1
    %United Kingdom
    
    
    21.8
    
    
    
    22.1
    
    
    
    23.5
    
    
    
    22.8
    
    
    
    19.8
    
    
    
    20.1
    
    
    
    20.3
    
    
    
    20.7
    
    
    
    (2.2
    )%Germany
    
    
    24.8
    
    
    
    26.4
    
    
    
    27.6
    
    
    
    27.5
    
    
    
    25.6
    
    
    
    25.2
    
    
    
    25.7
    
    
    
    26.5
    
    
    
    (0.8
    )%United States
    
    
    166.2
    
    
    
    173.4
    
    
    
    177.6
    
    
    
    170.2
    
    
    
    148.1
    
    
    
    145.3
    
    
    
    147.6
    
    
    
    151.9
    
    
    
    (2.6
    )%Worldwide
    
    
    426.9
    
    
    
    456.6
    
    
    
    485.3
    
    
    
    490.1
    
    
    
    441.4
    
    
    
    450.9
    
    
    
    469.0
    
    
    
    493.3
    
    
    
    0.3
    %
 
 E  estimated.Source : ZenithOptimedia (March 2010) 3




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
    
    Room for sustained growth. We believe the advertising market in China has the
potential for considerable and sustained growth due to the relatively low levels of
advertising expenditure per capita and advertising expenditure as a percentage of GDP
in China compared to other countries. The following table sets forth the advertising
expenditure per capita and as a percentage of GDP in the countries listed below for
2008.
 Advertising Expenditure in2008Per capita ($)
    
    % of GDPChina
    
    
    14.1
    
    
    
    0.44India
    
    
    4.2
    
    
    
    0.40Singapore
    
    
    298.9
    
    
    
    0.82Indonesia
    
    
    12.6
    
    
    
    0.56Japan
    
    
    324.0
    
    
    
    0.92South Korea
    
    
    166.2
    
    
    
    0.86United Kingdom
    
    
    372.3
    
    
    
    0.85Germany
    
    
    334.8
    
    
    
    0.76United States
    
    
    546.1
    
    
    
    1.18Worldwide
    
    
    92.5
    
    
    
    0.84
 
 Source : ZenithOptimedia (March 2010) 
    
    Urban Concentration. Historically, advertising expenditure in China has been highly
concentrated in more economically developed urban areas where income per capita is much
higher than in rural areas. This trend is supported by the fact that the annual per
capita disposable income in urban households in 2009 was RMB17,175 triple of the
average net income per capita for rural households of RMB5,153, according to Chinas
National Bureau of Statistics. Additionally, as of 2008, China had 31 of the 100
largest cities in the world, based on city proper data from the United Nations
Statistics Division.
 Out-of-home Advertising in China
  
    
    Effective and broad reach. We believe out-of-home advertising media is typically
difficult for target audiences to interrupt or selectively avoid. When appropriately
positioned, out-of-home advertising offers sustained and repetitive reach to a broad
audience.
 
    
    Selective targeting. Out-of-home advertising can effectively target specific
demographics and locations. For example, advertisers can choose to target young middle
income individuals near bars and restaurants, high income individuals at golf clubs,
and pedestrians in close proximity to their work places.
 
    
    Captures an increasingly mobile audience. In China, factors such as increasing
urbanization, increasing disposable income, longer travel time and greater travel
frequency are leading to the general populations spending a larger amount of time away
from home. As a result, out-of-home advertising enjoys advantages over other popular
traditional advertising, such as television or radio, which are predominantly delivered
to homes.
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
    
    Cost effective advertising. Out-of-home advertising is a lower cost advertising
platform compared to many other forms, in particular television, radio and print media.
In addition, local businesses that cannot afford more costly traditional media favor
out-of-home advertising since it offers greater customization on a local and segment
basis.
 Market size and growth
  Advertising expenditures in China (in millions of U.S. dollars)
 CAGR2010
    
    2011
    
    2012
    
    2008-2005
    
    2006
    
    2007
    
    2008
    
    2009
    
    (E)
    
    (E)
    
    (E)
    
    2012 (E)Television
    
    $
    5,113
    
    
    $
    5,814
    
    
    $
    6,115
    
    
    $
    7,217
    
    
    $
    7,939
    
    
    $
    9,209
    
    
    $
    10,314
    
    
    $
    11,448
    
    
    
    12.2
    %Radio
    
    
    559
    
    
    
    823
    
    
    
    904
    
    
    
    983
    
    
    
    1,062
    
    
    
    1,136
    
    
    
    1,205
    
    
    
    1,289
    
    
    
    6.9
    %Newspapers
    
    
    3,685
    
    
    
    4,498
    
    
    
    4,637
    
    
    
    4,931
    
    
    
    4,833
    
    
    
    4,688
    
    
    
    4,453
    
    
    
    4,186
    
    
    
    (3.9
    )%Magazines
    
    
    358
    
    
    
    347
    
    
    
    381
    
    
    
    446
    
    
    
    437
    
    
    
    446
    
    
    
    464
    
    
    
    487
    
    
    
    2.2
    %Outdoor
    
    
    1,812
    
    
    
    2,069
    
    
    
    2,818
    
    
    
    2,557
    
    
    
    2,711
    
    
    
    2,982
    
    
    
    3,310
    
    
    
    3,674
    
    
    
    9.5
    %Internet
    
    
    586
    
    
    
    1,015
    
    
    
    1,759
    
    
    
    2,726
    
    
    
    3,271
    
    
    
    4,252
    
    
    
    6,328
    
    
    
    9,544
    
    
    
    37.4
    %Cinema
    
    
    22
    
    
    
    25
    
    
    
    28
    
    
    
    34
    
    
    
    38
    
    
    
    42
    
    
    
    47
    
    
    
    54
    
    
    
    12.2
    %Total
    
    
    12,134
    
    
    
    14,590
    
    
    
    16,642
    
    
    
    18,895
    
    
    
    20,291
    
    
    
    22,755
    
    
    
    26,120
    
    
    
    30,682
    
    
    
    12.9
    %
 
 E  estimated.Source : ZenithOptimedia (March2010)  Market fragmentation
  Outdoor Billboard Advertising in China
  5




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In-Elevator Advertising in China
    Transit Advertising in China
 Subway Advertising
   Bus Advertising
  6




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Corporate Organization and Operating History
  Corporate Ownership Structure
  
 7




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(1)
    
    Jieli Investment Management Consulting (Shanghai) Co., Ltd., or Jieli Consulting, a Chinese
limited liability company, 100% owned by SearchMedia International.(2)
    
    Jieli Network Technology Development (Shanghai) Co., Ltd, or Jieli Network, a Chinese limited
liability company, 100% owned by SearchMedia International.(3)
    
    Shanghai Jingli Advertising Co., Ltd, or Jingli Shanghai, a Chinese limited liability
company, 60% owned by Ms. Qinying Liu, a Chinese citizen, and 40% owned by Ms. Le Yang, a
Chinese citizen.(4)
    
    Shanghai Botang Advertising Co., Ltd, or Shanghai Botang, a Chinese limited liability
company, 100% owned by Ad-Icon Shanghai.(5)
    
    Shanghai Haiya Advertising Co., Ltd, or Shanghai Haiya, a Chinese limited liability company,
100% owned by Ad-Icon Shanghai.(6)
    
    Beijing Wanshuizhiyuan Advertising Co., Ltd, or Beijing Wanshuizhiyuan , a Chinese limited
liability company, 100% owned by Ad-Icon Shanghai.(7)
    
    Wuxi Ruizhong Advertising Co., Ltd., or Wuxi Ruizhong, a Chinese limited liability company,
100% owned by Ad-Icon Shanghai.(8)
    
    Shenyang Jingli Advertising Co., Ltd., or Shenyang Jingli, a Chinese limited liability
company, 100% owned by Ad-Icon Shanghai.(9)
    
    Zhejiang Continental Advertising Co, Ltd., or Zhejiang Continental, a Chinese limited
liability company, 100% owned by Ad-Icon Shanghai.(10)
    
    Qingdao Kaixiang Advertising Co., Ltd., or Qingdao Kaixiang, a Chinese limited liability
company, 100% owned by Jingli Shanghai.(11)
    
    Wenzhou Rigao Advertising Co., Ltd., or Wenzhou Rigao, a Chinese limited liability company,
100% owned by Jingli Shanghai.(12)
    
    Tianjin Shengshitongda Advertising Creativity Co., Ltd, or Tianjin Shengshitongda, a Chinese
limited liability company, 100% owned by Jingli Shanghai.(13)
    
    Shanghai Jincheng Advertising Co., Ltd, or Shanghai Jincheng, a Chinese limited liability
company, 100% owned by Jingli Shanghai.(14)
    
    Shaanxi Xinshichuang Advertising Planning Co., Ltd., or Shaan Xi Xinshichuang, a Chinese
limited liability company, 100% owned by Jingli Shanghai.(15)
    
    Changsha Jingli Advertising Co., Ltd., or Changsha Jingli, a Chinese limited liability
company, 100% owned by Jingli Shanghai.(16)
    
    Great Talent Holdings Limited, or Great Talent, a company incorporated under the laws of Hong
Kong, 100% owned by SearchMedia International.(17)
    
    Ad-Icon Company Limited, or Ad-Icon, a company incorporated under the laws of Hong Kong, 100%
owned by SearchMedia International.(18)
    
    Ad-Icon Shanghai Advertising Co., Ltd., or Ad-Icon Shanghai, a Chinese limited liability
company, 100% owned by Ad-Icon.
 Contractual Arrangements with Jingli Shanghai and its Shareholders
  Agreements That Provide Effective Control over Our Affiliated Entities
 Loan Agreement
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Equity Pledge Agreement
 Exclusive Call Option Agreement
 
    
    The shareholders of Jingli Shanghai may not change the articles of association,
bylaws, registered capital or shareholding structure of Jingli Shanghai, without the
prior written consent of Jieli Consulting;
 
    
    Jingli Shanghai may not acquire or merge with any third parties, or invest in any
third parties, without the prior written consent of Jieli Consulting;
 
    
    Jingli Shanghai may not generate, delegate, guarantee for, or allow existing any
indebtedness without the prior consent or confirmation of Jieli Consulting, except in
the ordinary courses of business;
 
    
    Jingli Shanghai may not enter into any material contracts with the contractual price
exceeding RMB1.0 million without the prior written consent of Jieli Consulting, except
in the ordinary courses of business;
    
    Jingli Shanghai may not grant loans or guaranties to any third parties, without the
prior written consent of Jieli Consulting;
 9




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
    
    Jingli Shanghai may not transfer, pledge, have caused any encumbrances, or otherwise
dispose of any shares of Jingli Shanghai, without the prior written consent of Jieli
Consulting;
 
    
    Jingli Shanghai may not declare or pay any dividends without the prior written
consent of Jieli Consulting; upon the request of Jieli Consulting, Jingli Shanghai
shall declare and pay all distributable dividends to its shareholders; and
 
    
    The shareholders of Jingli Shanghai may only appoint the persons nominated by Jieli
Consulting as directors of Jingli Shanghai, upon request of Jieli Consulting.
 
    
    Power of Attorney. The shareholders of Jingli Shanghai have executed a power of
attorney to Mr. Guojun Liang, which irrevocably authorizes Mr. Liang (who is the
husband of Ms. Qinying Liu) to vote as such shareholders attorney-in-fact on all of
the matters of Jingli Shanghai requiring shareholder approval.
 Agreements That Transfer Economic Benefits to Jieli Consulting
 Exclusive Technical Consulting and Service Agreement
   
    
    In January 2008, Jingli Shanghai acquired 100% of the equity interest in Shaanxi
Xinshichuang Advertising Planning Co., Ltd., a Chinese company primarily engaged in
elevator advertising business;
 
    
    In January 2008, Jingli Shanghai acquired 100% of the equity interest in Qingdao
Kaixiang Advertising Co., Ltd., a Chinese company primarily engaged in outdoor
billboard advertising business;
 
    
    In January 2008, Jingli Shanghai acquired 100% of the equity interest in Shanghai
Jincheng Advertising Co., Ltd., a Chinese company operating advertisings in cafeterias
of office buildings;
    
    In January 2008, Jingli Shanghai acquired 100% of the equity interest in Beijing
Wanshuizhiyuan Advertising Co., Ltd., a Chinese company primarily engaged in outdoor
billboard advertising business;
 10




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##### Table of Contents




    
    In January 2008, Jingli Shanghai acquired 100% of the advertising business of
Shenyang Xicheng Advertising Co., Ltd., a Chinese company primarily engaged in outdoor
billboard advertising business. Jingli Shanghai subsequently transferred such business
and related assets into Shenyang Jingli Advertising Co., Ltd., a newly incorporated
Chinese company;
 
    
    In February 2008, Jingli Shanghai acquired 100% of the equity interest in Shanghai
Haiya Advertising Co., Ltd., a Chinese company operating rapid transit advertising
business;
 
    
    In April 2008, Jingli Shanghai acquired 100% of the advertising business of Beijing
Youluo Advertising Co., Ltd., a Chinese company primarily engaged in outdoor billboard
advertising business. Jingli Shanghai subsequently transferred such business and
related assets into Shanghai Botang Advertising Co., Ltd., a newly incorporated Chinese
company;
 
    
    In April 2008, Jingli Shanghai acquired 100% of the equity interest in Tianjin
Shengshitongda Advertising Creativity Co., Ltd., a Chinese company operating elevator
advertising business;
 
    
    In April 2008, SearchMedia International acquired 100% of the equity interest in
Ad-Icon Company Limited, a Hong Kong company operating outdoor billboard advertising
business;
 
    
    In July 2008, Jingli Shanghai acquired 100% of the equity interest in Changsha
Jingli Advertising Co., Ltd., a Chinese company operating elevator advertising
business;
 
    
    In July 2008, Jingli Shanghai acquired 100% of the equity interest in Wenzhou Rigao
Advertising Co., Ltd., a Chinese company operating elevator advertising business; and
 
    
    In July 2008, Jingli Shanghai acquired 100% of the equity interest in Wuxi Ruizhong
Advertising Co., Ltd., a Chinese company operating elevator advertising business.
 
    
    In April 2010, Ad-Icon Shanghai acquired 100% of the equity interest in Zhejiang
Continental Advertising Co., Ltd., a Chinese company primarily engaged in the outdoor
billboard advertising business.
  Our Business
 Advertising Network
  11




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Media Products
  Outdoor Billboard Platform
   In-Elevator Platform
   
    
    Printed Poster Frames. We specialize in high impact-printed poster frames which are
made of several materials in various sizes suitable for a wide range of display
messages. Our printed poster frames mainly include paper, and illuminated poster
frames;
 
    
    Paper poster framesare conventional poster frames made of paper with a
visual size of 540mm by 390mm; and
 
    
    Illuminated poster framesare posters encased in thin metal boxes and
illuminated by LED optical fiber. The visual size of such posters is typically
540mm by 390mm.
 
    
    Digital poster frames. These poster frames are LCD screens with memory card slots
that allow the screens to change images at regular intervals. Our digital poster frames
change images in loops, with typically six images within each 60-second loop. The
visual size of the screens is typically 405mm by 305mm.We sell advertising space on our poster frame network on a per display basis. For
each frame that is upgraded from printed poster frame to digital frame, up to six
multiple digital images can now be displayed inside each physical frame and we
increases our available advertising inventory and opportunities for revenue.
 12




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Subway Advertising Platform
  Bus Advertising Platform
  Advertising Clients
     Relationships with Site Managers and Owners
    13




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Strategy
  Increased penetration of existing markets and expansion into new markets
 Diversify and increase media offerings and optimize our portfolio.
 Continue to implement an integrated sales approach and engage in cross-selling efforts.
 Pursue strategic alliances and acquisitions and integrate acquired businesses.
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Sales
   Competitive Advantages
  Nationwide coverage and leading market share.
 Extensive advertising network across multiple media platforms
 Scalable revenue model.
 Strong management team.
 15




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Competition
  
    
    Outdoor billboard platform. As the outdoor billboard market in China is largely
fragmented with no clear nationwide leader, we compete primarily with other local or
regional outdoor billboard owners and operators. We also compete with operators of
other forms of outdoor media, including digital outdoor displays and street furniture
advertising.
 
    
    In-elevator platform. We compete primarily with other nationwide operators of
in-elevator poster frame advertising. We may face competition in individual cities
from local and regional players and new entrants into the local and regional market
from time to time.
 
