Add
YOD to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| YOD > SEC Filings for YOD > Form 10-Q on 14-Nov-2012 | All Recent SEC Filings |
14-Nov-2012
Quarterly Report
The following management's discussion and analysis should be read in conjunction with our unaudited consolidated financial statements and the notes thereto and the other financial information appearing elsewhere in this report. In addition to historical information, the following discussion contains certain forward-looking information. See "Cautionary Note Regarding Forward Looking Statements" above for certain information concerning those forward looking statements.
Overview
We operate in the Chinese media segment, through our Chinese subsidiaries and
VIEs, (1) a business which provides integrated value-added service solutions for
the delivery of PPV, VOD, and enhanced premium content for cable providers and
(2) a cable broadband business based in the Jinan region of China.
Through our VIE, Sinotop, and it's 80% owned operating joint venture Zhong Hai Video, we provide integrated value-added service solutions for the delivery of PPV, VOD, and enhanced premium content for cable providers. Zhong Hai Video's revenue will be derived primarily from a VOD model, consisting of a fee to view movies, popular titles and live events.
Through our VIE, Jinan Broadband, we provide cable and wireless broadband services, principally internet services, Internet Protocol Point wholesale services, related network equipment rental and sales, and fiber network construction and maintenance. Jinan Broadband's revenue consists primarily of sales to our PRC-based internet consumers, cable modem consumers, business customers and other internet and cable services.
Through Shandong Media, we operate our publishing business, which includes the distribution of periodicals, the publication of advertising, the organization of public relations events, the provision of information related services, copyright transactions, the production of audio and video products, and the provision of audio value added communication services. Shandong Media's revenue consists primarily of sales of publications and advertising revenues. As discussed in Note 5 to the unaudited consolidated financial statements the Company has deconsolidated the net assets of Shandong Media as of July 1, 2012 and accounts for the remaining 30% interest in Shandong Media by the equity method.
Principal Factors Affecting Our Financial Performance
Our operating results are primarily affected by the following factors:
? Growth in the Chinese Economy. We operate in China and derive all of our revenues from sales to customers in China. Economic conditions in China, therefore, affect virtually all aspects of our operations, including the demand for our products, the availability and prices of our supplies and our other expenses. China has experienced significant economic growth, achieving an average annual growth rate of approximately 10% in gross domestic product from 1996 through 2011. China is expected to experience continued growth in all areas of investment and consumption, even in the face of a global economic recession. However, China has not been entirely immune to the global economic slowdown and is experiencing a slowing of its growth rate.
? PRC Economic Stimulus Plans. The PRC government has issued a policy entitled "Central Government Policy On Stimulating Domestic Consumption To Counter The Damage Result From Export Business Of The Country," pursuant to which the PRC Central Government is dedicating approximately $580 billion to stimulate domestic consumption. Companies that are either directly or indirectly related to construction, and to the manufacture and sale of building materials, electrical household appliances and telecommunication equipment, are expected to benefit. We could potentially benefit if the stimulus plan injects funds into cable infrastructure allowing access to our PPV network.
? Deployment of Value-added Services. To augment our product offerings and create other revenue sources, we work with strategic partners to deploy value-added services to our cable customers. Value-added services, including but not limited to the synergies created by the additions of our new assets, will become a focus of revenue generation for our company. No assurance can be made that we will add other value-added services, or if added, that they will succeed.
Taxation
United States
YOU On Demand Holdings, Inc. is subject to United States tax at a tax rate of 34%. No provision for income taxes in the United States has been made as YOU On Demand Holdings, Inc. had no income taxable in the United States.
Cayman Islands
CB Cayman was incorporated in the Cayman Islands. Under the current law of the Cayman Islands, it is not subject to income or capital gains tax. In addition, dividend payments are not subject to withholding tax in the Cayman Islands.
Hong Kong
Our subsidiary, Sinotop Hong Kong, was incorporated in Hong Kong and under the current laws of Hong Kong, is subject to Profits Tax of 16.5%. No provision for Hong Kong Profits Tax has been made as Sinotop Hong Kong has no taxable income.
The People's Republic of China
Under the EIT Law, our Chinese subsidiaries and VIEs are subject to an earned income tax of 25.0%.
Our future effective income tax rate depends on various factors, such as tax legislation, the geographic composition of our pre-tax income and non-tax deductible expenses incurred. Our management carefully monitors these legal developments to determine if there will be any change in the statutory income tax rate.
