UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 20-F
¨ |
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
x |
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
OR
¨ |
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
Commission file number 001-33692
CHINA DIGITAL
TV HOLDING CO., LTD.
(Exact name of Registrant as specified in its charter)
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N/A |
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Cayman Islands |
(Translation of Registrants name into English) |
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(Jurisdiction of incorporation or organization) |
Jingmeng High-Tech Building B, 4th Floor
No. 5 Shangdi East Road
Haidian District, Beijing 100085
Peoples Republic of China
(Address of principal executive offices)
Mr. Nan Hao
China
Digital TV Holding Co., Ltd.
Jingmeng High-Tech Building B, 4th Floor
No. 5 Shangdi East Road
Haidian District, Beijing 100085
Peoples Republic of China
Email: ir@chinadtv.cn
Telephone: (+86 10) 6297 1199
Fax: (+86 10) 6297 5009
(Name, telephone, email and/or facsimile number and address of Company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
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Title of Each Class |
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Name of Each Exchange on which Registered |
Ordinary shares, par value US$0.0005 per share*
American depositary shares, each representing one ordinary share |
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New York Stock Exchange |
* |
Not for trading, but only in connection with the listing on the New York Stock Exchange of American depositary shares, or ADSs, each representing one ordinary share. |
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period
covered by the annual report.
As of December 31, 2014, 59,705,570 ordinary shares, par value US$0.0005 per share, were issued and
outstanding.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¨ No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition
of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated
Filer ¨ Accelerated
Filer x Non-Accelerated Filer ¨
Indicate by check mark which basis of accounting the registrant has
used to prepare the financial statement included in this filing:
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U.S. GAAP x |
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International Financial Reporting Standards as issued
by the International Accounting Standards Board ¨ |
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Other ¨ |
If Other has been checked in response to the previous question, indicate by check mark which
financial statement item the registrant has elected to
follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes ¨ No x
TABLE OF CONTENTS
INTRODUCTION
Except where the context otherwise requires and for purposes of this annual report only:
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ADSs refers to our American depositary shares, each of which represents one ordinary share of CDTV Holding; |
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ADRs refers to American depositary receipts, which, if issued, evidence our ADSs; |
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CA systems refers to conditional access systems provided to the PRCs digital television market, which consist of: (1) smart cards that are inserted into set-top boxes at the subscribers end
or terminal end; (2) software installed at the digital television network operators transmission point, or head end; and (3) software for set-top boxes, enabling digital television network operators to control the distribution of
content and value-added services to their subscribers and block unauthorized access to their networks; |
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China or the PRC refers to the Peoples Republic of China, excluding, for the purposes of this annual report, Hong Kong, Macau and Taiwan; |
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RMB or Renminbi refers to the legal currency of China; |
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U.S. or United States refers to the United States of America; |
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U.S. dollars or US$ refers to the legal currency of the United States; and |
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U.S. GAAP refers to generally accepted accounting principles in the United States. |
All references to CDTV Holding, we, us or our include China Digital TV Holding Co., Ltd., its
subsidiaries, the businesses acquired from Novel-Tongfang Information Engineering Co., Ltd., or N-T Information Engineering, and, in the context of describing our operations and consolidated financial
information, also include Beijing Novel-Super Digital TV Technology Co., Ltd. (formerly known as Beijing Novel-Tongfang Digital TV Technology Co., Ltd.), or N-S Digital TV, and its subsidiaries.