    
    Subway and bus advertising platform. We compete with other operators of subway
light box and bus-body advertising.
  Employees
   Intellectual Property
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Regulatory Matters
   Restrictions on Foreign Ownership in the Advertising Industry
  
    
    The Catalogue for Guiding Foreign Investment in Industry (2007);
 
    
    The Administrative Regulations on Foreign-invested Advertising Enterprises (2004),
as amended in 2008; and
 
    
    The Notice Regarding Investment in the Advertising Industry by Foreign Investors
Through Equity Acquisitions (2006).
     
    
    we are able to exert effective control over our consolidated PRC variable interest
entities;
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
    
    a substantial portion of the economic benefits of our consolidated PRC variable
interest entities are transferred to us; and
 
    
    we have an exclusive option to purchase all or part of the equity interests in our
consolidated PRC variable interest entities in each case when, and to the extent,
permitted by PRC law.
   Regulation of Advertising Services
  
    
    PRC Advertising Law (1994);
 
    
    The Advertising Administrative Regulations (1987); and
 
    
    The Implementing Rules for the Advertising Administrative Regulations (2004).
 Business License for Advertising Companies
  Advertising Content
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Print Advertising
  Outdoor Advertising
  
    
    utilize traffic safety facilities or traffic signs;
 
    
    impede the use of public facilities, traffic safety facilities or traffic signs;
 
    
    obstruct commercial or public activities or create an eyesore in urban areas;
 
    
    be placed in restrictive areas near government offices, cultural landmarks or
historical or scenic sites; or
 
    
    be placed in areas prohibited by the local governments from having outdoor
advertisements.
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Regulations on the Broadcast of Programming Content
  Regulations on Dividend Distribution
  
    
    The Company Law of the PRC (1993), as amended in 2005;
 
    
    Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000; and
 
    
    Wholly Foreign-Owned Enterprise Law Implementing Rules (1990), as amended in 2001.
  Regulations on Trademarks
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
    
    use of a trademark that is identical with or similar to a registered trademark in
respect of the same or similar commodities without the authorization of the trademark
registrant;
 
    
    sale of commodities infringing upon the exclusive right to use the trademark;
 
    
    counterfeiting or making, without authorization, representations of a registered
trademark of another person, or sale of such representations of a registered trademark;
 
    
    changing a registered trademark and selling products on which the altered registered
trademark is used without the consent of the trademark registrant; and
 
    
    otherwise infringing upon the exclusive right of another person to use a registered
trademark.
  Option 1
 Option 2
 
    
    injunctions;
 
    
    requiring the infringer to take steps to mitigate the damage (i.e., publish notices
in newspapers); and
 
    
    damages which are measured by either the gains acquired by the infringer from the
infringement, or the losses suffered by the trademark owner, including expenses
incurred by the trademark owner to claim and litigate such infringement. If it is
difficult to determine the gains acquired by the infringer from the infringement, or
the losses suffered by the trademark owner, the court may elect to award compensation
of not more than RMB500,000.
 Option 3
 SAFE Regulations on Offshore Investment by PRC Residents and Employee Stock Options
  21




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
    
    prior to establishing or assuming control of an offshore company for the purpose of
financing that offshore company with assets or equity interests in an onshore
enterprise in the PRC, each PRC resident, whether a natural or legal person, must
complete the overseas investment foreign exchange registration procedures with the
relevant local SAFE branch;
 
    
    an amendment to the registration with the local SAFE branch is required to be filed
by any PRC resident that directly or indirectly holds interests in that offshore
company upon either (1) the injection of equity interests or assets of an onshore
enterprise to the offshore company, or (2) the completion of any overseas fund raising
by such offshore company; and
 
    
    an amendment to the registration with the local SAFE branch is also required to be
filed by such PRC resident when there is any material change involving a change in the
capital of the offshore company, such as (1) an increase or decrease in its capital,
(2) a transfer or swap of shares, (3) a merger or division, (4) a long term equity or
debt investment, or (5) the creation of any security interests over the relevant assets
located in China.
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Regulation on Overseas Listing
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ITEM 1A. RISK FACTORS
 Risk Related to Our Business and Operations
 We have a history of significant operating losses and our future revenue and operating
profitability are uncertain.
  We have identified material weaknesses in our internal control over financial reporting and we have
had to restate our historical financial statements.
   We are subject to ongoing securities litigation and a government inquiry in the United States.
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We have been unable, to date, to integrate our acquisitions, and such inability could materially
and adversely impact our operations and our ability to detect and prevent financial irregularities.
   There may be additional risks inherent in the past acquisitions made by SearchMedia International
before the Business Combination, which could materially and adversely affect our business and
growth prospects and cause us to not realize the anticipated benefits of these acquisitions.
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Deterioration of economic conditions and a resulting decrease in demand for advertising services
would materially and adversely affect our financial condition and results of operations and limit
our growth prospects.
  A business strategy of making acquisitions subjects us to all of the risks inherent in identifying,
acquiring and operating newly acquired businesses.
  
    
    the potential disruption of our existing businesses, including the diversion of
management attention and the redeployment of resources;
 
    
    entering new markets or industries in which we have limited prior experience;
 
    
    failure to identify in due diligence key issues specific to the businesses we seek
to acquire or the industries or other environments in which they operate, or, failure
to protect against contingent liabilities arising from those issues;
 
    
    unforeseen or hidden liabilities;
 
    
    difficulties in integrating, aligning and coordinating organizations which will
likely be geographically separated and may involve diverse business operations and
corporate cultures;
 
    
    difficulties in integrating and retaining key management, sales, research and
development, production and other personnel;
 
    
    potential loss of key employees, clients or distribution partners of the acquired
businesses;
 
    
    difficulties in incorporating the acquired business into our organization;
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
    
    the potential loss of customers, distributors or suppliers;
 
    
    adverse effects on our existing business relationships with our advertisers;
 
    
    difficulties in integrating or expanding information technology systems and other
business processes to accommodate the acquired businesses;
 
    
    risks associated with integrating financial reporting and internal control systems;
 
    
    the potential for future impairments of goodwill if the acquired business does not
perform as expected;
 
    
    the inability to obtain necessary government approvals for the acquisition, if any;
and
 
    
    successfully operating the acquired business.
  Failure to manage our growth could strain our management, operational and other resources, which
could materially and adversely affect our business and growth potential.
  Future charges due to possible impairments of acquired assets may have a material adverse effect on
our financial condition and results of operations.
  We face significant competition for advertising spending from operators of new and traditional
advertising networks. If we cannot successfully compete, our results of operations would be
materially and adversely affected.
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We have a limited operating history which may make it difficult for you to evaluate our business
and prospects.
  If we fail to develop and maintain relationships with site owners, managers and sublessors that
provide us access to desirable locations and network platforms, our growth potential and our
business could be harmed.
  Failures to obtain site owners consents or objections from site owners to the installations of our
media products could lead to termination of our contracts or installations, which would harm our
results of operations.
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If we are unable to obtain or retain desirable placement locations for our advertising poster
frames and outdoor billboards on commercially advantageous terms, our operating margins and
earnings could decrease and our results of operations could be materially and adversely affected.
  We may not have sufficient liquidity to pay earn-out payments when they come due, which could
materially and adversely affect our operations.
   The shareholders of Jingli Shanghai may have potential conflicts of interest with us.
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Our business depends substantially on the continuing efforts of our senior executives, and our
business may be severely disrupted if we lose their services.
   If we are unable to adapt to changing advertising trends of advertisers and consumers, we will not
be able to compete effectively and we will be unable to increase or maintain our revenues, which
may materially and adversely affect our business prospects and revenues.
  Our growth could suffer if we fail to expand our media networks to include new media offerings,
media platforms or enter into new markets.
  If site managers or owners shut down our displays for site maintenance or other reasons, our
business could be adversely affected.
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Unauthorized use of our intellectual property by third parties, and the expenses incurred in
protecting our intellectual property rights, may adversely affect our business.
    We rely on computer software and hardware systems in managing our operations; any failure in these
systems could adversely affect our business, financial condition and results of operations.
  We have no business liability, disruption or litigation insurance, and we could incur substantial
costs if our business is disrupted due to natural disasters, litigation or other business
interruptions.
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Our operating results are difficult to predict and may fluctuate from period to period.
  
    
    our ability to maintain and increase sales to existing advertising clients, attract
new advertising clients and satisfy our clients demands;
 
    
    the frequency of our clients advertisements on our network;
 
    
    remaining competitive with the pricing strategies of our competitors;
 
    
    effects of strategic alliances, potential acquisitions and other business
combinations, and our ability to successfully and timely integrate alliances or
acquired businesses into our business;
 
    
    changes in government regulations in relation to the advertising industry;
 
    
    lower advertising spending immediately following a major holiday season in China;
and
 
    
    economic and geopolitical conditions in China and elsewhere.
  Jieli Network has not started its operation, which could cause Jieli Network to lose its business
license.
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Risks Relating to Doing Business in the Peoples Republic of China
 If the PRC government determines that the contractual arrangements that establish the structure for
operating our China business do not comply with applicable PRC laws and regulations, we could be
subject to severe penalties.
   
    
    revoking the business and operating licenses of Jingli Shanghai or our PRC
subsidiary and other affiliated entities, if any;
 
    
    discontinuing or restricting the operations of any transactions among our PRC
subsidiary, Jingli Shanghai and its shareholders;
 
    
    imposing fines, confiscating the income of Jingli Shanghai or our income, or
imposing other requirements with which we or our PRC subsidiary and affiliated entities
may not be able to comply;
 
    
    requiring us or our PRC subsidiary and affiliated entities to restructure our
ownership structure or operations; or
 
    
    restricting or prohibiting our use of the proceeds of the Business Combination to
finance our business and operations in China.
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We rely on contractual arrangements with Jingli Shanghai and its shareholders for our China
operations, which may not be as effective in providing operational control as would be the case
through ownership of a controlling equity interest in such operating entities.
    34




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Our affiliated entity may have engaged in business activities without necessary registration with
local authorities. This could subject us to fines and other penalties, which could have a material
adverse effect on our ability to operate our business.
  Adverse changes in economic and political policies of the PRC government could have a material
adverse effect on the overall economic growth of China, which could adversely affect our business.
  If advertising registration certificates are not obtained for advertisements on our outdoor
billboard or rapid transit networks, we may be subject to fines.
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Our outdoor billboards, light boxes and neon signs are subject to municipal zoning requirements,
governmental approvals and administrative controls. If we are required to tear down our
billboards, light boxes or neon signs as a result of these requirements, approvals or controls, our
operations could be materially and adversely affected.
  If we were deemed a resident enterprise by PRC tax authorities, we could be subject to tax on our
global income and our non-PRC shareholders could be subject to certain PRC taxes.
   We principally rely on dividends and other distributions on equity paid by our subsidiaries to fund
any cash and financing requirements we may have, and any limitation on the ability of our
subsidiaries and affiliated entities to make payments to us could have a material adverse effect on
our ability to conduct our business.
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Uncertainties with respect to the PRC legal system could adversely affect us.
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We may be subject to, and may expend significant resources in defending against, government actions
and civil suits based on the content and services we provide through our network.
     Governmental control of currency conversion may materially and adversely affect the value of your
investment. Substantial limitations may be imposed on the removal of funds from the PRC to the
Company, or the infusion of funds by us to our subsidiaries and affiliates located in the PRC.
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PRC regulations relating to the establishment of offshore special purpose vehicles by PRC residents
may subject our PRC resident shareholders or us to penalties and limit our ability to inject
capital into our PRC subsidiaries, limit our PRC subsidiaries ability to distribute profits to us,
or otherwise adversely affect us.
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PRC regulation of loans and direct investment by offshore holding companies to PRC entities may
delay or prevent us from using the proceeds of the business combination to make loans or additional
capital contributions to our PRC operating subsidiaries and affiliated entities.
  
    
    loans by us to our wholly-owned subsidiaries in China, each of which is a
foreign-invested enterprise, to finance the activities cannot exceed statutory limits
and must be registered with SAFE, or its local counterpart; and
 
    
    loans by us to Jingli Shanghai, which is a domestic PRC entity, may require the
approval from the relevant government authorities or registration with SAFE or its
local counterpart.
  Fluctuation in the value of the Renminbi may have a material adverse effect on your investment.
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Any health epidemics and other outbreaks, or war, acts of terrorism and other man -made or natural
disasters could severely disrupt our business operations.
   We are a Cayman Islands company and, because the rights of shareholders under Cayman Islands law
differ from those under U.S. law, you may have fewer protections as a shareholder.
  Our Board of Directors is subject to potential deadlock.
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As a foreign private issuer, we will be exempt from certain SEC requirements that provide
stockholders with protections and information that must be made available to stockholders of U.S.
public companies.
  
    
    the rules requiring the filing with the SEC of quarterly reports on Form 10-Q or
current reports on Form 8-K;
 
    
    the sections of the Exchange Act regulating the solicitation of proxies, consents or
authorizations with respect to a security registered under the Exchange Act;
 
    
    provisions of Regulation FD aimed at preventing issuers from making selective
disclosures of material non-public information; and
 
    
    the sections of the Exchange Act requiring insiders to file public reports of their
stock ownership and trading activities and establishing insider liability for profits
realized from any short swing trading transactions, or a purchase and sale, or a sale
and purchase, of the issuers equity securities within less than six months.
  Because we do not intend to pay dividends on our ordinary shares for the foreseeable future,
stockholders will benefit from an investment in our ordinary shares only if those shares appreciate
in value.
  Voting control by executive officers, directors and other affiliates of the company may limit your
ability to influence the outcome of director elections and other matters requiring shareholder
approval.
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The NYSE Amex may delist our securities from quotation on its exchange, which could limit
investors ability to make transactions in our securities and subject us to additional trading
restrictions.
  
    
    a limited availability of market quotations for our securities;
 
    
    a reduced liquidity with respect to our securities;
 
    
    a determination that our common stock is a penny stock which will require brokers
trading in our common stock to adhere to more stringent rules, possibly resulting in a
reduced level of trading activity in the secondary trading market for our common stock;
 
    
    a limited amount of news and analyst coverage for the company; and
 
    
    a decreased ability to issue additional securities or obtain additional financing in
the future.
   A significant number of shares will become eligible for future sale by our stockholders and the
sale of those shares could adversely affect the stock price .
  There is a risk that we could be treated as a U.S. domestic corporation for U.S. federal income tax
purposes after the Business Combination, which could result in significantly greater U.S. federal
income tax liability to us.
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There is a risk that we will be classified as a passive foreign investment company, or PFIC, which
could result in adverse U.S. federal income tax consequences to U.S. holders of ordinary shares or
warrants of SearchMedia.
   If you acquire (directly, indirectly, or constructively) 10% or more of our shares, you may be
subject to taxation under the controlled foreign corporation, or CFC rules.
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Risks Relating to Our Stockholders and Warrantholders
 We may choose to redeem our outstanding warrants at a time that is disadvantageous to the
warrantholders, preventing such holders from realizing the potential economic value of their
warrants.
  
    
    exercise the warrants and pay the exercise price for such warrants at a time when it
may be disadvantageous for the holders to do so;
 
    
    sell the warrants at the then-current market price when they might otherwise wish to
hold the warrants; or
 
    
    accept the nominal redemption price which, at the time the warrants are called for
redemption, is likely to be substantially less than the market value of the warrants.
 Our warrantholders may not be able to exercise their warrants, which may significantly reduce their
economic value and create liability for us.
  
    
    a current registration statement under the Securities Act relating to the ordinary shares underlying the warrants is then effective; and
 
    
    such shares are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of warrants reside.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
 Sid Murdeshwar, Individually and on Behalf of
All Others Similarly Situated, Plaintiff v. SearchMedia Holdings Limited f/k/a Ideation Acquisition
Corp., Robert N. Fried, Phillip Frost, Rao Uppaluri, Steven D. Rubin, Glenn Halpryn, Thomas E.
Beier, David H. Moskowitz, Shawn Gold, Garbo Lee, Paul Conway, Qinying Liu, Earl Yen, and Jennifer
Huang, Defendants
   
 ITEM 4. (REMOVED AND RESERVED)
 
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
  46




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Units (1)
    
    Common Stock
    
    WarrantsHigh
    
    Low
    
    High
    
    Low
    
    High
    
    Low2008First Quarter
    
    $
    7.90
    
    
    $
    7.30
    
    
    $
    7.10
    
    
    $
    7.10
    
    
    $
    0.70
    
    
    $
    0.35Second Quarter
    
    $
    7.85
    
    
    $
    7.35
    
    
    $
    7.11
    
    
    $
    7.11
    
    
    $
    0.40
    
    
    $
    0.29Third Quarter
    
    $
    8.10
    
    
    $
    7.25
    
    
    $
    8.10
    
    
    $
    7.15
    
    
    $
    0.44
    
    
    $
    0.25Fourth Quarter
    
    $
    7.20
    
    
    $
    6.85
    
    
    $
    7.20
    
    
    $
    6.75
    
    
    $
    0.71
    
    
    $
    0.032009First Quarter
    
    $
    7.70
    
    
    $
    7.17
    
    
    $
    7.55
    
    
    $
    7.18
    
    
    $
    0.15
    
    
    $
    0.03Second Quarter
    
    $
    8.72
    
    
    $
    7.41
    
    
    $
    7.86
    
    
    $
    7.50
    
    
    $
    0.69
    
    
    $
    0.11Third Quarter
    
    $
    9.82
    
    
    $
    8.15
    
    
    $
    7.99
    
    
    $
    7.69
    
    
    $
    1.69
    
    
    $
    0.48Fourth
Quarter (1)
    
    $
    
    
    
    $
    
    
    
    $
    9.20
    
    
    $
    7.09
    
    
    $
    3.14
    
    
    $
    1.41
  (1)
   
 ITEM 6. SELECTED FINANCIAL DATA
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ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The financial information presented in this Managements Discussion and Analysis of Financial
Condition and Results of Operations has been adjusted to reflect the restatement of our
consolidated financial statements as of and for the fiscal year ended December 31, 2008.
Specifically, we have restated our consolidated balance sheet and the related consolidated
statement of operations, consolidated statement of stockholders equity and consolidated statement
of cash flows as of and for the year ended December 31, 2008. The restatement is more fully
described in the Explanatory Note immediately preceding Part I, Item 1 and in Note 3 Restatement
of Consolidated Financial Statements of our Consolidated Financial Statements, which is included
in Financial Statements and Supplementary Data in Item 8 of this Annual Report on Form 10-K.
 You should read the following discussion in conjunction with our consolidated financial statements
and related notes included in Item 8 of this Annual Report on Form 10-K. This Annual Report on Form
10-K contains certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (PSLRA), Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended, (the
Exchange Act), about our expectations, beliefs, or intentions regarding our business, financial
condition, results of operations, strategies, or prospects. You can identify forward-looking
statements by the fact that these statements do not relate strictly to historical or current
matters. Rather, forward-looking statements relate to anticipated or expected events, activities,
trends, or results as of the date they are made. Because forward-looking statements relate to
matters that have not yet occurred, these statements are inherently subject to risks and
uncertainties that could cause our actual results to differ materially from any future results
expressed or implied by the forward-looking statements. Many factors could cause our actual
activities or results to differ materially from the activities and results anticipated in
forward-looking statements. These factors include those contained in Part I, Item 1A  Risk
Factors of this Annual Report on Form 10-K. We do not undertake any obligation to update
forward-looking statements. We intend that all forward-looking statements be subject to the safe
harbor provisions of PSLRA. These forward-looking statements are only predictions and reflect our
views as of the date they are made with respect to future events and financial performan
 Overview
   
    
    Outdoor billboard platform. As of March 31, 2010, we operate a network of over 1,500
high-impact billboards with over 500,000 square feet of surface display area in 15 cities,
including Beijing, Hong Kong, Qingdao, Shanghai, Shenyang, Shenzhen, Guangzhou, Chongqing
and Chengdu. Our billboards are mostly deployed in commercial centers and other desirable
areas with heavy vehicle or foot traffic.
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
    
    In-elevator platform. As of March 31, 2010, our network of over 125,000 printed and
digital poster frames delivered targeted advertising messages inside elevators to captive
audiences in high-rise residential and office buildings in 50 major cities in China. The
in-elevator platform is characterized by its low cost structure and minimal capital
requirements and targets the affluent urban population that is highly desired by
advertisers.
    
    Transit advertising platform. As of March 31, 2010, we operate a network of
large-format light boxes in concourses of 11 major subway lines in Shanghai. According to
the Metro Authority of Shanghai, in March 2010, these subway lines carried an aggregate
average daily traffic of approximately 5.65 million commuters. In addition, we also
operate a bus advertising network of 5,000 buses in Beijing.
    Industry Trends and Uncertainties
  
    
    Growth of the PRC economy and the advertising industry. The growth of
the PRC economy affects the size and growth rate of the advertising
industry in China. As the advertising industry is typically sensitive
to general economic conditions, any slowdown in the economy, such as
the recent worldwide economic downturn, could directly and adversely
affect the overall advertising spending in China by multinational and
domestic advertisers. The amount and timing of collection of
advertising fees from advertisers may also be negatively impacted as a
result, which could in turn affect our liquidity and results of
operations.
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
    
    Advertising spending and budget cycle of advertisers. Advertising
spending and budget cycle of advertisers will affect the amount and
timing of demand for our service offerings. In a contracted economy,
the budget size for advertising may be reduced. Advertisers may have
shorter budget cycles, may contract for shorter-term advertising
promotions and may seek a media platform with higher average returns
on their advertising spending.
    
    Advertisers marketing strategy and budget. Our revenues depend on
advertising spending budgeted by our clients for out-of-home
advertising, including offerings through our outdoor billboard,
in-elevator displays, street furniture and transit advertising
platforms. The level of acceptance of our platforms by advertisers and
the value of its advertising network relative to its low cost, as
perceived by our advertisers, affect our business growth.
    