Consolidated Results of Operations
Comparison of Three Months Ended September 30, 2012 and 2011
In order to more effectively show comparative numbers our Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations is utilizing a Pro Forma 2011 Results of Operations. The Pro Forma Results of Operations exclude the impact of Shandong Media. This shows a more meaningful comparison to our 2012 results in which Shandong Media was deconsolidated effective July 1, 2012 (See Note 5 for more information regarding the Deconsolidation of Shandong Media).
Three Months Ended
As Reported Shandong Media Pro Forma
September 30, 3 months September 30,
2011 2011
(excluding
Shandong Media)
Revenue $ 1,981,000 $ 798,000 $ 1,183,000
Cost of revenue 1,441,000 548,000 893,000
Gross profit 540,000 250,000 290,000
Operating expense:
Selling, general and administrative expenses 2,215,000 440,000 1,775,000
Professional fees 791,000 - 791,000
Depreciation and amortization 1,087,000 28,000 1,059,000
Impairments of long-lived assets 19,000 - 19,000
Total operating expense 4,112,000 468,000 3,644,000
Loss from operations (3,572,000 ) (218,000 ) (3,354,000 )
Interest & other income / (expense)
Interest income 2,000 - 2,000
Change in fair value of contingent consideration 3,189,000 - 3,189,000
Gain on investment in unconsolidated entities 6,000 - 6,000
Gain on deconsolidation of AdNet 470,000 - 470,000
Other (44,000 ) - (44,000 )
Income (loss) before income taxes and
noncontrolling interests 51,000 (218,000 ) 269,000
Income tax benefit 75,000 4,000 71,000
Net income (loss) 126,000 (214,000 ) 340,000
Net loss attributable to noncontrolling interests 418,000 107,000 311,000
Net income (loss) attributable to YOU On Demand
shareholders $ 544,000 $ (107,000 ) $ 651,000
|
The following table sets forth key components of our results of operations (unaudited). As noted above, the table shows a Pro Forma 2011 which excludes the impact of Shandong Media.
Three Months Ended
September 30, September 30, Amount %
2012 2011 Change Change
(Pro Forma)
Revenue $ 1,194,000 $ 1,183,000 $ 11,000 1 %
Cost of revenue 1,548,000 893,000 655,000 73 %
Gross (loss) profit (354,000 ) 290,000 (644,000 ) -222 %
Operating expense:
Selling, general and administrative
expenses 2,460,000 1,775,000 685,000 39 %
Professional fees 139,000 791,000 (652,000 ) -82 %
Depreciation and amortization 1,247,000 1,059,000 188,000 18 %
Impairments of long-lived assets 420,000 19,000 401,000 2111 %
Total operating expense 4,266,000 3,644,000 622,000 17 %
Loss from operations (4,620,000 ) (3,354,000 ) (1,266,000 ) 38 %
Interest & other income / (expense)
Interest income 3,000 2,000 1,000 50 %
Interest expense (28,000 ) - (28,000 ) -
Change in fair value of warrant
liabilities (636,000 ) - (636,000 ) -
Change in fair value of contingent
consideration 538,000 3,189,000 (2,651,000 ) -83 %
Gain on investment in unconsolidated
entities 64,000 6,000 58,000 967 %
Gain on deconsolidation of Shandong
Media 142,000 - 142,000 -
Gain on disposal of AdNet - 470,000 (470,000 ) -100 %
Other (1,000 ) (44,000 ) 43,000 -98 %
(Loss) income before income taxes and
noncontrolling interests (4,538,000 ) 269,000 (4,807,000 ) -1782 %
Income tax benefit 101,000 71,000 30,000 42 %
Net (loss) income (4,437,000 ) 340,000 (4,777,000 ) -1405 %
Net loss attributable to noncontrolling
interests 389,000 311,000 78,000 25 %
Net (loss) income attributable to YOU On
Demand shareholders $ (4,048,000 ) $ 651,000 $ (4,699,000 ) -722 %
|
Revenues
Revenues for the three months ended September 30, 2012 totaled $1,194,000, as compared to $1,183,000 for the same period of 2011(1). The increase in revenue of approximately $11,000, or 1%, is attributable to increased revenue from Jinan Broadband. Jinan Broadband's revenue consisted primarily of sales to our PRC based internet consumers, cable modem consumers, business customers and other internet and cable services of $1,189,000, an increase of $29,000, or 3%, as compared to $1,160,000 for the same period in 2011. The increase is primarily related to sales to our business customers.