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, or
the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, with respect to our business, operating results and financial condition as well as our current expectations, assumptions, estimates and
projections about our industry. All statements other than statements of historical fact in this annual report are forward-looking statements. These forward-looking statements can be identified by words or phrases such as the words
anticipate, believe, estimate, expect, intend, plan, may, is/are likely to, should, will and similar expressions. These
forward-looking statements include, without limitation, statements relating to:
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changes in technology standards in the digital television broadcasting industry and our ability to adapt to these changes; |
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our expectations regarding demand for our products and services; |
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our ability to develop new products and services, and expand our sales and distribution network and other aspects of our operations; |
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expected changes in our revenues and cost and expense items; |
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our expectation regarding the financial performance of Beijing Super TV Co., Ltd., or Super TV; |
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our ability to continue to operate as a going concern after the completion of the planned sale of Super TV; |
1
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our ability to maintain our listing on the New York Stock Exchange, or the NYSE, after the completion of the planned sale of Super TV; |
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our ability to effectively protect our intellectual property rights as well as not infringe on the intellectual property rights of others; |
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the competitiveness of our products and services; |
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the level of competition in the CA systems market; |
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government policies and regulations relating to the digital television broadcasting industry, the CA systems industry and other areas relevant to our business activities; |
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any significant changes to the PRC governments ongoing digitalization program; |
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general economic and business conditions in the PRC and elsewhere; |
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our future business development and economic performance; |
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our future business development plans and strategic initiatives; and |
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the future expansion of the PRC digital television broadcasting market, and factors driving that growth. |
These forward-looking statements involve various risks and uncertainties. These forward-looking statements reflect our current views with
respect to future events and are not a guarantee of future performance. Actual results may differ materially from the information contained in the forward-looking statements as a result of a number of factors, including, without limitation, the risk
factors set forth in Item 3. Key InformationD. Risk Factors and the following:
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general economic and business conditions in the PRC and elsewhere; |
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governmental, statutory, regulatory or administrative initiatives affecting us; |
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trends in the PRCs digital television broadcasting industry, including the continued progress of digitalization in the PRC and the continued growth of digital television network operators; |
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the financial performance of Super TV in the Covered Period (as defined below); |
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future profitability of our remaining business and operations; |
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exchange rate fluctuations between the Renminbi and other currencies; and |
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the availability of qualified management and technical personnel. |
Due to these risks,
uncertainties and assumptions, the forward-looking events and circumstances discussed in this annual report may not occur in the way we expect, or at all. Accordingly, you should not place undue reliance on any forward-looking information. The
forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or otherwise revise the forward-looking statements
in this annual report, whether as a result of new information, future events or otherwise.
2
PART I
Item 1. |
Identity of Directors, Senior Management and Advisors |
Not Applicable.
Item 2. |
Offer Statistics and Expected Timetable |
Not Applicable.
A. |
Selected Financial Data |
Our Selected Consolidated Financial Data
The following selected consolidated financial data should be read in conjunction with Item 5. Operating and Financial Review and
Prospects and our audited consolidated financial statements and the notes thereto included elsewhere in this annual report on Form 20-F. The selected consolidated statement of operations data for the years ended December 31, 2012, 2013
and 2014, and the selected consolidated balance sheet data as of December 31, 2013 and 2014 set forth below are derived from our audited consolidated financial statements included elsewhere in this annual report. The selected consolidated
statement of operations data for the years ended December 31, 2010 and 2011 and the selected historical consolidated balance sheet data as of December 31, 2010, 2011 and 2012 set forth below are derived from our audited consolidated
financial statements which are not included in this annual report.
Our audited historical consolidated financial statements have been
prepared and presented in accordance with U.S. GAAP.
3
Our historical results for any prior period do not necessarily indicate our results to be
expected for any future period.
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For the years ended December 31, |
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2010 |
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2011 |
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2012 |
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2013 |
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2014 |
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(In thousands of U.S. dollars, except share and per share data) |
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Consolidated Statements of Operations Data: |
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Revenues |
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Products |
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US$ |
82,518 |
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US$ |
95,162 |
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US$ |
85,319 |
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US$ |
82,926 |
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US$ |
73,520 |
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Services |
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5,225 |
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5,378 |
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4,925 |
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5,521 |
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9,423 |
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Total revenues |
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87,743 |
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100,540 |
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90,244 |
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88,447 |
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82,943 |
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Business and related taxes |
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(620 |
) |
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(1,445 |
) |
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(1,501 |
) |
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(1,283 |
) |
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(1,410 |
) |
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Net revenues |
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87,123 |
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99,095 |
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88,743 |
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87,164 |
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81,533 |
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Cost of revenues |
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Products |
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15,148 |
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16,100 |
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16,880 |
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17,009 |
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13,845 |
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Services |
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3,040 |
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3,027 |
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3,952 |
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4,652 |
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4,384 |
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Total cost of revenues |
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18,188 |
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19,127 |
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20,832 |
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21,661 |
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18,229 |
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Gross profit |
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68,935 |
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79,968 |
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67,911 |
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65,503 |
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63,304 |
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Total operating expenses |
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25,325 |
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35,240 |
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40,452 |
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44,167 |
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42,088 |