    Competition and pricing pressure. The level of competition in the
out-of-home advertising market from existing operators and new market
entrants for clients and for media assets could affect opportunities
for growth, influence prices that we could charge for our advertising
services, and affect the leasing cost of advertising space. We compete
for advertising clients generally on the basis of network coverage,
service quality, technology, media offerings, services and brand name.
    
    Seasonality and One-Time Events. Although we do not experience
significant seasonality in our business, advertising spending is
affected by holidays and one-time events. Advertising spending for
outdoor media typically decreases during the Chinese New Year, which
occurs in the first calendar quarter of each year, and increases in
the last calendar quarter.
    
    Laws regulating advertising in the PRC. A change in PRC law or
government practice regulating the advertising industry in general and
our service platforms in particular could affect our results of
operations, in terms of compliance costs and scope of advertising
services offered to clients.
 Company Specific Trends and Uncertainties
  
    
    Ability to maintain market position and expand into new cities. The market for
out-of-home advertising services is relatively new and rapidly evolving, and as a
multi-platform media company with a presence in 50 cities in China, we compete with
different players across our platforms and cities of operation. For our in-elevator
advertising platform, we compete primarily with other nationwide operators of
in-elevator poster frame advertising. We may face competition in individual cities
from local and regional players and new entrants into the local and regional market
from time to time. For our billboard advertising platform, we compete against mostly
local or regional outdoor billboard owners and operators, as the outdoor billboard
market in China is largely fragmented. For our transit advertising platform, we
compete against other operators of subway light box and bus-body advertising. We also
compete for the advertising budget of advertisers with other operators of out-of-home
advertising and operators of other advertising media including television, radio,
newspapers, magazines and the Internet. Our continued ability to maintain our market
position is central to our ability to attract new clients, expand relationships with
site owners and managers and increase our revenues.
 50




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
    
    Ability to expand client base and increase the number of advertising contracts and
average revenues per contract. Our ability to expand our client base and increase the
number of advertising contracts and average revenues per contract is a key driver of
our revenue growth. We believe our extensive advertising network across multiple media
platforms allows us to act as a one-stop shop for advertising clients that seek
nationwide distribution of advertising content across multiple advertising channels,
including outdoor billboards, elevators and subway stations.
    
    Ability to sign and extend site leases for lower rentals. Our ability to generate
revenues and increase profitability from advertising sales depends largely on our
ability to provide a large network of our media products across media platforms at
desirable locations on commercially advantageous terms. The effectiveness of our
network also depends on the cooperation of site owners and managers to allow us to
install the desired types of poster frames at the desired spots on their properties
and, for in-elevator advertising to keep the elevators in operation and accessible to
the viewing public. In some cases, we have not maintained good relations and some of
our leases have been terminated or may be terminated in the future. In 2009, we did
not pay our lease payment obligations for many of the elevator leases in our Jingli
Shanghai elevator operations, which resulted in termination of many of these elevator
leases. If a significant number of our elevator leases are terminated and we fail to
develop relationships with potential lessors and sublessors of new sites, our business
could suffer as a result. As there is a limited supply of billboards at desirable
locations and a limited number of subway stations, the termination of a significant
number of the leases for billboards and light boxes at subway stations could harm our
multi-platform growth and operation strategies and our business and prospects could
suffer as a result.
    
    Ability to integrate acquired companies. We acquired a number of advertising
businesses in 2008. We have been trying to integrate and centralize the operational
accounting, legal, human resource and administrative functions of the acquired
companies. Such efforts, to date, have not been successful and our failure to
successfully integrate the acquired businesses creates a substantial risk that we may
not be able to fully realize the anticipated benefits of these acquisitions. The
extent to which we are able to successfully integrate the acquired companies into our
business, in terms of sales and marketing, client service, growth strategy and
corporate culture, will impact our results of operations.
    
    Ability to shorten accounts receivable collection period. As is consistent with the
payment terms and collection practice of the advertising industry in China, the
collection period of our accounts receivable is relatively long, which generally range
from three months to six months or longer from the invoicing date. Relative to direct
advertising clients, the collection period is longer for accounts receivable from
advertising agency clients. We expect such practice to continue in the foreseeable
future. The onset and deepening of the recent global financial and economic crises
could negatively impact the cash flows of our multinational and local clients and, in
turn, the amount and timing of the collection of accounts receivable from them.
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
    
    Ability to cross-sell. Our ability to increase revenues by effectively leveraging our
multi-platform advertising network will be determined by our ability to integrate our
sales efforts and successfully implementing cross-selling sales initiatives. To
further implement cross-selling initiatives, we plan to employ an integrated sales
approach under which we will coordinate the sales and maintenance teams across
platforms and geographic regions and provide them with the proper incentive structure
to encourage more cohesive and consistent services to our clients and a heightened
awareness of opportunities to cross-sell our media offerings while optimizing
advertising solutions for our clients.
    
    Ability to retain key employees and sales people. Recruiting and retaining a
team of senior executives, key employees and sales team with industry knowledge and
experience is essential to our continued success.
 Critical Accounting Policies and Estimates
   Revenue recognition
    52




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Accounts receivable and allowance for doubtful accounts
    Goodwill and Intangible Assets
   a.
    
    The aggregate of the following:
 1.
    
    The consideration transferred measured in accordance ASC 805, which generally
requires acquisition-date fair value.2.
    
    The fair value of any non-controlling interest in the acquiree.3.
    
    In a business combination achieved in stages, the acquisition-date fair value of
the acquirers previously held equity interest in the acquiree.
 b.
    
    The net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed measured in accordance with ASC 805.
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Impairment of long-lived assets
 a)
    
    Impairment of goodwill
  
    
    a significant adverse change in the business climate or legal factors;
    
    an adverse action or assessment by a regulator;
    
    unanticipated competition;
    
    loss of key personnel;
    
    the likelihood that a reporting unit or a significant portion of a reporting
unit will be sold or disposed of; and
    
    a change in reportable segments; and/or results of testing for recoverability
of a significant asset group within a reporting unit.
 54




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b)
    
    Impairment of long-lived assets other than goodwill
    55




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Fair Value of Financial Instruments
   
    
    Level 1  defined as observable inputs such as quoted prices in active markets;
    
    Level 2  defined as inputs other than quoted prices in active markets that are
either directly or indirectly observable; and
    
    Level 3  defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
  Share-based payments
   Options granted to employee:
    
    2009
    
    2008Risk-free rate of return
    
    
    3.43
    %
    
    
    3.43
    %Weighted average expected option life
    
    10 years
    
    10 yearsExpected volatility rate
    
    
    40.30
    %
    
    
    63.30
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
 56




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Recently issued accounting standards
  
    
    FASB Staff Position (FSP) FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (ASC Topic 820-10-65). This update
relates to determining fair values when there is no active market or where the price
inputs being used represent distressed sales. It reaffirms the need to exercise
judgment to ascertain if a formerly active market has become inactive and in
determining fair values when markets have become inactive.
    
    FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments (ASC topic 320-10-65). This update applies to
investments in debt securities for which other-than-temporary impairments may be
recorded. If an entitys management asserts that it does not have the intent to sell a
debt security and it is more likely than not that it will not have to sell the
security before recovery of its cost basis, then an entity may separate
other-than-temporary impairments into two components: 1) the amount related to credit
losses (recorded in earnings) and 2) all other amounts (recorded in Other
comprehensive income).
    
    FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial
Instruments (ASC Topic 820-10-65). This update requires a public traded company to
disclosure about the fair value of its financial instruments whenever it issues
summarized financial information for interim reporting periods.
   57




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Business Combinations
    58




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Other Accounting Changes
    59




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Restatement of consolidated financial statements
   
    
    Revenue recognition and accounts receivable issues;
    
    Disclosure, approval, and documentation of related entity transactions among entities related
to prior owners of acquired subsidiaries (related entity transactions);
    
    Recording various erroneous transactions by certain employees;
    
    Recording certain assets and other accounting irregularities related to acquisitions;
    
    Diligence and approval of questionable transactions; and
    
    Confirmation of payments related to acquisitions.
      60




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Balance sheet as of December 31, 2008(Amount in thousands)
    
    
    
    
    
    PreviouslyAssets
    
    Note
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedCurrent assets:Cash and cash equivalent
    
    
    a, b
    
    
    $
    5,715
    
    
    $
    (619
    )
    
    $
    5,096Restricted bank deposit
    
    
    a
    
    
    
    
    
    
    
    357
    
    
    
    357Accounts receivable, net
    
    
    b-e
    
    
    
    37,008
    
    
    
    (26,836
    )
    
    
    10,172Amounts due from related parties
    
    
    d, e
    
    
    
    11,493
    
    
    
    (8,235
    )
    
    
    3,258Prepaid expenses and other current assets
    
    
    b, g
    
    
    
    11,944
    
    
    
    (6,381
    )
    
    
    5,563Deferred tax assets
    
    
    j
    
    
    
    580
    
    
    
    708
    
    
    
    1,288Total current assets
    
    
    
    
    
    
    66,740
    
    
    
    (41,006
    )
    
    
    25,734Rental deposits
    
    
    
    
    
    
    169
    
    
    
    (169
    )
    
    
    Property and equipment, net
    
    
    j
    
    
    
    7,255
    
    
    
    (5,316
    )
    
    
    1,939Deposits for property and equipment
    
    
    g
    
    
    
    
    
    
    
    1,248
    
    
    
    1,248Deposits for acquisitions
    
    
    g
    
    
    
    6,229
    
    
    
    (1,716
    )
    
    
    4,513Intangible assets, net
    
    
    b, h
    
    
    
    5,235
    
    
    
    (1,949
    )
    
    
    3,286Goodwill
    
    
    b, i
    
    
    
    26,148
    
    
    
    (13,193
    )
    
    
    12,955Total assets
    
    
    
    
    
    $
    111,776
    
    
    $
    (62,101
    )
    
    $
    49,675
 Liabilities and shareholders (deficit) / equity
 PreviouslyNote
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedCurrent liabilities:Accounts payable
    
    
    b-e
    
    
    
    8,701
    
    
    
    (1,291
    )
    
    
    7,410Accrued expenses and other payables
    
    
    b,g
    
    
    
    13,218
    
    
    
    (2,641
    )
    
    
    10,577Short-term borrowings
    
    
    
    
    
    
    1,856
    
    
    
    
    
    
    
    1,856Promissory notes
    
    
    
    
    
    
    15,000
    
    
    
    
    
    
    
    15,000Acquisition payable
    
    
    g
    
    
    
    15,203
    
    
    
    (2,318
    )
    
    
    12,885Amounts due to related parties
    
    
    d, e
    
    
    
    717
    
    
    
    (120
    )
    
    
    597Deferred revenue
    
    
    c-e
    
    
    
    3,301
    
    
    
    (1,106
    )
    
    
    2,195Income taxes payable
    
    
    b-e
    
    
    
    9,787
    
    
    
    (5,958
    )
    
    
    3,829Total current liabilities
    
    
    
    
    
    
    67,783
    
    
    
    (13,434
    )
    
    
    54,349Deferred tax liabilities
    
    
    b-e, h
    
    
    
    1,297
    
    
    
    (489
    )
    
    
    808Total liabilities
    
    
    
    
    
    
    69,080
    
    
    
    (13,923
    )
    
    
    55,157Series B redeemable convertible
preferred shares
    
    
    
    
    
    
    24,906
    
    
    
    
    
    
    
    24,906Series C redeemable convertible
preferred shares
    
    
    k
    
    
    
    12,918
    
    
    
    314
    
    
    
    13,232Series A convertible preferred shares
    
    
    
    
    
    
    722
    
    
    
    
    
    
    
    722Common shares
    
    
    l
    
    
    
    3
    
    
    
    (3
    )
    
    
    Additional paid-in capital
    
    
    k
    
    
    
    2,083
    
    
    
    (698
    )
    
    
    1,385Accumulated other comprehensive income
    
    
    
    
    
    
    2,064
    
    
    
    (965
    )
    
    
    1,099Accumulated deficit
    
    
    k
    
    
    
    
    
    
    
    (46,826
    )
    
    
    (46,826
    )Total shareholders (deficit)/equity
    
    
    
    
    
    
    4,872
    
    
    
    (48,492
    )
    
    
    (43,620
    )Total liabilities and shareholders equity
    
    
    
    
    
    $
    111,776
    
    
    $
    (62,101
    )
    
    $
    49,675
 61




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Statements of operations for the year ended December 31, 2008
(Amount in thousands)
 PreviouslyNote
    
    
    Reported
    
    
    Adjustments
    
    
    RestatedAdvertising service revenues
    
    
    b-f
    
    
    $
    88,637
    
    
    $
    (46,952
    )
    
    $
    41,685Cost of revenues
    
    
    b-f
    
    
    
    (46,674
    )
    
    
    16,050
    
    
    
    (30,624
    )Gross profit
    
    
    
    
    
    
    41,963
    
    
    
    (30,902
    )
    
    
    11,061Operating expensesSales and marketing expenses
    
    
    g
    
    
    
    (7,397
    )
    
    
    1,234
    
    
    
    (6,163
    )General and administrative expenses
    
    
    g
    
    
    
    (11,727
    )
    
    
    (1,408
    )
    
    
    (13,135
    )Total operating expensesOperating loss
    
    
    
    
    
    
    22,839
    
    
    
    (31,076
    )
    
    
    (8,237
    )Other income / (expense)Interest income
    
    
    
    
    
    
    131
    
    
    
    
    
    
    
    131Interest expense
    
    
    k
    
    
    
    (8,922
    )
    
    
    6,205
    
    
    
    (2,717
    )Decrease in fair value of note warrant liability
    
    
    
    
    
    
    482
    
    
    
    (482
    )
    
    
    Loss on extinguishment of the notes
    
    
    
    
    
    
    (3,218
    )
    
    
    (1,182
    )
    
    
    (4,400
    )Loss on impairment of goodwill and Intangible
assets
    
    
    h,i
    
    
    
    
    
    
    
    (13,953
    )
    
    
    (13,953
    )Loss on impairment of fixed assets
    
    
    j
    
    
    
    
    
    
    
    (2,135
    )
    
    
    (2,135
    )Loss on disposals of fixed assets
    
    
    j
    
    
    
    
    
    
    
    (2,121
    )
    
    
    (2,121
    )Foreign currency exchange loss, net
    
    
    
    
    
    
    (167
    )
    
    
    
    
    
    
    (167
    )Income / (loss) before income taxes
    
    
    
    
    
    
    11,145
    
    
    
    (44,744
    )
    
    
    (33,599
    )Provision for income taxes
    
    
    b-e
    
    
    
    (6,802
    )
    
    
    5,321
    
    
    
    (1,481
    )Net income / (loss)
    
    
    
    
    
    $
    4,343
    
    
    $
    (39,423
    )
    
    $
    (35,080
    )
 62




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Statements of cash flow for the year ended December 31, 2008
(Amount in thousands)
 PreviouslyReported
    
    
    Adjustments
    
    
    RestatedNet income / (loss)
    
    
    4,343
    
    
    
    (39,423
    )
    
    
    (35,080
    )Depreciation and amortization of property and equipment
    
    
    1,188
    
    
    
    80
    
    
    
    1,268Amortization of intangible assets
    
    
    3,465
    
    
    
    (443
    )
    
    
    3,022Share-based compensation
    
    
    2,354
    
    
    
    (2,043
    )
    
    
    311Amortization of discount on convertible notes
    
    
    7,200
    
    
    
    (6,203
    )
    
    
    997Deferred tax (benefit) / expense
    
    
    (1,414
    )
    
    
    (726
    )
    
    
    (2,140
    )Decrease in fair value of note warrant liability
    
    
    (482
    )
    
    
    482
    
    
    
    Loss on extinguishment of the notes
    
    
    3,218
    
    
    
    1,182
    
    
    
    4,400Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    13,953
    
    
    
    13,953Loss on disposals of fixed assets
    
    
    
    
    
    
    2,135
    
    
    
    2,135Loss on impairment of fixed assets
    
    
    
    
    
    
    2,121
    
    
    
    2,121Bad debt provision
    
    
    
    
    
    
    703
    
    
    
    703Changes in operating assets and liabilities:Accounts receivable
    
    
    (30,026
    )
    
    
    20,413
    
    
    
    (9,613
    )Prepaid expenses, rental deposits and other current assets
    
    
    (7,713
    )
    
    
    3,125
    
    
    
    (4,588
    )Amounts due from related parties
    
    
    (11,472
    )
    
    
    9,297
    
    
    
    (2,175
    )Accounts payable
    
    
    7,171
    
    
    
    (861
    )
    
    
    6,310Accrued expenses and other payables
    
    
    8,548
    
    
    
    2,678
    
    
    
    11,226Amounts due to related parties
    
    
    (44
    )
    
    
    641
    
    
    
    597Deferred revenue
    
    
    1,977
    
    
    
    (18
    )
    
    
    1,959Income taxes payable
    
    
    7,965
    
    
    
    (4,822
    )
    
    
    3,143Net cash (generated from) / used in operating activities
    
    
    (3,722
    )
    
    
    2,271
    
    
    
    (1,451
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (3,410
    )
    
    
    (50
    )
    
    
    (3,460
    )Amounts due from related parties
    
    
    (195
    )
    
    
    195
    
    
    
    Cash paid for acquisitions, net of cash acquired
    
    
    (18,681
    )
    
    
    (2,563
    )
    
    
    (21,244
    )Net cash used in investing activities
    
    
    (22,286
    )
    
    
    (2,418
    )
    
    
    (24,704
    )Cash flows from financing activitiesDecrease in restricted bank deposit
    
    
    4,000
    
    
    
    (357
    )
    
    
    3,643Proceeds from short-term borrowings
    
    
    1,856
    
    
    
    
    
    
    
    1,856Repayment of short-term borrowings
    
    
    (2,084
    )
    
    
    
    
    
    
    (2,084
    )Proceeds from issuance of Series C redeemable convertible
preferred shares, net of issuance costs
    
    
    9,261
    
    
    
    
    
    
    
    9,261Proceeds from issuance of convertible promissory notes and
warrants
    
    
    12,000
    
    
    
    
    
    
    
    12,000Net cash provided by financing activities
    
    
    25,033
    
    
    
    (357
    )
    
    
    24,676Effect of foreign currency exchange rate changes on cash
    
    
    357
    
    
    
    (115
    )
    
    
    242Net decrease in cash and cash equivalent
    
    
    (618
    )
    
    
    (619
    )
    
    
    (1,237
    )Cash and cash equivalent at beginning of year
    
    
    6,333
    
    
    
    
    
    
    
    6,333Cash and cash equivalent at end of year
    
    $
    5,715
    
    
    $
    (619
    )
    
    $
    5,096
 63




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a)
    
    Two of our bank accounts in PRC in which an aggregate of $357 was deposited, were restricted
as to withdrawal and use as of December 31, 2008. The cash balance was reclassified to
restricted bank deposit.b)
    