Gross (loss) Profit
Our gross (loss) profit for the three months ended September 30, 2012 was $(354,000), as compared to $290,000 for the same period in 2011(1). The decrease in gross (loss) profit of approximately $644,000, or 222%, is mainly due to content acquisition costs related to our PPV and VOD business.
Gross (loss) profit as a percentage of revenue was (30)% for the three months ended September 30, 2012, as compared to 25% for the same period in 2011(1). The decrease is mainly due to content acquisition costs related to our PPV and VOD business.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses for the three months ended September 30, 2012 increased approximately $685,000 to $2,460,000, as compared to $1,775,000 for the three months ended September 30, 2011(1). The increase is mainly due to increased costs related to the development of our PPV and VOD business.
Salaries and personnel costs are the primary components of selling, general and administrative expenses. For the three months ended September 30, 2012, salaries and personnel costs accounted for 55% of our selling, general and administrative expenses. For the three months ended September 30, 2012, salaries and personnel costs totaled $1,344,000, an increase of $456,000, or 52%, as compared to $888,000 for the same period of 2011(1). The increase in salaries and personnel costs is primarily attributable to the development of our PPV and VOD business.
The other major components of our selling, general and administrative expenses include marketing and promotions, rent and travel. For the three months ended September 30, 2012, these costs totaled $641,000, an increase of $187,000, or 41% as compared to $454,000 for the same period of 2011(1).
Professional Fees
Professional fees are generally related to public company reporting and governance expenses as well as legal fees related to our PPV and VOD business. Our costs for professional fees decreased 652,000, or 82%, to $139,000 for the three months ended September 30, 2012, from $791,000 during 2011(1). The decrease is primarily attributable to the large fees incurred in 2011 which was our first year of developing our PPV and VOD business.
Depreciation and Amortization
Our depreciation expense increased $102,000, or 16%, to $743,000 in the three months ended September 30, 2012 from $641,000 during 2011(1) due to new machinery and equipment primarily at Jinan Broadband and from our investments in the PPV and VOD business.
Our amortization expense increased $86,000, or 21%, to $504,000 in the three months ended September 30, 2012 from $418,000 during 2011(1). The increase is due to software and licenses and website development costs being recognized in 2012.
Impairment of long-lived assets
In the third quarter of 2012, we recorded an impairment charge of $420,000 related to our equipment assets at our Jinan Broadband subsidiary as discussed in Note 8 of our consolidated financial statements.
Change in fair value of warrant liabilities
Our warrants are characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations and accordingly we reported a loss of $636,000 for the three months ended September 30, 2012.
Change in Fair Value of Contingent Consideration
Our contingent consideration related to our acquisition of Sinotop Hong Kong is classified as a liability because the earn-out securities do not meet the fixed-for-fixed criteria under ASC 815-40-15. Further, ASC 815-40-15 requires us to re-measure at the end of every reporting period with the change in value reported in the statement of operations and accordingly we reported a gain of approximately $538,000 and $3,189,000 for the three months ended September 30, 2012 and 2011, respectively. The gain is primarily due to decreases in our closing stock price.
Gain on deconsolidation of Shandong Media
Effective July 1, 2012, we deconsolidated our ownership in Shandong Media and recorded a gain of $141,814 as discussed in Note 5 of our consolidated financial statements.
Net Loss Attributable to Non-controlling Interest
49% of the operating loss of our Jinan Broadband entity is allocated to Jinan Parent, the 49% co-owner of this business. During the three months ended September 30, 2012, $441,000 of our operating losses from Jinan Broadband was allocated to Jinan Parent, as compared to $192,000 during the same period of 2011.
20% of the operating loss of our Zhong Hai Video joint venture is allocated to Hua Cheng, our 20% joint venture partner. During the three months ended September 30, 2012, $52,000 of our operating income from Zhong Hai Video was allocated to Hua Cheng, as compared to $119,000 operating loss during the same period of 2011.
(1) Represents a Pro Forma 2011 amount to exclude the impact of Shandong Media. Effective July 1, 2012 Shandong Media has been deconsolidated from our Results of Operations (see Note 5 to the Financial Statements for more information on the Deconsolidation of Shandong Media).
Comparison of Nine Months Ended September 30, 2012 and 2011
In order to more effectively show comparative numbers our Item 2 Management's
Discussion and Analysis of Financial Condition and Results of Operations is
utilizing a Pro Forma 2012 and 2011 Results of Operations. The Pro Forma Results
of Operations exclude the impact of Shandong Media. This shows a more meaningful
comparison in which Shandong Media was deconsolidated effective July 1, 2012
(See Note 5 for more information regarding the Deconsolidation of Shandong
Media).