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Income from operations |
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43,610 |
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44,728 |
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27,459 |
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21,336 |
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21,216 |
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Interest income |
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5,294 |
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6,810 |
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6,318 |
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1,901 |
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1,312 |
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Interest expense |
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(1,452 |
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(739 |
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Gain/(loss) from forward contracts |
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404 |
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(690 |
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Impairment loss on long-term investments |
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(5,000 |
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(4,487 |
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Other (expense)/income |
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(92 |
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594 |
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549 |
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534 |
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3,069 |
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Income before income taxes |
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43,812 |
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51,084 |
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28,410 |
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23,771 |
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25,597 |
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Income tax expense |
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10,250 |
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9,762 |
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22,232 |
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727 |
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6,373 |
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Net income before loss from equity method investments |
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33,562 |
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41,322 |
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6,178 |
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23,044 |
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19,224 |
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Loss from equity method investments, net of income taxes |
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(151 |
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(1,052 |
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(640 |
) |
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(468 |
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(59 |
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Net income |
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33,411 |
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40,270 |
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5,538 |
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22,576 |
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19,165 |
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Net loss attributable to noncontrolling interest |
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(10 |
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(730 |
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(1,389 |
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(1,832 |
) |
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(1,725 |
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Net income attributable to holders of ordinary shares |
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US$ |
33,421 |
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41,000 |
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6,927 |
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24,408 |
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20,890 |
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Earnings per share data: |
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Net income per ordinary sharebasic |
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US$ |
0.57 |
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0.70 |
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0.12 |
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0.41 |
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0.35 |
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Net income per ordinary sharediluted |
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US$ |
0.57 |
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0.69 |
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0.12 |
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0.41 |
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0.34 |
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Weighted average shares used in calculating basic net income per shareordinary shares |
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58,313,467 |
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58,934,912 |
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59,011,396 |
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59,111,594 |
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59,369,708 |
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Weighted average shares used in calculating diluted net income per share |
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58,779,027 |
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59,075,466 |
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59,092,804 |
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59,176,457 |
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61,716,779 |
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Consolidated Balance Sheet Data: |
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Cash and cash equivalents |
|
US$ |
148,944 |
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201,557 |
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130,697 |
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79,085 |
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62,042 |
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Total assets |
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273,642 |
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321,338 |
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193,565 |
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148,806 |
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139,111 |
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Total liabilities |
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94,622 |
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111,016 |
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110,402 |
* |
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37,834 |
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37,084 |
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Total China Digital TV Holding Co., Ltd. shareholders equity |
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178,500 |
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206,442 |
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80,458 |
* |
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110,036 |
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101,462 |
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Noncontrolling interest |
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520 |
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3,880 |
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2,705 |
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936 |
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|
565 |
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Total liabilities and equity |
|
US$ |
273,642 |
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321,338 |
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193,565 |
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148,806 |
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139,111 |
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* |
The amount reflects an adjustment to dividend payable included in total liabilities and additional paid-in capital included in equity, respectively, in the amount of US$971,377 to the amount reported in our unaudited
financial results for the three months and full year ended December 31, 2012 announced on February 26, 2013 to rectify an error. |
Exchange Rate Information
Our business
is primarily conducted in China and substantially all of our revenues are denominated in Renminbi. We present our historical consolidated financial statements in U.S. dollars. In addition, solely for the convenience of the reader, this annual report
contains translations of certain Renminbi amounts into U.S. dollars at specific rates. For January 1, 2010 and all later dates and periods, the exchange rate refers to the exchange rate as set forth in the H.10 statistical release of the
Federal Reserve Board. Unless otherwise indicated, conversions of Renminbi into U.S. dollars in this annual report are based on the exchange rate on December 31, 2014. We make no representation that any Renminbi amounts could have been, or
could be, converted into U.S. dollars or vice versa, as the case may be, at any particular rate, the rates stated below, or at all. For a detailed explanation of the risk of currency rate fluctuations, please see Item 3. Key
InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaFluctuations in exchange rates could result in foreign currency exchange losses. The PRC government imposes controls over its foreign currency
reserves in part through direct regulation of the conversion of Renminbi into foreign exchange and through restrictions on foreign trade.
4
On April 24, 2015, the daily exchange rate reported by the Federal Reserve Board was RMB6.1930 to
US$1.00. The following table sets forth additional information concerning exchange rates between Renminbi and U.S. dollars for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates
that we use in this annual report or will use in the preparation of our future periodic reports or any other information to be provided to you.