    In July 2008, we signed an acquisition agreement to acquire Changsha Jingli which was
primarily engaged in the provision of advertising services using poster frames that are placed
inside elevators in residential and commercial buildings in Changsha city of the PRC. During a
financial review, an acquisition deposit of Changsha Jingli of $1,321, purportedly paid to a
third party, could not be confirmed. The ex-owner of Changsha Jingli denied signing any
contracts with us, bringing the acquisition of Changsha Jingli into doubt, as well as the
legality and enforceability of the acquisition agreement. Accordingly, the restated
consolidated financial statements for 2008 do not consolidate Changsha Jinglis financial
statements.The previously reported financial statements accounted for the acquisition in accordance with
ASC Topic 805, Business Combinations (formerly SFAS No. 141). At the acquisition date, we
recorded fair value of identifiable net assets of $205 and
acquisition deposit of $1,116.The following table summarizes operating results and the assets and liabilities of Changsha
Jingli consolidated by us for the six months ended and as of December 31, 2008 which were
excluded from the restated financial statements:
 Advertising Revenue
    
    $
    322Cost of Sales
    
    
    (48
    )Selling and marketing expenses
    
    
    (8
    )General and administrative expenses
    
    
    (73
    )Income tax
    
    
    (48
    )Net Income
    
    $
    145Cash
    
    $
    107Accounts receivable, net
    
    
    254Prepaid expenses and other current assets
    
    
    84Intangible assets
    
    
    27Accounts payable
    
    
    (34
    )Accrued expenses and other payables
    
    
    (54
    )Income taxes payable
    
    
    (64
    )Net assets
    
    $
    320
 64




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##### Table of Contents



c)
    
    A number of fictitious or questionable sales contracts in our in-elevator business, along
with related accounts receivable collections and various payments, which originated primarily
from Jingli. Apparent fictitious business transactions, forged contracts and monitoring
reports resulted were identified in overstated revenue of $23,692 and cost of $3,451.d)
    
    Numerous subway light box advertising contracts that appear to be overstated were identified.
Fictitious or questionable documentation regarding the delivery of services and the lack of business substance
resulted in overstated revenue of $7,254 and cost of $3,378.e)
    
    Failure to properly disclose, approve and document transactions among related entities, which
resulted in the overstatement of sales and costs of these companies in the operating results
of our subsidiaries, causing overstated revenue of $14,347 and cost of $8,053.f)
    
    In certain advertising arrangements, we acted as an agent in the transaction and should have
recorded advertising revenues on a net basis, causing both revenue and cost was overstated
by $1,280.g)
    
    Apparent erroneous or falsified expenses and payments, including acquisition payments, were identified. Total
acquisition payments through December 31, 2008 were overstated by $4,465. Prepaid assets and other receivable as of
December 31, 2008 was overstated by $3,372.h)
    
    Purchase price allocation of certain acquired subsidiaries was based on inflated revenue
forecasts and apparent fictitious lease contracts, which resulted in the overstatement of
acquired intangible assets by $1,949.i)
    
    Performed goodwill impairment assessment as of December 31, 2008 based on adjusted forecasts
resulted in an impairment loss of $13,026.j)
    
    A fixed asset count and reconciliation to register identified missing digital frames,
purported fictitious business transactions and falsified payments in 2008. Fixed
assets was overstated by $2,121. Certain fixed assets, which should have been impaired in
2008, amounted to $2,135 based on fair value as of the valuation date. The respective deferred tax impact was also considered.k)
    
    Equity and debt instruments issued during 2008 were issued based on apparent inflated
business projections, which resulted in an overstatement of their respective values and an
immediate and subsequent impact to the balance sheets and statement of operations.l)
    
    In connection with the reverse capitalization, SearchMedia Internationals ordinary shares
have been restated retroactively to reflect the share exchange ratio as at the date of the
Share Exchange in a manner similar to a stock consolidation.
 65




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Results of Operations
 For the Year ended December 31, 2009 compared to the Year ended December 31, 2008
  For the Year Ended December 31,
    
    
    Increase/
    
    
    Increase/(Amount in thousands)
    
    2009
    
    
    2008
    
    
    (Decrease)
    
    
    (Decrease) %(Restated)Revenues
    
    $
    37,741
    
    
    $
    41,685
    
    
    $
    (3,944
    )
    
    
    (9
    %)Cost of revenues
    
    
    (28,059
    )
    
    
    (30,624
    )
    
    
    2,565
    
    
    
    (8
    %)Gross profit
    
    
    9,682
    
    
    
    11,061
    
    
    
    (1,379
    )
    
    
    (12
    %)Operating expensesSales and marketing expenses
    
    
    (3,934
    )
    
    
    (6,163
    )
    
    
    2,229
    
    
    
    (36
    %)General and administrative expenses
    
    
    (13,832
    )
    
    
    (13,135
    )
    
    
    (697
    )
    
    
    5
    %Total operating expenses
    
    
    (17,766
    )
    
    
    (19,298
    )
    
    
    1,532
    
    
    
    (8
    %)Loss from operations
    
    
    (8,084
    )
    
    
    (8,237
    )
    
    
    153
    
    
    
    (2
    %)Other income/(expense)Interest income
    
    
    11
    
    
    
    131
    
    
    
    (120
    )
    
    
    (92
    %)Interest expense
    
    
    (1,962
    )
    
    
    (2,717
    )
    
    
    755
    
    
    
    (28
    %)Decrease in fair value of
liability warrant
    
    
    824
    
    
    
    
    
    
    
    824
    
    
    
    100
    %Gain/(loss) on extinguishment of
the notes
    
    
    6,669
    
    
    
    (4,400
    )
    
    
    11,069
    
    
    
    (252
    %)Loss on impairment of goodwill and
intangible assets
    
    
    (15,748
    )
    
    
    (13,953
    )
    
    
    (1,795
    )
    
    
    13
    %Loss on impairment of fixed assets
    
    
    
    
    
    
    (2,135
    )
    
    
    2,135
    
    
    
    (100
    %)Loss on disposals of fixed assets
    
    
    (15
    )
    
    
    (2,121
    )
    
    
    2,106
    
    
    
    (99
    %)Foreign currency exchange loss, net
    
    
    (25
    )
    
    
    (167
    )
    
    
    142
    
    
    
    (85
    %)Total other (expense)
    
    
    (10,246
    )
    
    
    (25,362
    )
    
    
    15,116
    
    
    
    (60
    %)Loss before income taxes
    
    
    (18,330
    )
    
    
    (33,599
    )
    
    
    15,269
    
    
    
    (45
    %)Provision for income taxes
    
    
    (4,319
    )
    
    
    (1,481
    )
    
    
    (2,838
    )
    
    
    192
    %Net loss
    
    $
    (22,649
    )
    
    $
    (35,080
    )
    
    $
    12,931
    
    
    
    (35
    %)
 Revenue
 
    
    Outdoor billboard platform. We typically sign advertising contracts with terms ranging
from 6 to 24 months for billboard advertisements. Each contract will typically specify the
billboard location, measurement and the price. The contract price varies substantially
from contract to contract,
based on the location and measurement of the billboard. Deposits or progress payments are
typically required at various stages of the contract performance, such as signing of
contract, confirmation of content and completion of service period.
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
    
    In-elevator platform. We typically sign advertising contracts with terms ranging from
one to six months for in-elevator advertisements. Typically, we negotiate for a contract
price for covering a set of cities or districts within cities. We may sometimes help
certain clients design a detailed plan, based on the contract price and targeted
demographics, with particular buildings where the advertisements will be displayed within
the cities or districts specified under the contract. Progress payments are typically
required at various stages of the contract performance.
    
    Subway and Bus advertising platform. We typically sign advertising contracts with
terms ranging from one to three months for subway and bus advertisements. The price
typically consists of advertising fees and production fees for subway and bus
advertisements. Typically, the contracts specify a certain combination of subway stations
and bus lines and we have the discretion to assign specific subway light boxes and bus
lines for each contract. Service payments are typically required at pre-specified dates
prior to the completion of the contract.
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Cost of revenues
  Gross profit
 Operating expenses
  
    
    Sales and marketing expenses. Sales and marketing expenses declined from $6.2 million
for the year ended December 31, 2008 to $3.9 million for the year ended December 31, 2009,
primarily as a result of the reduction of selling expenses from $4.3 million in 2008 to
$2.2 million in 2009. Selling expenses include sales commissions, which decreased from $1.1
million in 2008 to $0.5 million in 2009 primarily due to lower sales revenues. Business
development commissions decreased from $1.2 million in 2008 to $0.5 million in 2009
primarily due to the reduced elevator network in 2009.
    
    General and administrative expenses. General and administrative expenses increased from
$13.1 million for 2008, to $13.8 million for 2009.The following table describes our general and administrative expenses for the years ended
December 31, 2009 and 2008. The increase in bad debt expenses is primarily due to an
increase in bad debt for elevator subsidiaries. Salary staff declined
from $5.5 million to
$2.8 million as a result of increased efficiencies in our infrastructure and a reduction in
staff. Professional fees in 2009 were $1.4 million higher than in 2008, primarily due to the
expenses related to the completion of the Business Combination.
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For the Year Ended December 31(Amounts in thousands)
    
    2009
    
    
    2008(Restated)Bad debt expense
    
    $
    1,611
    
    
    $
    703Professional fee
    
    
    4,759
    
    
    
    3,321Salary expense
    
    
    2,785
    
    
    
    5,466Rental expense
    
    
    1,643
    
    
    
    1,854Other G&A expense
    
    
    3,034
    
    
    
    1,791$
    13,832
    
    
    $
    13,135
 Other expenses
 
    
    Interest expense. Interest expense costs consist predominately of non-cash financial
charges related to investments in SearchMedia International prior to the completion of the
Business Combination. Interest expense decreased from $2.7 million for 2008 to $1.9
million for 2009. The 2008 amount primarily relates to the amortization of convertible
promissory notes discount of $0.9 million, interest of $0.7 million on the convertible
promissory notes and a $0.6 million interest on New Note, First Interim Notes and
short-term loan from a third party lender. The 2009 amount primarily
consists of $1.0
million of interest expense on the convertible promissory note.
    
    Gain/Loss on extinguishment of the notes. On September 17, 2008, certain notes issued
by SearchMedia International in March 2008 were cancelled by the holder. The notes, with a
principal sum of $10 million plus accrued interest of $0.6 million and all the related
conversion rights, were cancelled in exchange for a new note with a principal sum of $15
million, which bears interest at 12% per annum and has no conversion right. As a result of
the cancellation of the notes in exchange for the promissory note, a loss on
extinguishment of the notes of $4.4 million was recognized in the statement of income for
the year ended December 31, 2008, which represented the difference between the carrying
value of the new note of $15.0 million and the sum of the carrying value of the
convertible promissory notes of $10.0 million, related accrued interest of $0.6 million.
    
    Loss on impairment of goodwill and intangible assets. As a result of the reduction of
the estimated value of as part of annual impairment tests, goodwill was reduced by $13.9
million in 2008 and $15.7 million in 2009, respectively.
    
    Loss on disposal and impairment of fixed assets. In fourth quarter of 2008, we
determined that a substantial portion of equipment for billboard displays related to the
Shanghai Bund project may not be effectively utilized in the future due to the decision to
halt marketing plans due to the unfavorable economic environment and concession site
reconstruction. As a result, we recorded a $2.1 million impairment loss. We also disposed
approximately $2.1 million of digital and poster frame in the year ended December 31,
2008.
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
    
    Provision for income taxes. Income tax expense increased from $1.5 million in 2008 to
$4.3 million in 2009. Although we had consolidated net loss, the PRC statutory tax rate
was 25% for our subsidiaries with net income. Increase in income tax expense was  due
to the fact that our administrative and interest expenses and certain operating expenses
for our consolidated variable interest entities, and also the
goodwill impairment were not deductible for income tax
purposes.
 Net
loss
 Cash Flow Analysis
  For the Years Ended December 31,(Amounts in thousands)
    
    2009
    
    
    2008(Restated)Net cash used in operating activities
    
    $
    (8,775
    )
    
    $
    (1,451
    )Net cash used in investing activities
    
    
    (40,593
    )
    
    
    (24,704
    )Net cash provided by financing activities
    
    
    73,665
    
    
    
    24,676Foreign currency translation adjustment
    
    
    5
    
    
    
    242Net increase/(decrease) in cash and cash equivalents
    
    
    24,302
    
    
    
    (1,237
    )Cash and cash equivalents at beginning of year
    
    
    5,096
    
    
    
    6,333Cash and cash equivalents at end of year
    
    $
    29,398
    
    
    $
    5,096
 Cash
Flows from Operating Activities
 Cash
Flows from Investing Activities
  
    
    a $19.4 million increase in cash paid for acquisitions in 2009 compared to 2008;
    
    a $3.3 million decrease in capital expenditures in 2009
compared to 2008; and
    
    a $0.2 million increase in proceeds from disposals of
property and equipment.
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Cash
Flows from Financing Activities
 Cash
  Liquidity and Capital Resources
     71




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Off-Balance Sheet Commitments and Arrangements
  Effect of Inflation
  
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  72




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
SEARCHMEDIA HOLDINGS LIMITED
 Report of Independent Registered Public Accounting Firm
    
    
    74Consolidated Balance Sheets as of December 31, 2009 and 2008 (Restated)
    
    
    75Consolidated Statements of Operations for the Years Ended December 31, 2009 and 2008 (Restated)
    
    
    76Consolidated Statements of Changes in Equity and Comprehensive Loss for the Years Ended December 31, 2009 and 2008 (Restated)
    
    
    77Consolidated Statements of Cash Flows for the Years Ended December 31, 2009 and 2008 (Restated)
    
    
    78Notes to the Consolidated Financial Statements for the Years Ended December 31, 2009 and 2008 (Restated)
    
    
    80
  73




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SEARCHMEDIA HOLDINGS LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 (Amounts in thousands, except share data)
 As of December 31,2009
    
    2008(Restated)ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    29,398
    
    
    $
    5,096Restricted cash
    
    
    270
    
    
    
    357Accounts receivable, net
    
    
    12,996
    
    
    
    10,172Amounts due from related parties
    
    
    2,840
    
    
    
    3,258Prepaid expenses and other current assets
    
    
    4,656
    
    
    
    5,563Deferred tax assets
    
    
    480
    
    
    
    1,288Total current assets
    
    
    50,640
    
    
    
    25,734NON-CURRENT ASSETSProperty and equipment, net
    
    
    1,405
    
    
    
    1,939Deposits for property and equipment
    
    
    553
    
    
    
    1,248Deposits for acquisitions
    
    
    
    
    
    
    4,513Intangible assets, net
    
    
    1,276
    
    
    
    3,286Goodwill
    
    
    45,891
    
    
    
    12,955Total assets
    
    $
    99,765
    
    
    $
    49,675LIABILITIES & SHAREHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    9,013
    
    
    $
    7,410Accrued expenses and other payables
    
    
    15,898
    
    
    
    10,577Short-term borrowings
    
    
    654
    
    
    
    1,856Promissory notes
    
    
    
    
    
    
    15,000Acquisition consideration payable
    
    
    16,381
    
    
    
    12,885Amounts due to related parties
    
    
    346
    
    
    
    597Deferred revenue
    
    
    1,902
    
    
    
    2,195Income taxes payable
    
    
    6,855
    
    
    
    3,829Total current liabilities
    
    
    51,049
    
    
    
    54,349NON-CURRENT LIABILITIESDeferred tax liabilities
    
    
    316
    
    
    
    808Total liabilities
    
    
    51,365
    
    
    
    55,157Series B redeemable convertible preferred shares
    
    
    
    
    
    
    24,906Series C redeemable convertible preferred shares
    
    
    
    
    
    
    13,232SHAREHOLDERS EQUITYSeries A convertible preferred shares  $0.0001
par value; 20,000,000 shares authorized,
675,374 and 0 shares issued and outstanding
in 2009 and 2008, respectively
    
    
    
    
    
    
    722Common Shares  $0.0001 par value,
50,000,000 shares authorized, 20,758,368 and
2,169,269 shares issued and outstanding in 2009
and 2008, respectively
    
    
    2
    
    
    
    Additional paid-in capital
    
    
    122,922
    
    
    
    1,385Accumulated other comprehensive income
    
    
    1,050
    
    
    
    1,099Accumulated deficit
    
    
    (75,574
    )
    
    
    (46,826
    )Total shareholders equity/(deficit)
    
    
    48,400
    
    
    
    (43,620
    )Total liabilities and shareholders equity
    
    $
    99,765
    
    
    $
    49,675
  75




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SEARCHMEDIA HOLDINGS LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (Amounts in thousands, except share data)
 For the Year Ended December 312009
    
    2008(Restated)Advertising service revenues
    
    $
    37,741
    
    
    $
    41,685Cost of revenues
    
    
    (28,059
    )
    
    
    (30,624
    )Gross profit
    
    
    9,682
    
    
    
    11,061Operating expensesSales and marketing expenses
    
    
    (3,934
    )
    
    
    (6,163
    )General and administrative expenses
    
    
    (13,832
    )
    
    
    (13,135
    )Loss from operations
    
    
    (8,084
    )
    
    
    (8,237
    )Other income/(expense)Interest income
    
    
    11
    
    
    
    131Interest expense
    
    
    (1,962
    )
    
    
    (2,717
    )Decrease in fair value of liability warrant
    
    
    824
    
    
    
    Gain/(loss) on extinguishment of  notes
    
    
    6,669
    
    
    
    (4,400
    )Loss on impairment of goodwill and intangible assets
    
    
    (15,749
    )
    
    
    (13,953
    )Loss on impairment of fixed assets
    
    
    
    
    
    
    (2,135
    )Loss on disposals of fixed assets
    
    
    (15
    )
    
    
    (2,121
    )Foreign currency exchange loss, net
    
    
    (24
    )
    
    
    (167
    )Loss before income taxes
    
    
    (18,330
    )
    
    
    (33,599
    )Provision for income taxes
    
    
    (4,319
    )
    
    
    (1,481
    )Net loss
    
    $
    (22,649
    )
    
    $
    (35,080
    )Loss per shareBasic
    
    $
    (0.0044
    )
    
    $
    (0.0162
    )Weighted average number of shares outstanding  Basic
    
    
    5,100,465
    
    
    
    2,169,269
  76




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SEARCHMEDIA HOLDINGS LIMITED
 
 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY  AND COMPREHENSIVE (LOSS)/INCOME
 (Amounts in thousands, except share data)
 Series A convertibleCommon Stock
    
    
    preferred shares
    
    
    Additional
    
    
    Other
    
    
    (Accumulated
    
    
    Total
    
    
    ComprehensiveNumber of
    
    
    
    
    
    
    Number
    
    
    Amounts
    
    
    paid-in
    
    
    comprehensive
    
    
    deficit)/retained
    
    
    shareholders
    
    
    Lossshares
    
    
    Amount
    
    
    of shares
    
    
    US$
    
    
    capital
    
    
    income/(loss)
    
    
    earnings
    
    
    (deficit)/equity
    
    
    AmountBeginning as of January 1, 2008 (Restated)
    
    
    2,169,269
    
    
    $
    
    
    
    
    675,374
    
    
    $
    722
    
    
    $
    389
    
    
    $
    201
    
    
    $
    (4,937
    )
    
    $
    (3,625
    )
    
    
    (9,426
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,080
    )
    
    
    (35,080
    )
    
    $
    (35,080
    )Foreign currency exchange translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    898
    
    
    
    
    
    
    
    898
    
    
    
    898Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (34,182
    )Convertible note beneficial conversion feature
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Extinguishment of the notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accretion to Series B redeemable convertible
preferred shares redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (414
    )
    