Pro Forma Comparisons
Nine Months Ended
As Reported Shandong Media Pro Forma
September 30, 6 months September 30,
2012 2012
(excluding
Shandong Media)
Revenue $ 5,515,000 $ 1,696,000 $ 3,819,000
Cost of revenue 5,267,000 1,229,000 4,038,000
Gross profit (loss) 248,000 467,000 (219,000 )
Operating expense:
Selling, general and administrative expenses 7,789,000 717,000 7,072,000
Professional fees 1,080,000 - 1,080,000
Depreciation and amortization 3,727,000 58,000 3,669,000
Impairments of long-lived assets 420,000 - 420,000
Total operating expense 13,016,000 775,000 12,241,000
Loss from operations (12,768,000 ) (308,000 ) (12,460,000 )
Interest & other income / (expense)
Interest income 7,000 - 7,000
Interest expense (49,000 ) - (49,000 )
Change in fair value of warrant liabilities (636,000 ) - (636,000 )
Right to purchase expense (44,000 ) - (44,000 )
Change in fair value of contingent consideration 74,000 - 74,000
Gain on investment in unconsolidated entities 52,000 - 52,000
Loss on write-off of uncollectible loans (473,000 ) (473,000 ) -
Gain on deconsolidation of Shandong Media 142,000 - 142,000
Other (60,000 ) - (60,000 )
Loss before income taxes and noncontrolling interests (13,755,000 ) (781,000 ) (12,974,000 )
Income tax benefit 282,000 9,000 273,000
Net loss (13,473,000 ) (772,000 ) (12,701,000 )
Net loss attributable to noncontrolling interests 1,483,000 386,000 1,097,000
Net loss attributable to YOU On Demand shareholders $ (11,990,000 ) $ (386,000 ) $ (11,604,000 )
|
Pro Forma Comparisons
Nine Months Ended
As Reported Shandong Media Pro Forma
September 30, 9 months September 30,
2011 2011
(excluding
Shandong Media)
Revenue $ 5,573,000 $ 2,184,000 $ 3,389,000
Cost of revenue 3,791,000 1,574,000 2,217,000
Gross profit 1,782,000 610,000 1,172,000
Operating expense:
Selling, general and administrative expenses 6,311,000 976,000 5,335,000
Professional fees 1,658,000 - 1,658,000
Depreciation and amortization 3,281,000 85,000 3,196,000
Impairments of long-lived assets 341,000 - 341,000
Total operating expense 11,591,000 1,061,000 10,530,000
Loss from operations (9,809,000 ) (451,000 ) (9,358,000 )
Interest & other income / (expense)
Interest income 7,000 - 7,000
Interest expense (1,000 ) - (1,000 )
Right to purchase expense (155,000 ) - (155,000 )
Change in fair value of contingent consideration 937,000 - 937,000
Loss on investment in unconsolidated entities (7,000 ) - (7,000 )
Gain on deconsolidation of AdNet 470,000 - 470,000
Other (42,000 ) - (42,000 )
Loss before income taxes and noncontrolling interests (8,600,000 ) (451,000 ) (8,149,000 )
Income tax benefit 262,000 13,000 249,000
Net loss (8,338,000 ) (438,000 ) (7,900,000 )
Net loss attributable to noncontrolling interests 1,071,000 219,000 852,000
Net loss attributable to YOU On Demand shareholders $ (7,267,000 ) $ (219,000 ) $ (7,048,000 )
|
The following table sets forth key components of our results of operations (unaudited). As noted above, the table shows a Pro Forma 2012 and 2011 which excludes the impact of Shandong Media.
Nine Months Ended
September 30, September 30, Amount %
2012 2011 Change Change
(Pro Forma) (Pro Forma)
Revenue $ 3,819,000 $ 3,389,000 $ 430,000 13 %
Cost of revenue 4,038,000 2,217,000 1,821,000 82 %
Gross (loss) profit (219,000 ) 1,172,000 (1,391,000 ) -119 %
Operating expense:
Selling, general and administrative
expenses 7,072,000 5,335,000 1,737,000 33 %
Professional fees 1,080,000 1,658,000 (578,000 ) -35 %
Depreciation and amortization 3,669,000 3,196,000 473,000 15 %
Impairments of long-lived assets 420,000 341,000 79,000 23 %
Total operating expense 12,241,000 10,530,000 1,711,000 16 %
Loss from operations (12,460,000 ) (9,358,000 ) (3,102,000 ) 33 %
. . .
|
|
|