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RMB per US$1.00 |
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High |
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Low |
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October 2014 |
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6.1385 |
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6.1107 |
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November 2014 |
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6.1429 |
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6.1117 |
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December 2014 |
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6.2256 |
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6.1490 |
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January 2015 |
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6.2535 |
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6.1870 |
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February 2015 |
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6.2695 |
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6.2399 |
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March 2015 |
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6.2741 |
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6.1955 |
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April 2015 (through April 24, 2015) |
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6.2152 |
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6.1927 |
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The following table sets forth the average exchange rates between Renminbi and U.S. dollars for each of 2010,
2011, 2012, 2013 and 2014 calculated by averaging the exchange rates on the last day of each month during each of the relevant years.
Average Exchange Rate
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RMB per US$ 1.00 |
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2010 |
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6.7603 |
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2011 |
|
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6.4475 |
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2012 |
|
|
6.2990 |
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2013 |
|
|
6.1412 |
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2014 |
|
|
6.1704 |
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B. |
Capitalization and Indebtedness |
Not Applicable.
C. |
Reasons for the Offer and Use of Proceeds |
Not Applicable.
You should carefully consider all of the information in this annual
report, including the risks and uncertainties described below, before deciding to invest in our ADSs. The trading price of our ADSs could decline due to any of these risks and uncertainties, and you may lose all or part of your investment.
5
Risks Relating to Our Business and Industry
We derive substantially all of our revenues from customers who are installing new CA systems, and if we are unable to continue attracting
new customers to install our CA systems or persuade existing customers to purchase our system upgrades or value-added applications, our revenues, profitability and prospects may be materially and adversely affected.
CA systems vendors in more mature digital television markets, such as the United States and Europe, derive revenues not only from the purchase
of new CA systems by television network operators who are switching from analog to digital transmissions, but also from the purchase of new and replacement smart cards, system upgrades and new value-added services by existing customers. In the PRC,
however, cable television network operators are still in the process of purchasing CA systems and introducing digital content and services to their subscribers. To date, none of our customers has made a follow-on purchase for system upgrades or card
replacements. As a result, the success of our business depends primarily on our ability to attract a continuing stream of customers who are switching from analog to digital transmission. As the digitalization process in the PRC continues, the number
of cable television network operators who have not switched from analog to digital transmission, who are the prospective customers of our CA systems, has been decreasing significantly. According to GL Research, an independent market research firm,
the digitalization rate of PRC cable television users has reached 80.72% as of November 30, 2014. If we are unable to continue attracting sufficient numbers of such customers, or to develop a significant additional source of recurring revenues,
our revenues and profitability may be materially reduced and our prospects may suffer.
Changes in the regulatory environment and
government policies of the PRC could have a material adverse effect on our business, financial condition and results of operations.
Strong PRC government support has been a significant driver of the PRC television broadcasting industrys transition from analog to
digital transmission. Although the PRC government has set a target for substantially all cable television networks to switch to digital transmissions in the urban areas, we cannot assure you that the government will not change or adjust its
digitalization policies at any time, including canceling or relaxing the target for completing such digitalization. If the digitalization process in the PRC were to be slowed down or otherwise adversely affected by any government action or inaction,
we may not be able to develop a broader customer base or attract new business from existing customers, and our growth and prospects would be materially and adversely affected.
Furthermore, the television broadcasting industry in the PRC is highly regulated. Government regulations with respect to television
broadcasting content, the amount and content of advertising, the pricing of pay-television subscriptions, the role of private-sector investment and the role of foreign investment significantly influence the business strategies and operating results
of our customers. For example, the PRC State Administration of Press, Publication, Radio, Film and Television (formerly, the PRC General Administration of Press and Publication and the PRC State Administration of Radio, Film and Television), or the
SAPPRFT, issues licenses without which our customers cannot operate, and may withdraw such licenses for violation of its regulations. Among other things, the SAPPRFT must approve the creation of new premium content channels and has the power to
order television network operators to stop airing programs or advertising that it considers illegal or inappropriate. Any adverse government actions against television network operators could, in turn, cause us to lose existing or potential
customers.
In addition, many of our customers are directly or indirectly owned by the central PRC government or provincial or local
governments. As a result, their business strategies and capital expenditure budgets are significantly influenced by government policies at various levels. Any change in the business strategies of our customers that leads to a reduction in the funds
available to purchase our CA systems could have a material adverse effect on our business, financial condition and results of operations. Furthermore, the ongoing consolidation of the PRC cable television broadcasting industry could, among other
things, substantially increase the bargaining power of the consolidated network operators over us and require us to reduce the prices of our CA systems and other products and services, which could, in turn, materially reduce our revenues and
profitability.