    
    
    
    
    
    (4,758
    )
    
    
    (5,172
    )Accretion to Series C redeemable convertible
preferred shares redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,949
    )
    
    
    (1,949
    )Note warrant transferred to equity warrant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    997
    
    
    
    
    
    
    
    
    
    
    
    997Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    311
    
    
    
    
    
    
    
    
    
    
    
    311Statuary reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    (102
    )
    
    
    Balance as of December 31, 2008 (Restated)
    
    
    2,169,269
    
    
    
    
    
    
    
    675,374
    
    
    
    722
    
    
    
    1,385
    
    
    
    1,099
    
    
    
    (46,826
    )
    
    
    (43,620
    )Cumulative effect of reclassification of
warrants under EITF 07-5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    520
    
    
    
    520Note warrant transferred from equity  to
liability  under EITF 07-5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (997
    )
    
    
    
    
    
    
    
    
    
    
    (997
    )Warrant B transferred from equity  to
liability  under EITF 07-5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (388
    )
    
    
    
    
    
    
    
    
    
    
    (388
    )Balance
as of  January 1, 2009, as adjusted
    
    
    2,169,269
    
    
    
    
    
    
    
    675,374
    
    
    
    722
    
    
    
    
    
    
    
    1,099
    
    
    
    (46,306
    )
    
    
    (44,485
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,649
    )
    
    
    (22,649
    )
    
    
    (22,649
    )Foreign currency exchange translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (49
    )
    
    
    
    
    
    
    (49
    )
    
    
    (49
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,698
    )Return of shares  by certain
shareholders
    
    
    (100,338
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Repurchase from shareholders
    
    
    (79,579
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (628
    )
    
    
    
    
    
    
    
    
    
    
    (628
    )Accretion to Series B redeemable convertible
preferred shares redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,525
    )
    
    
    (3,525
    )Accretion to Series C redeemable convertible
preferred shares redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,058
    )
    
    
    (3,058
    )Statuary reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36
    
    
    
    
    
    
    
    (36
    )
    
    
    Conversion of Series A to common shares
    
    
    675,374
    
    
    
    
    
    
    
    (675,374
    )
    
    
    (722
    )
    
    
    722
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series B to common shares
    
    
    2,205,549
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,931
    
    
    
    
    
    
    
    
    
    
    
    26,931Conversion of Series C to common shares
    
    
    1,712,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,790
    
    
    
    
    
    
    
    
    
    
    
    17,790Conversion
of promissory note to common shares
    
    
    1,712,874
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,830
    
    
    
    
    
    
    
    
    
    
    
    6,830Reverse
acquisition of Ideation
    
    
    12,462,345
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    69,253
    
    
    
    
    
    
    
    
    
    
    
    69,255IDI warrant transferred to APIC under EITF 07-5
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,577
    
    
    
    
    
    
    
    
    
    
    
    1,577Share-based compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    411
    
    
    
    
    
    
    
    
    
    
    
    411Balance as of December 31, 2009
    
    
    20,758,368
    
    
    $
    2
    
    
    
    
    
    
    $
    
    
    
    $
    122,922
    
    
    $
    1,050
    
    
    $
    (75,574
    )
    
    $
    48,400
  77




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SEARCHMEDIA HOLDINGS LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Amounts in thousands, except share data)
 For the Year Ended December 31,2009
    
    2008(Restated)CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (22,649
    )
    
    $
    (35,080
    )Adjustments
to reconcile net income to net cash / (used in)
operating activities:Depreciation and amortization of property and equipment
    
    
    399
    
    
    
    1,268Amortization of intangible assets
    
    
    2,015
    
    
    
    3,022Share-based compensation
    
    
    411
    
    
    
    311Amortization of discount on convertible notes
    
    
    
    
    
    
    997Deferred tax expenses / (benefit)
    
    
    825
    
    
    
    (2,140
    )Decrease in fair value of note warrant liability
    
    
    (824
    )
    
    
    (Gain) / loss on extinguishment of the notes
    
    
    (6,669
    )
    
    
    4,400Loss on impairment of goodwill and intangible assets
    
    
    15,749
    
    
    
    13,953Loss on impairment of fixed assets
    
    
    
    
    
    
    2,135Loss on disposals of fixed assets
    
    
    15
    
    
    
    2,121Bad debt provision
    
    
    1,611
    
    
    
    703Changes in operating assets and liabilities, net of effect of
acquisitions for 2008:(Increase) / decrease in assets:Accounts receivable
    
    
    (4,434
    )
    
    
    (9,613
    )Prepaid expenses, rental deposits and other current assets
    
    
    1,737
    
    
    
    (4,588
    )Amounts due from related parties
    
    
    417
    
    
    
    (2,175
    )Increase / (decrease) in liabilities:Accounts payable
    
    
    1,603
    
    
    
    6,310Accrued expenses and other payables
    
    
    (1,462
    )
    
    
    11,226Amounts due to related parties
    
    
    (252
    )
    
    
    597Deferred revenue
    
    
    (293
    )
    
    
    1,959Income taxes payable
    
    
    3,026
    
    
    
    3,143Net cash (used in) operating activities
    
    
    (8,775
    )
    
    
    (1,451
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment
    
    
    (150
    )
    
    
    (3,460
    )Proceeds from disposals of property and  equipment
    
    
    244
    
    
    
    Cash paid for acquisitions, net of cash acquired
    
    
    (40,687
    )
    
    
    (21,244
    )Net cash used in investing activities
    
    
    (40,593
    )
    
    
    (24,704
    )CASH FLOWS FROM FINANCING ACTIVITIESDecrease in restricted bank deposit
    
    
    87
    
    
    
    3,643Proceeds from short-term borrowings
    
    
    688
    
    
    
    1,856Repayment of short-term borrowings
    
    
    (1,855
    )
    
    
    (2,084
    )Proceeds
from issuance of Series C redeemable convertible
preferred shares and warrants, net of issuance costs
    
    
    
    
    
    
    9,261Proceeds
from issuance of convertible promissory notes and
warrants
    
    
    3,672
    
    
    
    12,000Repayment of
promissory note
    
    
    (5,000
    )
    
    
    
 78




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##### Table of Contents



For the Year Ended December 31,2009
    
    2008(Restated)Cash from Ideation upon business combination
    
    
    76,073
    
    
    
    Net cash provided by financing activities
    
    
    73,665
    
    
    
    24,676Foreign currency translation adjustment
    
    
    5
    
    
    
    242Net increase / (decrease) in cash and cash equivalents
    
    
    24,302
    
    
    
    (1,237
    )Cash and cash equivalents at beginning of year
    
    
    5,096
    
    
    
    6,333Cash and cash equivalents at end of year
    
    $
    29,398
    
    
    $
    5,096SUPPLEMENTAL DISCLOSURE INFORMATIONCash paid for interest
    
    
    2,477
    
    
    
    33Cash paid for income taxes
    
    
    381
    
    
    
    251Non-cash investing transactions:Acquisition consideration payable
    
    
    16,381
    
    
    
    12,885Payable in connection with purchase of property and equipment
    
    
    
    
    
    
    414Non-cash financing transactions:Issuance costs payable in respect of Series C redeemable
convertible preferred shares
    
    
    
    
    
    
    98
  79




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##### Table of Contents



SEARCHMEDIA HOLDINGS LIMITED

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share data)
 1. Principal activities, organization and basis of presentation
 (a) Principal activities
  (b) 2009 reorganization and accounting treatment
   Business Combinations)
 Business Combinations
 80




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##### Table of Contents



(c) Organization and basis of presentation
  Consolidation
   Name of entity
    
    Place of incorporationShanghai Jincheng Advertising Co., Ltd. (Jincheng)
    
    PRCShaanxi Xinshichuang Advertising Planning Co., Ltd. (Xinshichuang)
    
    PRCBeijing Wanshuizhiyuan Advertising Co., Ltd. (Wanshuizhiyuan)
    
    PRCShenyang Jingli Advertising Co., Ltd. (Shenyang Jingli)
    
    PRCQingdao Kaixiang Advertising Co., Ltd. (Kaixiang)
    
    PRCShanghai Haiya Advertising Co., Ltd. (Haiya)
    
    PRCTianjin Shengshitongda Advertising Creativity Co., Ltd. (Shengshitongda)
    
    PRCShanghai Botang Advertising Co., Ltd. (Botang)
    
    PRCAd-Icon Company Limited (HK Ad-Icon)
    
    HKSARWenzhou Rigao Advertising Co., Ltd. (Wenzhou Raigo)
    
    PRCWuxi Ruizhong Advertising Co., Ltd. (Wuxi Ruizhong)
    
    PRC
   81




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##### Table of Contents



2. Summary of significant accounting policies
 (a) Basis of preparation
      (b) Use of estimates
  (c) Foreign currency transactions and translation
   82




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##### Table of Contents



(d) Cash and cash equivalents
    (e) Restricted cash
  (f) Accounts receivable
  (g) Property and equipment
  Leasehold improvements
    
    
    1 to 3 yearsAdvertisement display equipment
    
    5 yearsFurniture, fixtures and office equipment
    
    5 yearsMotor vehicles
    
    5 years
  83




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##### Table of Contents



(h) Intangible assets
  (i) Goodwill
 Intangibles  Goodwill and Other
  a.
    
    The aggregate of the following:
 1.
    
    The consideration transferred measured in accordance ASC 805, which generally requires
acquisition-date fair value.2.
    
    The fair value of any noncontrolling interest in the acquiree.3.
    
    In a business combination achieved in stages, the acquisition-date fair value of the
acquirers previously held equity interest in the acquiree.
 b.
    
    The net of the acquisition-date amounts of the identifiable assets acquired and the
liabilities assumed measured in accordance with ASC 805.
  (j) Impairment of long-lived assets
  
    
    a significant adverse change in the business climate or legal factors;
    
    an adverse action or assessment by a regulator;
    
    unanticipated competition;
    
    loss of key personnel;
    
    the likelihood that a reporting unit or a significant portion of a reporting unit will
be sold or disposed of;
    
    a change in reportable segments; and/or results of testing for recoverability of a
significant asset group within a reporting unit.
   84




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##### Table of Contents



Impairment or Disposal of Long-Lived Assets
    (k) Fair Value of Financial Instruments
   
    
    Level 1  defined as observable inputs such as quoted prices in active markets;
    
    Level 2  defined as inputs other than quoted prices in active markets that are either
directly or indirectly observable; and
    
    Level 3  defined as unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own assumptions.
  (l) Revenue recognition
  85




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##### Table of Contents



(m) Cost of revenues
  (n) Operating leases
  (o) Advertising and promotion costs
  (p) Retirement and other post-retirement benefits
    (q) Share-based payments
 CompensationStock
Compensation
 (r) Income taxes
  86




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##### Table of Contents



Income Taxes
 (s) Earnings/(loss) per share
   (t) Segment reporting
 Segment Reporting
 (u) Significant concentrations and risks
  (v) Recently issued accounting standards
    87




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88




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##### Table of Contents



3. Restatement of consolidated financial statements
   
    
    Revenue recognition and accounts receivable issues;
    
    Disclosure, approval, and documentation of related entity transactions among entities related to prior owners of acquired
subsidiaries (related entity transactions);
    
    Recording various erroneous transactions by certain employees;
    
    Recording certain assets and other accounting irregularities related to acquisitions;
    
    Diligence and approval of questionable transactions; and
    
    Confirmation of payments related to acquisitions.
       89




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##### Table of Contents



Balance sheet as of December 31, 2008
 PreviouslyNote
    
    Reported
    
    
    Adjustments
    
    
    RestatedAssetsCurrent assets:Cash and cash equivalent
    
    a, b
    
    $
    5,715
    
    
    $
    (619
    )
    
    $
    5,096Restricted bank deposit
    
    a
    
    
    
    
    
    
    357
    
    
    
    357Accounts receivable, net
    
    b-e
    
    
    37,008
    
    
    
    (26,836
    )
    
    
    10,172Amounts due from related parties
    
    d, e
    
    
    11,493
    
    
    
    (8,235
    )
    
    
    3,258Prepaid expenses and other current assets
    
    b, g
    
    
    11,944
    
    
    
    (6,381
    )
    
    
    5,563Deferred tax assets
    
    j
    
    
    580
    
    
    
    708
    
    
    
    1,288Total current assets
    
    
    
    
    66,740
    
    
    
    (41,006
    )
    
    
    25,734Rental deposits
    
    
    
    
    169
    
    
    
    (169
    )
    
    
    Property and equipment, net
    
    j
    
    
    7,255
    
    
    
    (5,316
    )
    
    
    1,939Deposits for property and equipment
    
    g
    
    
    
    
    
    
    1,248
    
    
    
    1,248Deposits for acquisitions
    
    g
    
    
    6,229
    
    
    
    (1,716
    )
    
    
    4,513Intangible assets, net
    
    b, h
    
    
    5,235
    
    
    
    (1,949
    )
    
    
    3,286Goodwill
    
    b, i
    
    
    26,148
    
    
    
    (13,193
    )
    
    
    12,955Total assets
    
    
    
    $
    111,776
    
    
    $
    (62,101
    )
    
    $
    49,675
 Liabilities and shareholders (deficit) / equity
 PreviouslyNote
    
    Reported
    
    
    Adjustments
    
    
    RestatedCurrent liabilities:Accounts payable
    
    b-e
    
    
    8,701
    
    
    
    (1,291
    )
    
    
    7,410Accrued expenses and other payables
    
    b,g
    
    
    13,218
    
    
    
    (2,641
    )
    
    
    10,577Short-term borrowings
    
    
    
    
    1,856
    
    
    
    
    
    
    
    1,856Promissory notes
    
    
    
    
    15,000
    
    
    
    
    
    
    
    15,000Acquisition payable
    
    g
    
    
    15,203
    
    
    
    (2,318
    )
    
    
    12,885Amounts due to related parties
    
    d, e
    
    
    717
    
    
    
    (120
    )
    
    
    597Deferred revenue
    
    c-e
    
    
    3,301
    
    
    
    (1,106
    )
    
    
    2,195Income taxes payable
    
    b-e
    
    
    9,787
    
    
    
    (5,958
    )
    
    
    3,829Total current liabilities
    
    
    
    
    67,783
    
    
    
    (13,434
    )
    
    
    54,349Deferred tax liabilities
    
    b-e, h
    
    
    1,297
    
    
    
    (489
    )
    
    
    808Total liabilities
    
    
    
    
    69,080
    
    
    
    (13,923
    )
    
    
    55,157Series B redeemable convertible
preferred shares
    
    
    
    
    24,906
    
    
    
    
    
    
    
    24,906Series C redeemable convertible
preferred shares
    
    k
    
    
    12,918
    
    
    
    314
    
    
    
    13,232Series A convertible preferred shares
    
    
    
    
    722
    
    
    
    
    
    
    
    722Common shares
    
    l
    
    
    3
    
    
    
    (3
    )
    
    
    Additional paid-in capital
    
    k
    
    
    2,083
    
    
    
    (698
    )
    
    
    1,385Accumulated other comprehensive income
    
    
    
    
    2,064
    
    
    
    (965
    )
    
    
    1,099Accumulated deficit
    
    k
    
    
    
    
    
    
    (46,826
    )
    
    
    (46,826
    )Total shareholders (deficit)/equity
    
    
    
    
    4,872
    
    
    
    (48,492
    )
    
    
    (43,620
    )Total liabilities and shareholders equity
    
    
    
    $
    111,776
    
    
    $
    (62,101
    )
    
    $
    49,675
 90




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##### Table of Contents



Statements
of operations for the year ended December 31, 2008
 PreviouslyNote
    
    Reported
    
    
    Adjustments
    
    
    RestatedAdvertising service revenues
    
    b-f
    
    $
    88,637
    
    
    $
    (46,952
    )
    
    $
    41,685Cost of revenues
    
    b-f
    
    
    (46,674
    )
    
    
    16,050
    
    
    
    (30,624
    )Gross profit
    
    
    
    
    41,963
    
    
    
    (30,902
    )
    
    
    11,061Operating expensesSales and marketing expenses
    
    g
    
    
    (7,397
    )
    
    
    1,234
    
    
    
    (6,163
    )General and administrative expenses
    
    g
    
    
    (11,727
    )
    
    
    (1,408
    )
    
    
    (13,135
    )Total operating expensesOperating loss
    
    
    
    
    22,839
    
    
    
    (31,076
    )
    
    
    (8,237
    )Other income / (expense)Interest income
    
    
    
    
    131
    
    
    
    
    
    
    
    131Interest expense
    
    k
    
    
    (8,922
    )
    
    
    6,205
    
    
    
    (2,717
    )Decrease in fair value of note warrant liability
    
    
    
    
    482
    
    
    
    (482
    )
    
    
    Loss on extinguishment of the notes
    
    
    
    
    (3,218
    )
    
    
    (1,182
    )
    
    
    (4,400
    )Loss on impairment of goodwill and Intangible
assets
    
    h,i
    
    
    
    
    
    
    (13,953
    )
    
    
    (13,953
    )Loss on impairment of fixed assets
    
    j
    
    
    
    
    
    
    (2,135
    )
    
    
    (2,135
    )Loss on disposals of fixed assets
    
    j
    
    
    
    
    
    
    (2,121
    )
    
    
    (2,121
    )Foreign currency exchange loss, net
    
    
    
    
    (167
    )
    
    
    
    
    
    
    (167
    )Income / (loss) before income taxes
    
    
    
    
    11,145
    
    
    
    (44,744
    )
    
    
    (33,599
    )Provision for income taxes
    
    b-e
    
    
    (6,802
    )
    
    
    5,321
    
    
    
    (1,481
    )Net income / (loss)
    
    
    
    $
    4,343
    
    
    $
    (39,423
    )
    
    $
    (35,080
    )
 91




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##### Table of Contents



Statements
of cash flow for the year ended December 31, 2008
 PreviouslyReported
    
    
    Adjustments
    
    
    RestatedNet income / (loss)
    
    
    4,343
    
    
    
    (39,423
    )
    
    
    (35,080
    )Depreciation and amortization of property and equipment
    
    
    1,188
    
    
    
    80
    
    
    
    1,268Amortization of intangible assets
    
    
    3,465
    
    
    
    (443
    )
    
    
    3,022Share-based compensation
    
    
    2,354
    
    
    
    (2,043
    )
    
    
    311Amortization of discount on convertible notes
    
    
    7,200
    
    
    
    (6,203
    )
    
    
    997Deferred tax (benefit) / expense
    
    
    (1,414
    )
    
    
    (726
    )
    
    
    (2,140
    )Decrease in fair value of note warrant liability
    
    
    (482
    )
    
    
    482
    
    
    
    Loss on extinguishment of the notes
    
    
    3,218
    
    
    
    1,182
    
    
    
    4,400Loss on impairment of goodwill and intangible assets
    
    
    
    
    
    
    13,953
    
    
    
    13,953Loss on impairment of fixed assets
    
    
    
    
    
    
    2,121
    
    
    
    2,121Loss on disposals of fixed assets
    
    
    
    
    
    
    2,135
    
    
    
    2,135Bad debt provision
    
    
    
    
    
    
    703
    
    
    
    703Changes in operating assets and liabilities:Accounts receivable
    
    
    (30,026
    )
    
    
    20,413
    
    
    
    (9,613
    )Prepaid expenses, rental deposits and other current assets
    
    
    (7,713
    )
    
    
    3,125
    
    
    
    (4,588
    )Amounts due from related parties
    
    
    (11,472
    )
    
    
    9,297
    
    
    
    (2,175
    )Accounts payable
    
    
    7,171
    
    
    
    (861
    )
    
    
    6,310Accrued expenses and other payables
    
    
    8,548
    
    
    
    2,678
    
    
    
    11,226Amounts due to related parties
    
    
    (44
    )
    
    
    641
    
    
    
    597Deferred revenue
    
    
    1,977
    
    
    
    (18
    )
    
    
    1,959Income taxes payable
    
    
    7,965
    
    
    
    (4,822
    )
    
    
    3,143Net cash (generated from) / used in operating activities
    
    
    (3,722
    )
    
    
    2,271
    
    
    
    (1,451
    )Cash flows from investing activitiesPurchase of property and equipment
    
    
    (3,410
    )
    
    
    (50
    )
    
    
    (3,460
    )Amounts due from related parties
    
    
    (195
    )
    
    
    195
    
    
    
    Cash paid for acquisitions, net of cash acquired
    
    
    (18,681
    )
    
    
    (2,563
    )
    
    
    (21,244
    )Net cash used in investing activities
    
    
    (22,286
    )
    
    
    (2,418
    )
    
    
    (24,704
    )Cash flows from financing activitiesDecrease in restricted bank deposit
    
    
    4,000
    
    
    
    (357
    )
    
    
    3,643Proceeds from short-term borrowings
    
    
    1,856
    
    
    
    
    
    
    
    1,856Repayment of short-term borrowings
    
    
    (2,084
    )
    
    
    
    
    
    
    (2,084
    )Proceeds from issuance of Series C redeemable convertible
preferred shares, net of issuance costs
    
    
    9,261
    
    
    
    
    
    
    
    9,261Proceeds from issuance of convertible promissory notes and
warrants
    
    
    12,000
    
    
    
    
    
    
    
    12,000Net cash provided by financing activities
    
    
    25,033
    
    
    
    (357
    )
    
    
    24,676Effect of foreign currency exchange rate changes on cash
    
    
    357
    
    
    
    (115
    )
    
    
    242Net decrease in cash and cash equivalent
    
    
    (618
    )
    
    
    (619
    )
    
    
    (1,237
    )Cash and cash equivalent at beginning of year
    
    
    6,333
    
    
    
    
    
    
    
    6,333Cash and cash equivalent at end of year
    
    $
    5,715
    
    
    $
    (619
    )
    
    $
    5,096
 92




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##### Table of Contents



a)
    
    Two of the Companys bank accounts in PRC in which an aggregate of $357 was deposited, were
restricted as to withdrawal and use as of December 31, 2008. The cash balance was reclassified
to restricted bank deposit.b)
    
    In July 2008, the Company signed an acquisition agreement to acquire Changsha Jingli which
was primarily engaged in the provision of advertising services using poster frames that are
placed inside elevators in residential and commercial buildings in Changsha city of the PRC.
During a financial review, an acquisition deposit of Changsha Jingli of $1,321, purportedly
paid to a third party, could not be confirmed. The ex-owner of Changsha Jingli denied signing
any contracts with the Company, bringing the acquisition of Changsha Jingli into doubt, as
well as the legality and enforceability of the acquisition agreement. Accordingly, the
restated consolidated financial statements for 2008 do not consolidate Changsha Jinglis
financial statements.The previously reported financial statements accounted for the acquisition in accordance with
ASC Topic 805, Business Combinations (formerly SFAS No. 141). At the acquisition date, the
Company recorded fair value of identifiable net assets of $205 and acquisition deposit of $1,116.The following table summarizes operating results and the assets and liabilities of Changsha
Jingli consolidated by the Company for the six months ended and as of December 31, 2008 which
were excluded from the restated financial statements:
 Advertising Revenue
    
    $
    322Cost of Sales
    
    
    (48
    )Selling and marketing expenses
    
    
    (8
    )General and administrative expenses
    
    
    (73
    )Income tax
    
    
    (48
    )Net Income
    
    $
    145Cash
    
    $
    107Accounts receivable, net
    
    
    254Prepaid expenses and other current assets
    
    
    84Intangible assets
    
    
    27Accounts payable
    
    
    (34
    )Accrued expenses and other payables
    
    
    (54
    )Income taxes payable
    
    
    (64
    )Net assets
    
    $
    320
 c)
    
    A number of fictitious or questionable sales contracts in our in-elevator business, along
with related accounts receivable collections and various payments, which originated primarily
from Jingli. Apparent fictitious business transactions, forged contracts and monitoring
reports resulted were identified in overstated revenue of $23,692 and cost of $3,451.d)
    
    Numerous subway light box advertising contracts that appear to be overstated were identified.
Fictitious or questionable documentation regarding the delivery of services and the lack of business substance
resulted in overstated revenue of $7,254 and cost of $3,378.e)
    
    Failure to properly disclose, approve and document transactions among related entities, which
resulted in the overstatement of sales and costs of these companies in the operating results
of our subsidiaries, causing overstated revenue of $14,347 and cost of $8,053.f)
    
    In certain advertising arrangements, the Company acted as an agent in the transaction and
should have recorded advertising revenues on a net basis, causing
both revenue and cost was overstated by $1,280.
 93




---



##### Table of Contents



g)
    
    Apparent erroneous or falsified expenses and payments,
including acquisition payments, were identified. Total
acquisition payments through December 31, 2008 were overstated
by $4,465. Prepaid assets and other receivable as of
December 31, 2008 was overstated by $3,372.h)
    
    Purchase price allocation of certain acquired subsidiaries was based on inflated revenue
forecasts and apparent fictitious lease contracts, which resulted in the overstatement of
acquired intangible assets by $1,949.i)
    
    Performed goodwill impairment assessment as of December 31, 2008 based on adjusted forecasts
resulted in an impairment loss of $13,026. See note 9.j)
    
    A fixed asset count and reconciliation to register identified missing digital frames,
purported fictitious business transactions and falsified payments in 2008.  Fixed
assets was overstated by $2,121. Certain fixed assets, which should have been impaired in
2008, amounted to $2,135 based on fair value as of the valuation
date. The respective deferred tax impact was also considered.k)
    
    Equity and debt instruments issued during 2008 were issued based on apparent inflated
business projections, which resulted in an overstatement of their respective values and an
immediate and subsequent impact to the balance sheets and statement of operations.l)
    
    In connection with the reverse capitalization, SearchMedia Internationals ordinary shares
have been restated retroactively to reflect the share exchange ratio as at the date of the
Share Exchange in a manner similar to a stock consolidation.
 4. Loss per share
  2009
    
    
    2008Numerator:Net Loss
    
    $
    (22,649
    )
    
    $
    (35,080
    )Denominator:Weighted average shares outstanding  Basic
    
    
    5,100,465
    
    
    
    2,169,269Loss per share
    
    $
    (0.0044
    )
    
    $
    (0.0162
    )
  5. Acquisitions
   94




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##### Table of Contents



95




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##### Table of Contents



Fair value
    
    Acquired Intangible
    
    
    
    
    
    Goodwill recognizedConsideration paid up to
    
    of net
    
    Assets
    
    Deferred
    
    during the year endedDecember 31,
    
    asset
    
    Customer
    
    Lease
    
    tax liability
    
    December 31,Acquired Entity
    
    Date Acquired
    
    Business
    
    2008
    
    2009
    
    acquired
    
    relationship
    
    agreements
    
    recognized
    
    2008
    
    2009Xinshichuang
    
    January 1, 2008
    
    Poster frame
    
    $
    951
    
    
    $
    952
    
    
    $
    10
    
    
    $
    7
    
    
    $
    152
    
    
    $
    40
    
    
    $
    968
    
    
    $
    0Jincheng
    
    January 1, 2008
    
    Poster frame
    
    
    922
    
    
    
    923
    
    
    
    (117
    )
    
    
    2
    
    
    
    91
    
    
    
    23
    
    
    
    1,071
    
    
    
    0Kaixiang
    
    January 1, 2008
    
    Billboard
    
    
    1,971
    
    
    
    6,760
    
    
    
    88
    
    
    
    130
    
    
    
    255
    
    
    
    96
    
    
    
    5,682
    
    
    
    6,628Wanshuizhiyuan
    
    January 1, 2008
    
    Billboard
    
    
    4,280
    
    
    
    8,725
    
    
    
    70
    
    
    
    193
    
    
    
    213
    
    
    
    102
    
    
    
    7,430
    
    
    
    2,207Shenyang Jingli
    
    January 1, 2008
    
    Billboard
    
    
    6,078
    
    
    
    13,322
    
    
    
    229
    
    
    
    665
    
    
    
    787
    
    
    
    363
    
    
    
    9,785
    
    
    
    2,482Haiya
    
    February 1, 2008
    
    Transit
    
    
    2,048
    
    
    
    5,345
    
    
    
    (186
    )
    
    
    28
    
    
    
    1,005
    
    
    
    258
    
    
    
    
    
    
    
    5,988Botang
    
    April 1, 2008
    
    Billboard
    
    
    3,937
    
    
    
    20,851
    
    
    
    145
    
    
    
    1,037
    
    
    
    1,907
    
    
    
    736
    
    
    
    
    
    
    
    23,699Hongkong Ad-icon
    
    April 1, 2008
    
    Billboard
    
    
    841
    
    
    
    1,557
    
    
    
    9
    
    
    
    148
    
    
    
    105
    
    
    
    42
    
    
    
    
    
    
    
    1,294Shengshitongda
    
    April 1, 2008
    
    Poster frame
    
    
    117
    
    
    
    117
    
    
    
    7
    
    
    
    2
    
    
    
    17
    
    
    
    5
    
    
    
    
    
    
    
    116Rigao
    
    July 1, 2008
    
    Poster frame
    
    
    732
    
    
    
    3,219
    
    
    
    (95
    )
    
    
    99
    
    
    
    145
    
    
    
    61
    
    
    
    
    
    
    
    4,904Ruizhong
    
    July 1, 2008
    
    Poster frame
    
    
    293
    
    
    
    1,087
    
    
    
    33
    
    
    
    31
    
    
    
    168
    
    
    
    50
    
    
    
    
    
    
    
    1,354Total
    
    
    
    
    
    $
    22,170
    
    
    $
    62,858
    
    
    $
    193
    
    
    $
    2,342
    
    
    $
    4,845
    
    
    $
    1,776
    
    
    $
    24,936
    
    
    $
    48,672
  96




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##### Table of Contents



Unaudited pro forma financial information
  Year endedDecember 31, 2008(Restated)Advertising service revenues
    
    $
    47,794Income from operations
    
    
    14,275Net loss
    
    $
    (39,729
    )
 6. Accounts receivable, net
  As of December 31,2009
    
    2008(Restated)Accounts receivable
    
    $
    15,321
    
    
    $
    10,884Less allowance for doubtful accounts
    
    
    (2,325
    )
    
    
    (712
    )Accounts receivable, net
    
    $
    12,996
    
    
    $
    10,172
   As of December 31,2009
    
    
    2008(Restated)Beginning allowance for doubtful accounts
    
    $
    712
    
    
    $
    Effect of foreign currency translation
    
    
    2
    
    
    
    9Additions charged to bad debt expense
    
    
    1,611
    
    
    
    703Ending allowance for doubtful accounts
    
    $
    2,325
    
    
    $
    712
 97




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##### Table of Contents



7. Prepaid expenses and other current assets
  As of December 31,2009
    
    
    2008(Restated)Prepaid rent
    
    $
    1,939
    
    
    $
    695Other prepaid expenses
    
    
    1,060
    
    
    
    3,643Rental deposits and other receivables
    
    
    1,657
    
    
    
    1,225Total prepaid expenses and other current assets
    
    $
    4,656
    
    
    $
    5,563
 8. Property and equipment, net
  As of December 31,2009
    
    
    2008(Restated)Leasehold improvements
    
    $
    94
    
    
    $
    94Advertising display equipment
    
    
    1,410
    
    
    
    4,057Furniture, fixtures and office equipment
    
    
    54
    
    
    
    443Motor vehicles
    
    
    597
    
    
    
    542Total cost of property and equipment
    
    
    2,155
    
    
    
    5,136Less: accumulated depreciation and amortization
    
    
    (750
    )
    
    
    (1,062
    )Property and equipment, net
    
    
    1,405
    
    
    
    4,074Less: impairment loss
    
    
    
    
    
    
    (2,135
    )Property and equipment, net of impairment
    
    $
    1,405
    
    
    $
    1,939
  Year Ended December 31,2009
    
    
    2008(Restated)Cost of revenues
    
    $
    233
    
    
    $
    950General and administrative expenses
    
    
    166
    
    
    
    318Total depreciation and amortization
    
    $
    399
    
    
    $
    1,268
  98




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##### Table of Contents



9. Goodwill and other intangible assets
  Xinshi
    
    
    
    
    
    
    Wanshuiz
    
    
    Shenyang
    
    
    
    
    
    
    Shengshi
    
    
    
    
    
    
    Wenzhou
    
    
    Wuxi
    
    
    HKSige
    
    
    Jincheng
    
    
    chuang
    
    
    Kaixiang
    
    
    hiyuan
    
    
    Jingli
    
    
    Haiya
    
    
    tongda
    
    
    Botang
    
    
    Rigao
    
    
    Ruizhong
    
    
    Ad-Icon
    
    
    TotalBalance as of January 1, 2008
    
    $
    1,045
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    1,045Goodwill acquired during the year
    
    
    
    
    
    
    1,071
    
    
    
    968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,039Goodwill recorded as a result of
contingent consideration resolved
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,682
    
    
    
    7,430
    
    
    
    9,785
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,897Impairment of goodwill
    
    
    (1,045
    )
    
    
    (1,071
    )
    
    
    (968
    )
    
    
    
    
    
    
    (1,627
    )
    
    
    (8,315
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,026
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,682
    
    
    
    5,803
    
    
    
    1,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,955Goodwill recorded as a result of
contingent consideration resolved
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,628
    
    
    
    2,207
    
    
    
    2,482
    
    
    
    5,988
    
    
    
    116
    
    
    
    23,699
    
    
    
    4,904
    
    
    
    1,354
    
    
    
    1,294
    
    
    
    48,672Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,397
    )
    
    
    (1,640
    )
    
    
    (2,130
    )
    
    
    
    
    
    
    (9,582
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15,749
    )Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6
    
    
    
    6
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13Balance as of December 31, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    12,316
    
    
    $
    5,619
    
    
    $
    2,313
    
    
    $
    3,858
    
    
    $
    116
    
    
    $
    14,117
    
    
    $
    4,904
    
    
    $
    1,354
    
    
    $
    1,294
    
    
    $
    45,891The gross amount and accumulated impairment losses of goodwill as of December 31, 2009 and
2008 (Restated) are as follows:Xinshi
    
    
    
    
    
    
    Wanshuiz
    
    
    Shenyang
    
    
    
    
    
    
    Shengshi
    
    
    
    
    
    
    Wenzhou
    
    
    Wuxi
    
    
    HKSige
    
    
    Jincheng
    
    
    chuang
    
    
    Kaixiang
    
    
    hiyuan
    
    
    Jingli
    
    
    Haiya
    
    
    tongda
    
    
    Botang
    
    
    Rigao
    
    
    Ruizhong
    
    
    Ad-Icon
    
    
    TotalGoodwill, gross
    
    $
    1,116
    
    
    $
    1,071
    
    
    $
    968
    
    
    $
    5,682
    
    
    $
    7,430
    
    
    $
    9,785
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    26,052Accumulated impairment losses
    
    
    (1,116
    )
    
    
    (1,071
    )
    
    
    (968
    )
    
    
    
    
    
    
    (1,627
    )
    
    
    (8,315
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,097
    )Balance as of December 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    5,682
    
    
    $
    5,803
    
    
    $
    1,470
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    12,955Goodwill, gross
    
    $
    1,117
    
    
    $
    1,072
    
    
    $
    969
    
    
    $
    12,316
    
    
    $
    9,644
    
    
    $
    12,276
    
    
    $
    5,988
    
    
    $
    116
    
    
    $
    23,699
    
    
    $
    4,904
    
    
    $
    1,354
    
    
    $
    1,294
    
    
    $
    74,749Accumulated impairment losses
    
    
    (1,117
    )
    
    
    (1,072
    )
    
    
    (969
    )
    
    
    
    
    
    
    (4,025
    )
    
    
    (9,963
    )
    
    
    (2,130
    )
    
    
    
    
    
    
    (9,582
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (28,858
    )Balance as of December 31, 2009
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    $
    12,316
    
    
    $
    5,619
    
    
    $
    2,313
    
    
    $
    3,858
    
    
    $
    116
    
    
    $
    14,117
    
    
    $
    4,904
    
    
    $
    1,354
    
    
    $
    1,294
    
    
    $
    45,891
  99




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##### Table of Contents



Goodwill impairment in 2008 (Restated)
  Goodwill impairment in 2009
   Intangible assets other than goodwill consist of the following:
 Weighted average
    
    
    As of December 31,amortization period
    
    
    2009
    
    
    2008(Restated)Gross amountCustomer relationship
    
    0.5-3 years
    
    $
    2,343
    
    
    $
    2,402Lease agreements
    
    1-4 years
    
    
    4,849
    
    
    
    5,0437,192
    
    
    
    7,445Accumulated amortizationCustomer relationship
    
    
    
    
    
    
    (2,135
    )
    
    
    (1,560
    )Lease agreements
    
    
    
    
    
    
    (2,854
    )
    
    
    (1,673
    )(4,989
    )
    
    
    (3,233
    )Accumulated impairmentCustomer relationship
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Lease agreements
    
    
    
    
    
    
    (912
    )
    
    
    (911
    )(927
    )
    
    
    (926
    )Net intangible assets
    
    
    
    
    
    $
    1,276
    
    
    $
    3,286
  100




---



##### Table of Contents



Year Ended December 31,2009
    
    2008(Restated)Cost of revenues
    
    $
    1,379
    
    
    $
    1,542Sales and marketing expenses
    
    
    636
    
    
    
    1,480Total amortization expenses
    
    $
    2,015
    
    
    $
    3,022
  2010
    
    $
    1,0902011
    
    
    186$
    1,276
 10. Accrued expenses and other payables
  As of December 31,2009
    
    
    2008(Restated)Accrued payroll and staff benefits
    
    $
    2,559
    
    
    $
    1,951Accrued professional fee
    
    
    2,852
    
    
    
    2,262Business tax and surcharges payable
    
    
    7,074
    
    
    
    4,164Contingent liabilities (Note 20(c))
    
    
    844
    
    
    
    219Accrued liabilities for abandonment of lease
    
    
    597
    
    
    
    48Note warrant liability (Note 12)
    
    
    156
    
    
    
    Other accrued liabilities
    
    
    1,816
    
    
    
    1,933Total accrued expenses and other payables
    
    $
    15,898
    
    
    $
    10,577
 11. Short-term borrowings
 Balances as of December 31, 2008
     101