If significant numbers of television viewers in the PRC are unwilling to pay for digital television or related
value-added services, our business and profits will suffer.
The substantial majority of our revenues are derived from digital
television network operators who purchase our head-end CA systems software and smart cards to insert in the set-top boxes of their subscribers. As a result, we are substantially dependent upon the television network operators ability to sell
digital television subscriptions to viewers. In addition, the success of our efforts to generate future revenues by offering value-added services to television viewers ultimately depends on whether viewers are willing to pay for such value-added
services.
6
We cannot assure you that television network operators will be successful in promoting digital
television or value-added services. In particular, television viewers in the PRC are accustomed to receiving television programming and content for free or at a very low price. Even viewers who are accustomed to paying for cable television
subscriptions have historically paid very low rates and may not be willing to pay significantly higher rates for digital television services, or additional fees for value-added services. If digital television network operators are unable to develop
unique and compelling content to differentiate their product offerings from the content provided through analog transmissions or offer value-added services that meet viewers needs at an affordable price, these operators may find it difficult
to persuade viewers to accept the pay-television model or pay more for digital television or value-added services than viewers have historically paid for analog television. In that event, our customers digital subscriber numbers may not grow
and we may be unable to sustain our current level of revenues, net income and/or growth.
If large numbers of television network
operators who have already installed our CA system head-end software do not purchase sufficient quantities of our smart cards, our financial condition and results of operations would be materially and adversely affected.
Television network operators who purchase and install our CA systems head-end software generally purchase our smart cards in batches over a
period of several months to several years as they roll out digital services to their subscribers in stages. Substantially all of our revenues are derived from the sale of smart cards to customers who are engaged in such service roll-outs. However,
certain television network operators have in the past installed our CA systems head-end software and subsequently failed to purchase sufficient quantities of our smart cards. Factors that may cause a television network operator to suspend or halt
its digitalization using our products include, but are not limited to, changes in such television network operators management priorities or financial position, and a decision by such television network operator to carry out digitalization
using the CA systems of a competitor.
In January 2010, the PRC government stepped up its policy to encourage convergence of television
broadcasting, telecommunications and Internet services. Although this policy may lead to acceleration of the digitalization of cable networks as the cable operators prepare themselves for potential competition from telecommunications operators, it
may also have a material adverse effect on our business. In particular, as a response to that policy, and as an important measure to strengthen the competitiveness of the cable television industry as a whole, the SAPPRFT has increased its efforts to
consolidate the cable television industry. As a result, some provincial cable operators have completed consolidation of and gained increasing influence over the municipal cable operators, including the latters purchase and investment
decisions. If the provincial cable operators, who may be CA customers of our competitors or otherwise prefer our competitors products, direct the municipal cable operators to suspend or cancel their orders for our smart cards or purchase smart
cards from our competitors, our business could suffer.
Furthermore, the SAPPRFT released a unified CA systems standard in March 2012,
which requires a unified CA system that is compatible with different terminals developed by different vendors to be used. Although this standard has not yet been implemented, upon such implementation, it would allow television network operators
greater flexibility in selecting vendors of CA systems and related upgrades, including those of our competitors.
If large numbers of
television network operators who have already installed our CA systems head-end software fail to purchase commercial quantities of our smart cards, our financial condition and results of operations would be materially and adversely affected.
7
Our business will suffer if we do not respond effectively to technological or commercial
changes in our industry.
Our business and the market in which we operate are characterized by rapid commercial and technological
change, evolving industry standards and frequent product enhancements. As digital broadcasting becomes more popular in the PRC, television network operators are likely to seek more sophisticated CA technology that offers them greater reliability,
flexibility and functionality in delivering protected content or value-added services to viewers. As methods of distributing information and entertainment evolve, CA technology may also need to evolve to provide content protection for distribution
platforms other than television. Our continued success will depend, in part, on our ability to develop and market products and services that respond to technological changes and evolving market demand or industry standards in a timely and
cost-effective manner. We will need to invest significant financial resources in research and development to keep pace with technological advances in the CA systems industry and related industries. However, research and development activities are
inherently uncertain, and our significant expenditures on research and development may not yield corresponding benefits. If we fail to develop and introduce products and services that effectively respond to technical changes and evolving market
demand or industry standards and compete effectively with products and services offered by our competitors, our sales may be significantly reduced and our revenues and profitability will suffer.