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##### Table of Contents



Balances as of December 31, 2009
 US$1,856.
  12. Promissory notes issued by SearchMedia International prior to the reverse acquisition
  (a) Convertible promissory notes and note warrants
     102




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##### Table of Contents



,
   103




---



##### Table of Contents



(b) Second Short-term Loan and Warrants
   13. Convertible Preferred Shares issued by SearchMedia International prior to the reverse
acquisition
  (a) Series A Convertible Preferred Shares and Warrants
     104




---



##### Table of Contents



(b) Series B Redeemable Convertible Preferred Shares and Warrants
      105




---



##### Table of Contents



(c) Series C Redeemable Convertible Preferred Shares
      106




---



##### Table of Contents



14. Common shares and warrants
 Common shares
     107




---



##### Table of Contents



Warrants
        15. Share-based payments
  108




---



##### Table of Contents



(a) Share options
  Weighted
    
    Weightedaverage
    
    averageexercise
    
    remainingNumber of
    
    price per
    
    contractual
    
    Aggregateoptions
    
    share
    
    term
    
    fair valueBalance as of January 1, 2008
    
    
    Granted during the year
    
    
    8,840,000
    
    
    $
    0.79
    
    
    
    
    
    
    $
    432Balance as of December 31, 2008
    
    
    8,840,000Granted
    
    
    1,650,000
    
    
    
    0.53
    
    
    
    
    
    
    
    33Forfeited
    
    
    (4,215,000
    )
    
    
    0.69
    
    
    
    
    
    
    
    (149
    )Balance as of October 30, 2009
    
    
    6,275,000Converted into IDI options
    
    
    423,797
    
    
    
    3.19
    
    
    
    
    
    
    
    1,253Granted
    
    
    Forfeited
    
    
    Balance as of December 31, 2009
    
    
    423,797
    
    
    
    3.19
    
    
    8.18 yearsOptions exercisable at December 31, 2009
    
    
    208,818
    
    
    
    2.71
    
    
    8.15 years
  Options granted to employee:
    
    2009
    
    2008Risk-free rate of return
    
    
    3.43
    %
    
    
    3.43
    %Weighted average expected option life
    
    10 years
    
    10 yearsExpected volatility rate
    
    
    40.30
    %
    
    
    63.30
    %Dividend yield
    
    
    0
    %
    
    
    0
    %
  CompensationStock Compensation
 CompensationStock
Compensation
 109




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##### Table of Contents



(b) Restricted share units
  WeightedNumber of
    
    
    
    
    
    averagerestricted
    
    Grant-
    
    remainingshare units
    
    date fair
    
    contractualgranted
    
    value
    
    termBalance as of January 1, 2008
    
    
    Granted during the year
    
    
    3,867,000
    
    
    $
    368Forfeitures
    
    
    Balance as of December 31, 2008
    
    
    3,867,000Granted
    
    
    3,000,000
    
    
    
    297Forfeitures
    
    
    Balance as of October 30, 2009
    
    
    6,867,000Converted into IDI restricted shares
    
    
    463,779
    
    
    
    1,572Granted
    
    
    Forfeitures
    
    
    Balance as of December 31, 2009
    
    
    463,779
    
    
    
    
    
    
    8.92 yearsUnits vested as of December 31, 2009
    
    
    217,417
    
    
    
    
    
    
    8.28 years
    110




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##### Table of Contents



16. Statutory reserve
  17. Related party transactions and balances
 (a) Related party transactions
  Year Ended December 31,Note
    
    2009
    
    2008(Restated)Revenue from provision of advertising services
    
    
    (i
    )
    
    $
    2,910
    
    
    $
    3,242Expenses for leases of advertising space
    
    (ii)
    
    $
    1,515
    
    
    $
    540
 
 Notes:(i)
    
    Represents amounts received / receivable from affiliated entities of senior management
personnel of certain companies acquired by Jingli, for provision of advertising services to these
entities. The transactions are conducted on terms comparable to the terms of similar transactions
with third parties.(ii)
    
    Represents amounts paid / payable to affiliated entities of senior management personnel of
certain companies acquired by Jingli, for leases of advertising spaces from these entities. The
transactions are conducted on terms comparable to the terms of similar transactions with third
parties. 111




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(b) Amounts due from / to related parties are analyzed as follows:
 As of December 31,Note
    
    2009
    
    2008(Restated)Customer payments collected on behalf of the
Group
    
    
    (i
    )
    
    $
    2,018
    
    
    $
    2,073Receivables for provision of advertising services
    
    (ii)
    
    
    453
    
    
    
    1,134Advances to ex-owners of acquired companies
    
    (iii)
    
    
    369
    
    
    
    51Due from related parties
    
    
    
    
    
    $
    2,840
    
    
    $
    3,258Operating expenses paid on behalf of the Group
    
    (iv)
    
    $
    195
    
    
    $
    245Payables for the lease of advertising space
    
    
    (v
    )
    
    
    151
    
    
    
    352Due to related parties
    
    
    
    
    
    $
    346
    
    
    $
    597
 
 Note:(i)
    
    Represents customer payments collected by the Companys shareholders and senior management
personnel of Jinglis acquired subsidiaries on behalf of the Group companies which had not been
remitted to the Group companies as of the balance sheet date. During the year ended December 31,
2009 and 2008 (Restated), certain customers remitted cash to affiliated companies controlled by
shareholders of the Company and senior management personnel of certain subsidiaries of the Company
to settle the amounts they owed to the Group. The amounts received by the shareholders and the
senior management personnel are repaid back to the Group on a periodic basis. The balance is
expected to be repaid to the Group within 12 months.(ii)
    
    Represents amount receivable from affiliated companies of certain companies acquired by
Jingli for advertising services provided by the Group to these entities as described in the note
(i) above. These amounts are repayable in accordance with normal payment terms with other unrelated
customers.(iii)
    
    Represents the advances made by the Group to ex-owners of certain companies acquired by
Jingli. The amounts are interest free and are expected to be settled within 12 months from the
balance sheet date and are secured by the contingent purchase price payable of certain companies
acquired by Jingli to the previous owners of the acquired companies.(iv)
    
    Represents operating expenses paid by the senior management personnel of certain companies
acquired by Jinglli on behalf of the Group. The amounts are interest free, unsecured and have no
fixed terms of repayment.(v)
    
    Represents operating lease payments payable to affiliated companies of certain companies
acquired by Jingli for leases of advertising space as described in note (ii) above. The amounts are
repayable in accordance with normal payment terms with other unrelated advertising space suppliers. 112




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18. Interest expense
 Year Ended December 31,2009
    
    2008(Restated)Bank loan interest
    
    $
    27
    
    
    $
    34Convertible promissory notes interest
    
    
    962
    
    
    
    720Interest on New Note, First Interim Notes and short-term
loan from a third party lender
    
    
    973
    
    
    
    617Amortization of convertible promissory notes issuance costs
    
    
    
    
    
    
    349Amortization of convertible promissory notes discount
    
    
    
    
    
    
    997Total interest expense
    
    $
    1,962
    
    
    $
    2,717
 19. Income taxes
 Cayman Islands
  Peoples Republic of China
    Hong Kong
  113




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Year Ended December 31,2009
    
    2008Current tax- PRC
    
    
    3,460
    
    
    
    3,549- HK
    
    
    34
    
    
    
    72Deferred tax- PRC
    
    
    808
    
    
    
    (2,123
    )- HK
    
    
    17
    
    
    
    (17
    )Total income tax expense
    
    
    4,319
    
    
    
    1,481
  Year Ended December 31,2009
    
    2008Computed expected tax expense
    
    
    (4,582
    )
    
    
    (8,399
    )Effect of differential tax rate on income of Ad-Icon
    
    
    (26
    )
    
    
    (29
    )Effect of non-PRC entities not subject to income tax
    
    
    1,748
    
    
    
    2,616Non-deductible expenses
    
    
    5,267
    
    
    
    4,429Tax loss which no deferred tax asset was recognized
    
    
    3,278
    
    
    
    2,864Tax loss that is expired
    
    
    509
    
    
    
    Income loss subject to tax
    
    
    (1,875
    )
    
    
    Actual income tax expense
    
    
    4,319
    
    
    
    1,481
   Year Ended December 31,2009
    
    2008Deferred tax assets-current:- Property and equipment
    
    
    
    
    
    
    1,069- Tax loss carried forwards of a subsidiary
    
    
    23
    
    
    
    46- Allowance for doubtful accounts
    
    
    430
    
    
    
    157- Accrued expenses
    
    
    27
    
    
    
    16480
    
    
    
    1,288Deferred tax liabilities  non-current:Intangible assets
    
    
    (316
    )
    
    
    (808
    )Net deferred tax assets
    
    
    164
    
    
    
    480
  114




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20. Commitments and contingencies
 (a) Operating lease commitments
   Year Ended December 31,2009
    
    2008Cost of revenues
    
    $
    24,386
    
    
    $
    25,576General and administrative expenses
    
    
    1,595
    
    
    
    1,688Total rental expenses
    
    $
    25,981
    
    
    $
    27,264
  Year2010
    
    $
    14,0332011
    
    
    5,7562012
    
    
    3,1962013
    
    
    7012014
    
    
    181Thereafter
    
    
    11$
    23,878
 115




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(b) Capital commitment
  (c) Contingency
  21. Subsequent events
       
    
    A complaint was filed on June 23, 2010 by an ex-owner of Xinshichuang claimed for unpaid
acquisition considerations and other expenses of approximately $1.3 million. The Company has
vigorously contested such claim and we believe such claim does not have merit.
 
    
    A shareholder complaint was filed on September 13, 2010 by Sid Murdeshwar against the Company and
each of the Companys directors (the Individual Defendants) as a purported class action on behalf
of the Companys shareholders in the United States District Court for the Central District of
California. The case was filed under the caption Sid Murdeshwar, Individually and on Behalf of All
Others Similarly Situated, Plaintiff v. SearchMedia Holdings Limited f/k/a Ideation Acquisition
Corp., Robert N. Fried, Phillip Frost, Rao Uppaluri, Steven D. Rubin, Glenn Halpryn, Thomas E.
Beier, David H. Moskowitz, Shawn Gold,
 116




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117




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.(T) CONTROLS AND PROCEDURES.
 Disclosure Controls and Procedures
   Internal Control over Financial Reporting
    118




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
    
    Revenue recognition and accounts receivable;
    
    Disclosure, approval, and documentation of transactions among entities related to
prior owners of acquired subsidiaries (which we refer to as related entity
transactions);
    
    Proper documentation of transactions;
    
    Recording of various erroneous transactions by certain employees;
    
    Recording of certain assets and other accounting irregularities related to
acquisitions;
    
    Procedures related to diligence and approval of transactions; and
    
    Confirmation of payments related to acquisitions.
     1.
    
    Improvement of Accounting Systems
 
    
    The Company has appointed a new Chief Financial Officer, and will hire more
qualified accountants at its corporate offices and subsidiary locations.
    
    The Company will identify key control points for continuous monitoring of and
design effective controls for each business cycle, particularly with regard to
revenues/accounts receivable and expenses/accounts payable.
    
    The Company is updating an accounting systems user manual and providing
training to all relevant employees.
    
    The Company will implement a single accounting software across the group,
which will include electronic ledgers at all subsidiary locations.
    
    The Company is undertaking a review of group accounting systems and business
processes and identifying financial information needs for internal and external
purposes. That review is in conjunction with the implementation of applicable
SOX documentation and compliance at year ending
December 31, 2010.
 119




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
    
    The Company is reviewing current accounting guidelines and policies across
the group and undertaking additional training of accounting staff at its
corporate office and at subsidiary locations.
    
    The Company will implement a standardized Chart of Account across the group,
which will assist with identifying the nature of transactions to improve
accuracy and efficiency of financial information.
    
    The Company has formalized the closing schedule and policies to comply with
appropriate timing of financial reporting obligations.
 2.
    
    Retention of detailed records in relation to fungible financial instruments.3.
    
    Training on United States financial reporting requirements for management and
accounting staff.
 
    
    The Company is working with legal counsel and external consultants to develop
a complete set of written compliance policies and provide regular tailored
training to relevant senior management on following issues:
 o
    
    Fiduciary duties of officers and directors;o
    
    Foreign Corrupt Practices Act risks;o
    
    Insider trading (adopted December 2009; communicated March 2010);o
    
    Code of Business Ethics and Conduct (adopted and communicated March 2010);o
    
    Sarbanes Oxley and importance of accurate financial
statements with focus on China-related accounting risks;o
    
    Third party whistleblower (established during
2010).
 4.
    
    Systemization of relationships with suppliers and customers.
 
    
    The Company will improve repository of documentation to support supplier and
client contracts and undertake the following:
 o
    
    Centralize and maintain a database of clients and
vendors by upgrading current server;o
    
    Strengthen contract review and authorization
processes;o
    
    Revise internal contracts review and authorization
policy (implemented March 2010);o
    
    Implementation of a policy and guidelines for
barter transactions, including documentation of barter transactions and
system to record utilization of bartered assets;o
    
    Implementation of checklists of documentation that
must be provided and filed for each material contract;
 120




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o
    
    Strengthen advertising monitoring reports system and obtain clients feedback;o
    
    Continue regular updating of business intelligence on counterparties.
 
    
    The Company will improve management of sales contracts and accounts
receivable by implementing the following measures:
 o
    
    Update accounts receivable credit policy and
conduct regular bad debt reviews and evaluation of provisions;o
    
    Improve and ensure effective implementation of
aging analysis and collection reports;o
    
    Link customer management and accounts receivables
to sales commission policy;o
    
    The Company is considering commissioning selective
periodic independent confirmations to confirm that advertisements have
been placed in accordance with agreements, particularly in connection
with high value sales where the client is not an 4A company.
 
    
    The Company will improve management of vendor contracts and accounts payable
by implementing the following measures:
 o
    
    Contract bidding and approval processes;o
    
    Maintain detailed records in relation to fungible financial instruments;o
    
    Accounts payable and payment policies (adopted and
communicated March 2010).
 5.
    
    Upgrade of control policies and procedures
 
    
    The Company will implement appropriate policies and procedures to ensure that
appropriate internal controls and reporting functions operate effectively.
    
    The Company has reviewed current related party-transactions and will
strengthen internal policies and controls in order to eliminate conflicts of
interest.
    
    The Company will implement the following measures:
 o
    
    Clarify and mitigate related-party issues, identify
and implement control points for each process, including requiring
divestment of shareholders personal interests where appropriate;o
    
    Improve transparency of financial reporting procedures;o
    
    Increase internal controls, in particular regarding company cash.
  121




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ITEM 9B. OTHER INFORMATION.
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
 Directors
  Name
    
    AgeRobert Fried
    
    51Qinying Liu
    
    48Steven D. Rubin
    
    50Earl Yen
    
    43Jianzhong Qu
    
    35Xiaoming Lu
    
    49Glenn Halpryn
    
    50Chi-Chuan Chen
    
    52
  Mr. Robert Fried
 122




---



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Ms. Qinying Liu
  Mr. Steven D. Rubin
  Mr. Earl Yen
 123




---



##### Table of Contents



Mr. Jianzhong Qu
  Dr. Xiaoming (Larry) Lu
  Mr. Glenn Halpryn
  124




---



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Mr. Chi-Chuan (Frank) Chen
  Executive Officers
  Name
    
    Age
    
    PositionPaul Conway
    
    
    40
    
    
    Chief Executive OfficerWilfred Chow
    
    
    44
    
    
    Chief Financial OfficerGarbo Lee
    
    
    53
    
    
    President
   Paul Conway
 Mr. Wilfred Chow
 Ms. Garbo Lee
 125




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Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 www.searchmediaholdings.com
 Audit Committee Members and Financial Expert
  
 ITEM 11. EXECUTIVE COMPENSATION.
 Compensation of Named Executive Officers
 Summary Compensation Table
  126




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NonqualifiedNon-Equity
    
    DeferredName and Principal
    
    Fiscal
    
    
    
    
    
    
    
    
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherPosition
    
    Year
    
    Salary
    
    Bonus
    
    Awards (4)
    
    Awards (4)
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalGarbo Lee, President (1)
    
    
    2009
    
    
    $
    106,615
    
    
    $
    
    
    
    $
    22,800
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    129,4152008
    
    
    $
    122,891
    
    
    $
    
    
    
    $
    
    
    
    $
    600
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    123,491Jennifer Huang,
    
    
    2009
    
    
    $
    120,088
    
    
    $
    
    
    
    $
    44,080
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    164,168Former Chief Operating Officer and Acting Chief Financial Officer (2)
    
    
    2008
    
    
    $
    93,765
    
    
    $
    
    
    
    $
    76,800
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    170,565Robert N. Fried,
    
    
    2009
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,500
    (5)
    
    $
    12,500Former Chief Executive Officer of Ideation (3)(5)
    
    
    2008
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    From March 2009 to October 30, 2009, prior to our merger, Ms. Lee served as
President of SearchMedia International. Immediately after the merger, Ms. Lee served as
President of the post-merger company. While serving as President of SearchMedia International
in 2009, Ms. Lee was paid a salary of RMB 70,000 per month.(2)
    
    From April 2008 to July 2009, Ms. Huang served as the Chief Financial Officer of
SearchMedia International. From July 2009 to October 30, 2009, prior to our merger, Ms. Huang
served as the Chief Operating Officer of SearchMedia International. Immediately after the
merger, Ms. Huang served as Chief Operating Officer. While serving as Chief Operating Officer
of SearchMedia International in 2009, Ms. Huang was paid a salary of RMB 75,000 per month. Ms. Huang served as acting Chief Financial Officer from October 2009
to January 2010, as Chief Operating Officer from October 2009 to October 2010, and currently serves as Director of Business Development.(3)
    
    Mr. Fried served as Chief Executive Officer of Ideation from November 2007 until the
Business Combination.(4)
    
    Computed in accordance with FASB ASC Topic 718.(5)
    
    Represents fees paid in connection with a consulting agreement between SearchMedia
Holdings and Mr. Fried effective November 1, 2009. Employment Agreements with Executive Officers
  Paul Conway
   127




---



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Wilfred Chow
    128




---



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Garbo Lee
    Jennifer Huang
    129




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Outstanding Equity Awards at Fiscal Year-End  2009
  Option Awards
    
    Stock AwardsEquityincentiveEquity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    plan
    
    Equityincentive
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    awards:
    
    incentive planplan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Number of
    
    awards:awards:
    
    
    
    
    
    
    
    
    
    
    
    
    
    Market
    
    unearned
    
    Market orNumber of
    
    Number of
    
    Number of
    
    
    
    
    
    
    
    
    
    Number of
    
    value of
    
    shares,
    
    payout valuesecurities
    
    securities
    
    securities
    
    
    
    
    
    
    
    
    
    shares or
    
    shares or
    
    units or
    
    of unearnedunderlying
    
    underlying
    
    underlying
    
    
    
    
    
    
    
    
    
    units of
    
    units of
    
    other rights
    
    shares, unitsunexercised
    
    unexercised
    
    unexercised
    
    Option
    
    Option
    
    stock that
    
    stock that
    
    that have
    
    or other rightsoptions (#)
    
    options (#)
    
    unearned
    
    exercise
    
    expiration
    
    have not
    
    have not
    
    not vested
    
    that have notName
    
    exercisable
    
    unexercisable
    
    options (#)
    
    price ($)
    
    date
    
    vested (#)
    
    vested ($)
    
    (#)
    
    vested ($)Garbo Lee, President
    
    
    20,262
    
    
    
    20,262
    
    
    
    
    
    
    $
    7.8815
    
    
    
    (1)
    
    
    
    20,262
    
    
    $
    147,913
    
    
    
    
    
    
    $
    Jennifer Huang,
Former Chief Operating
Officer and Acting
Chief Financial
Officer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,172
    (2)
    
    $
    285,956
    
    
    
    
    
    
    
    Robert N. Fried,
Former Chief 
Executive Officer of Ideation
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
 
 (1)
    
    Expires on the earlier of (a) one year following termination of Ms. Lees
service by reason of death or disability; (b) 90 days following termination of service of Ms.
Lees service by reason other than death or disability or for cause; or (c) January 1, 2018.(2)
    
    As of April 30, 2010, all restricted share awards are fully vested but remain
unissued. Compensation of Directors
  Director Compensation  Fiscal 2009
  130




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NonqualifiedFees Earned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Deferredor Paid in
    
    
    
    
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherName
    
    Cash(1)
    
    Stock Awards
    
    Awards(2)
    
    Compensation
    
    Earnings
    
    Compensation
    
    TotalChi-Chuan Chen
    
    $
    3,334
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,334Robert Fried
    
    $
    3,334
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,334Glenn Halpryn
    
    $
    4,167
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,167Larry Lu
    
    $
    3,334
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,334Jianzhong Qu
    
    $
    3,334
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,334Steven Rubin
    
    $
    3,334
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,334Earl Yen
    
    $
    4,167
    
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    4,167
 
 (1)
    
    Beginning on October 30, 2009, non-employee members of the board of
directors are paid an annual cash fee of $20,000 payable per quarter. Committee chairmen
receive an additional annual fee of $5,000.(2)
    
    No options were granted to non-employee directors during fiscal year 2009. 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
  Percentage of Class ofOrdinary Shares
    
    Ordinary SharesBeneficial Owner
    
    Beneficially Owned (1)
    
    Beneficially Owned (%)Officers and DirectorsQinying Liu(2)
    
    
    964,085
    
    
    
    4.6
    %Robert N. Fried(3)
    
    
    1,227,465
    
    
    
    5.7
    %Steven D. Rubin(4)
    
    
    310,500
    
    
    
    1.5
    %Earl Yen (5)
    
    
    2,445,083
    
    
    
    11.8
    %Jianzhong Qu
    
    
    
    
    
    
    *Larry Lu
    
    
    
    
    
    
    *Glenn Halpryn (6)
    
    
    15,860
    
    
    
    *Chi-Chuan Chen
    
    
    
    
    
    
    *Garbo Lee(7)
    
    
    30,389
    
    
    
    *Jennifer Huang(8)
    
    
    84,871
    
    
    
    *Paul Conway
    
    
    
    
    
    
    *Wilfred Chow
    
    
    
    
    
    
    *All
directors and executive officers as a group (11 persons)
    
    
    4,993,382
    
    
    
    23.17
    %5% HoldersDr. Phillip Frost, M.D. (9)
    
    
    5,113,169
    
    
    
    21.8
    %Deutsche Bank AG, HK Branch(10)
    
    
    2,399,995
    
    
    
    11.6
    %China Seed Ventures, L.P.(11)
    
    
    2,445,083
    
    
    
    11.8
    %
 131




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Percentage of Class ofOrdinary Shares
    
    Ordinary SharesBeneficial Owner
    
    Beneficially Owned (1)
    
    Beneficially Owned (%)Linden Ventures II(12)
    
    
    1,982,820
    
    
    
    9.5
    %Pine River Capital Management L.P. (13)
    
    
    1,180,350
    
    
    
    5.7
    %
 
 *
    
    The person beneficially owns less than 1% of SearchMedia Holdings
outstanding common shares.(1)
    
    Based on 20,766,078 shares outstanding as of October 5, 2010.(2)
    
    Excludes 600,000 ordinary shares issuable to Mrs. Lius husband
converted at the exchange ratio (0.0675374) and 40,522 ordinary
shares beneficially owned by Mrs. Lius husband.(3)
    
    Includes exercisable warrants to purchase 593,793 ordinary shares.(4)
    
    Includes exercisable warrants to purchase 153,000 ordinary shares.(5)
    
    Consists of ordinary shares and warrants beneficially owned by
China Seed Ventures, which may be deemed beneficially owned by Mr.
Yen.(6)
    
    Includes ordinary shares and exercisable warrants to purchase 3,172
ordinary shares beneficially owned by Halpryn Capital Partners LLC.(7)
    
    Consists of options to purchase 30,389 ordinary shares.(8)
    
    Consists of 81,046 vested restricted shares awards units and
exercisable warrants to purchase 3,825 ordinary shares.(9)
    
    Includes exercisable warrants to purchase 2,626,434 ordinary
shares. The business address of Dr. Frost, M.D. is 4400 Biscayne
Blvd., Suite 1500, Miami, FL 33137.(10)
    
    Includes exercisable warrants to purchase 255,427 ordinary shares.
The business address of Deutsche Bank AG, HK Branch is
Theodor-Heuss-Allee 70, 60468 Frankfurt am Main, Federal Republic
of Germany.(11)
    
    Includes exercisable warrants to purchase 903,318 ordinary shares.
The business address of China See Ventures, L.P. is Room 104
Building 18, No. 800 Huashan Road, Shanghai, China.(12)
    
    Includes exercisable warrants to purchase 714,025 ordinary shares.
The business address of Linden Ventures II is C/O Appleby, 56 Admin
Drive, Wickhams Cay 1, PO Box 3190, Road Town, Tortola, British
Virgin Islands.(13)
    
    The business address of Pine River Capital Management L.P. is 601
Carlson Parkway Suite 330, Minnetonka, MN 55305. Equity Compensation Plan Information
  132




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Number of securitiesremaining availablefor future issuanceunder equityNumber of securities to
    
    
    Weighted average
    
    
    compensation plansbe issued upon exercise
    
    
    exercise price of
    
    
    (excludingPlan category
    
    of outstanding options
    
    
    outstanding options
    
    
    outstanding options)Equity compensation
plans approved by
security holders
    
    
    1,796,492
    
    
    $
    3.19
    
    
    
    908,915Equity compensation
plans not approved
by security holders
(1)
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    1,796,492
    
    
    $
    3.19
    
    
    
    908,915
 
 (1)
    
    In August 2010, the Board of Directors approved an increase in the number of shares reserved
for issuance under the plan to 3,000,000 and such increase will be presented for shareholder
approval. 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
 Certain Relationships and Related Transactions
  Repayment of Non-Interest Bearing Loans
  Warrants
  133




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Interim Financing
  Transactions with SearchMedia Internationals Shareholders, Senior Management Personnel and
Affiliated Entities of Companies Acquired by Shanghai Jingli
     134




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Share Incentives
 2008 Employee Stock Incentive Plan
 Plan Administration
 Types of Awards
 135




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
    
    options to purchase SearchMedia Internationals ordinary shares;
    
    restricted shares, which represent non-transferable ordinary shares, that may be
subject to forfeiture, restrictions on transferability and other restrictions; and
    
    restricted share units, which represent the right to receive SearchMedia
Internationals ordinary shares at a specified date in the future, which may be subject
to forfeiture.
 Award Document
 Eligibility
 Acceleration of Awards upon Change of Control and Corporate Transactions
 Term of the Awards
 Vesting Schedule
 Transfer Restrictions
 Termination and Amendment of the Plan
 136




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Historical Award Grants
 Director Independence
  
 ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
  Fiscal
    
    
    Fiscal2009(1)(2)
    
    
    2008(1)(2)Audit fees
    
    $
    450,000
    
    
    $
    450,000
    (3)Audit related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    $
    450,000
    
    
    $
    450,000
 
 (1)
    
    Does not include fees of KPMG. KPMG served as the auditor for SearchMedia International during Fiscal 2008 and Fiscal 2009. KPMGs fees during Fiscal 2009 consisted of $1,038,078 of audit fees and $30,900 of all other fees. KPMGs
fees during Fiscal 2008 consisted of $878,889 audit fees. On May 7, 2010, KPMG resigned as our
auditor.(2)
    
    Does not include fees of Rothstein, Kass & Company (Rothstein), Ideations independent
registered public accountant for Fiscal 2008 and 2009, through completion of the Business
Combination. Rothsteins fees during Fiscal 2008 consisted of $61,000. Rothsteins fees
during Fiscal 2009 consisted of $40,260.(3)
    
    Reflects fees paid to Bernstein & Pinchuk LLP in connection with the restatement of the consolidated financial statements of Search Media International as of and for the year ended December 31, 2008. 137




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138




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PART IV
 
 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    2.1
    
    Agreement and Plan of Merger, Conversion and Share Exchange by and
among Ideation Acquisition Corp., the registrant, SearchMedia
International Limited, the subsidiaries of SearchMedia International
Limited, the subsidiaries of SearchMedia International Limited,
Shanghai Jingli Advertising Co., Ltd. and certain shareholders and
warrantholders of SearchMedia International Limited (incorporated by
reference to Exhibit 2.1 of the Registrants Registration Statement
on Form S-4 (File No. 333-158336)).2.2
    
    First Amendment to Agreement and Plan of Merger, Conversion and
Share Exchange, dated as of May 27, 2009, by and among the
registrant, Earl Yen, Tommy Cheung and Stephen Lau and Qinying Liu
(incorporated by reference to Exhibit 2.2 of the Registrants
Registration Statement on Form S-4 (File No. 333-158336)).2.3
    
    Second Amendment to Agreement and Plan of Merger, Conversion and
Share Exchange, dated as of September 8, 2009, by and among the
registrant, Earl Yen, Tommy Cheung, Stephen Lau, Qinying Liu, Linden
Ventures, Inc., Vervain Equity Investment Limited, Sun Hing
Associates Limited and The Frost Group, LLC (incorporated by
reference to Exhibit 2.3 of the Registrants Registration Statement
on Form S-4 (File No. 333-158336)).2.4
    
    Third Amendment to Agreement and Plan of Merger, Conversion and
Share Exchange, dated as of September 22, 2009, by and among the
registrant, Ideation Acquisition Corp., Earl Yen, Tommy Cheung,
Terrance Hogan, Qinying Liu, and Linden Ventures II (BVI), Ltd.
(incorporated by reference to Exhibit 2.4 of the Registrants
Registration Statement on Form S-4 (File No. 333-158336)).2.5
    
    Fourth Amendment to Agreement and Plan of Merger, Conversion and
Share Exchange, dated as of October 30, 2009, by and among the
registrant, Ideation Acquisition Corp., Earl Yen, Tommy Cheung,
Stephen Lau and Qinying Liu. (incorporated by reference to Exhibit
2.5 of the Registrants current report on Form 8-K dated
November 5, 2009 (File No.
333-158336)).3.1
    
    Articles of Incorporation of ID Arizona Corp. (incorporated by
reference to Exhibit 3.1 of the Registrants Registration Statement
on Form S-4 (File No. 333-158336)).3.2
    
    Bylaws of ID Arizona Corp. (incorporated by reference to Exhibit 3.2
of the Registrants Registration Statement on Form S-4 (File No.
333-158336)).3.3
    
    Memorandum and Articles of Association of SearchMedia Holdings
Limited upon completion of redomestication. (incorporated by
reference to Exhibit 3.3 of the Registrants current report on Form
8-K dated
November 5, 2009 (File No. 333-158336)).4.1
    
    Specimen Unit Certificate of Ideation Acquisition Corp.
(incorporated by reference to Exhibit 4.1 to the Registration
Statement of Ideation Acquisition Corp. on Form S-1 (Reg No.
333-144218))
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##### Table of Contents



4.2
    
    Specimen Common Stock Certificate of Ideation Acquisition Corp.
(incorporated by reference to Exhibit 4.2 to the Registration
Statement of Ideation Acquisition Corp. on Form S-1 (Reg No.
333-144218))4.3
    
    Form of Warrant Certificate of Ideation Acquisition Corp.
(incorporated by reference to Exhibit 4.3 to the Registration
Statement of Ideation Acquisition Corp. on Form S-1 (Reg No.
333-144218))4.4
    
    Form of Warrant Agreement between the Ideation Acquisition Corp. and
Continental Stock Transfer & Trust Company (incorporated by
reference to Exhibit 4.4 to the Registration Statement of Ideation
Acquisition Corp. on Form S-1 (Reg No. 333-144218))4.5
    
    Form of Warrant of SearchMedia Holdings Limited (incorporated by
reference to Exhibit 4.5 of the Registrants Registration Statement
on Form S-4 (File No. 333-158336)).4.6
    
    Form of Unit Purchase Option to be granted to Lazard Capital Markets
LLC (incorporated by reference to Exhibit 4.5 of the Registration
Statement of Ideation Acquisition Corp. on Form S-1 (File No.
333-144218)).10.1
    
    Form of Registration Rights Agreement among SearchMedia
International Limited, Deutsche Bank AG, Hong Kong Branch, Gentfull
Investment Limited, Gavast Estates Limited, China Seed Ventures,
L.P. and Linden Ventures II (BVI) (incorporated by reference to
Exhibit 10.1 of the Registrants Registration Statement on Form S-4
(File No. 333-158336)).10.2
    
    Form of Lock-Up between SearchMedia Holdings Limited and SearchMedia
International Limited shareholders and warrantholders (incorporated
by reference to Exhibit 10.2 of the Registrants Registration
Statement on Form S-4 (File No. 333-158336)).10.3
    
    Form of Management Lock-Up between SearchMedia Holdings Limited and
SearchMedia International Limited shareholders and warrantholders
(incorporated by reference to Exhibit 10.3 of the Registrants
Registration Statement on Form S-4 (File No. 333-158336)).*10.4
    
    Form of Voting Agreement between SearchMedia International Limited,
Qinying Liu, Le Yang, China Seed Ventures, L.P., Gentfull Investment
Limited, Gavast Estates Limited, Linden Ventures II (BVI), Limited,
Frost Gamma Investments Trust, Robert N. Fried, Subbarao Uppaluri,
Steven D. Rubin and Jane Hsiao (incorporated by reference to Exhibit
10.4 of the Registrants Registration Statement on Form S-4 (File
No. 333-158336)).10.5
    
    Form of Employment Agreement with the SearchMedia International
Limited executive officers (incorporated by reference to Exhibit
10.5 of the Registrants Registration Statement on Form S-4 (File
No. 333-158336)).*10.6
    
    English Translation of Exclusive Technology Consulting and Service
Agreement between Jieli Consulting and Jingli Shanghai, dated as of
September 10, 2007 (incorporated by reference to Exhibit 10.6 of the
Registrants Registration Statement on Form S-4 (File No.
333-158336)).10.7
    
    English Translation of Exclusive Call Option Agreement among Jingli
Shanghai, its shareholders and Jieli Consulting, dated as of
September 10, 2007 (incorporated by reference to Exhibit 10.7 of the
Registrants Registration Statement on Form S-4 (File No.
333-158336)).
 140




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##### Table of Contents



10.8
    
    English Translation of Equity Pledge Agreement among Jingli
Shanghai, its shareholders and Jieli Consulting, dated as of
September 10, 2007 (incorporated by reference to Exhibit 10.8 of the
Registrants Registration Statement on Form S-4 (File No.
333-158336)).10.9
    
    English Translation of Power of Attorney by the shareholders of
Jieli Consulting dated as of September 10, 2007 (incorporated by
reference to Exhibit 10.9 of the Registrants Registration Statement
on Form S-4 (File No. 333-158336)).10.10
    
    English Translation of Loan Agreement between the shareholders of
Jingli Shanghai and Jieli Consulting, dated as of September 10, 2007
(incorporated by reference to Exhibit 10.10 of the Registrants
Registration Statement on Form S-4 (File No. 333-158336)).10.11
    
    Form of Securities Escrow Agreement among the Registrant,
Continental Stock Transfer & Trust Company and the initial
stockholders (incorporated by reference to Exhibit 10.1 of the
Registration Statement of Ideation Acquisition Corp. on Form S-1
(File No. 333-144218)).10.12
    
    Letter Agreement, dated as of September 8, 2009, by and among
Ideation Acquisition Corp. and certain investors of Ideation
Acquisition Corp. and SearchMedia International Limited
(incorporated by reference to Exhibit 10.13 of the Registrants
Registration Statement on Form S-4 (File No. 333-158336)).10.13
    
    SearchMedia Holdings Limited Amended and Restated 2008 Share
Incentive Plan* (incorporated by reference to Exhibit 10.13 of the
Registrants current report on Form 8-K dated November 5, 2009 (File No. 333-158336)).10.14
    
    Executive Employment Agreement between SearchMedia Holdings Limited
and Wilfred Chow dated December 30, 2009 (incorporated by reference
to Exhibit 10.1 of the Registrants current report on Form 8-K dated
January 6, 2010 (File No. 333-158336)).*21.1
    
    Subsidiaries of SearchMedia Holdings Limited31.1
    
    Section 302 Certification of Chief Executive Officer**31.2
    
    Section 302 Certification of Chief Financial Officer**32.1
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***32.2
    
    Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002***99.1
    
    Proxy Statement/Prospectus (incorporated by reference to the Proxy
Statement/Prospectus on Form 424(b)(3) filed with the Securities and
Exchange Commission on October 5, 2009).99.2
    
    Press release dated November 2, 2009. (incorporated by reference to
Exhibit 99.2 of the Registrants current report on Form 8-K (File
No. 333-158336)).
 
 *
    
    Management contract or compensatory plan or arrangement**
    
    Filed herewith***
    
    Furnished herewith 141




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SIGNATURES
  SEARCHMEDIA HOLDINGS LIMITEDBy:
    /s/ Paul ConwayPaul ConwayChief Executive Officer
(Principal Executive Officer)   SIGNATURE
    
    TITLE
    
    DATE/s/ Robert FriedRobert Fried
    
    Co-Chairman of the Board, Director
    
    October 29, 2010Qinying Liu
    
    Co-Chairman of the Board, Director/s/ Paul ConwayPaul Conway
    
    Chief Executive Officer
(Principal Executive Officer)
    
    October 29, 2010/s/ Wilfred ChowWilfred Chow
    
    Chief Financial Officer
(Principal Financial and Accounting
Officer)
    
    October 29, 2010/s/ Chi-Chuan ChenChi-Chuan Chen
    
    Director
    
    October 29, 2010/s/ Glenn HalprynGlenn Halpryn
    
    Director
    
    October 29, 2010Larry Lu
    
    DirectorJianzhong Qu
    
    Director/s/ Steven D. RubinSteven D. Rubin
    
    Director
    
    October 29, 2010Earl Yen
    
    Director
 142




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##### Table of Contents



EXHIBIT INDEX
 Description
    
    Exhibit NumberSubsidiaries of the Company
    
    21.1Section 302 Certification of Chief Executive Officer
    
    31.1Section 302 Certification of Chief Financial Officer
    
    31.2Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 *
    
    32.1Certification Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002 *
    
    32.2
 
 *
    
    Furnished herewith