We depend, and expect to continue to depend, on a limited number of customers for a significant portion of our revenues in any single
period. If one customer defers or cancels its orders or chooses our competitors products or services, our revenues and net income could decline significantly.
The revenues generated by our top five customers for a particular year as a percentage of our total revenues increased from 23.5% in 2010 to
26.9% in 2014. We currently still derive, and we expect to continue to derive, a significant portion of our revenues from a limited number of customers, although the particular customers may vary from period to period. As digital cable television
systems are still at the developing stage in the PRC, the largest shipments of smart cards tend to be to operators who are launching new digital transmission systems and need to purchase in bulk for their established networks. If a customer
significantly reduces the volume of its purchases from us, defers or cancels orders or terminates its relationship with us, our revenues and net income could decline significantly and, as a result, our financial condition and results of operations
could be materially and adversely affected.
Our business may suffer if cable television network operators, who currently comprise
our primary customer base, fail to compete effectively with existing and emerging alternative platforms for delivering television programs, including terrestrial networks, Internet Protocol television, mobile television and satellite broadcasting
networks.
Our existing customers are mainly cable television network operators in the PRC, which compete with traditional
terrestrial television networks for the same pool of viewers. As technologies continue to develop, other means of delivering information and entertainment to television viewers are also continuing to evolve. For example, some telecommunications
companies in the PRC are seeking to compete with terrestrial broadcasters and cable television network operators by offering Internet Protocol television, or IPTV, which allows telecommunications companies to stream television programs through
telephone lines. The SAPPRFT has issued seven IPTV licenses, and seven Internet TV licenses for integration platforms, and it may issue significantly more IPTV and Internet TV licenses in the future. We may not be as successful in selling our CA
systems to the operators of IPTV, or terrestrial, satellite or mobile television networks as we have been in selling to cable television network operators. To the extent that the terrestrial television networks, telecommunications companies or
satellite television network operators compete successfully with cable television network operators for viewers, the ability of our existing cable customer base to attract and retain subscribers may be severely disrupted. As a result, demand for
additional smart cards could falter and our business, financial condition and results of operations would be materially and adversely affected.
8
Our business could be harmed if the security of our customers networks is compromised
due to a failure of our CA systems or a security breach of the software or hardware supplied by other vendors.
We face risks
relating to a failure of our CA systems to block unauthorized access to the television networks of our customers. Our CA systems use a combination of signal scrambling and encryption to prevent unauthorized viewing of our customers television
programs. An important component of our CA systems is the smart cards we provide for our customers individual subscribers. Unauthorized viewing and use of content could be accomplished by counterfeiting our smart cards, stealing our
systems authorization messages or security codes, or in any other way thwarting our CA systems security features. Any significant security breach could require us to develop and implement solutions that could be costly or time-consuming,
or to replace an operators smart cards at our own expense. For example, pursuant to our contracts with buyers of our CA systems, if we were unable to remedy such security breach with system modifications, we could be obligated to replace the
cards free of charge if the breach occurs within the first year (or in some cases, within the first two or three years) after the sale. Even though we have not experienced any significant counterfeiting or other security breach, we cannot assure you
that our current assumptions regarding the security of our CA systems are reasonable. We could be obligated to incur a significant portion of the cost of replacing our smart cards in future years if any significant counterfeiting or security breach
occurs. See Item 4. Information on the CompanyB. Business OverviewOur Products and ServicesCA Systems. The cost of smart card replacement and the damage to our reputation could have a material adverse effect on our
business, financial condition and results of operations.
In addition to our CA systems, the secured transmission of digital television
programming also relies on certain other software and hardware components, such as set-top boxes supplied by other vendors, used by our customers digital television networks. A security breach of any of these other software and hardware
components could result in unauthorized access to the television networks of our customers. For example, in November 2007, it was discovered that an individual located in the city of Daqing in Heilongjiang Province had provided shared access to the
local digital television network to over 100 other persons without authorization by hacking into certain set-top boxes used on that network, which do not have advanced security features due to cost considerations. We believe we are not liable for
such security breach of software or hardware components that are supplied by other vendors under the terms of our contractual arrangements. However, our business, financial condition and results of operations could still be materially and adversely
affected if these security breaches result in the affected television network operators having difficulty recruiting new subscribers or retaining existing subscribers. Furthermore, as our CA systems are used on the affected networks, our reputation
could also be severely harmed by being associated with such security breaches on our customers networks.
We generally do not
have long-term contracts with suppliers of computer chips or the companies that manufacture our smart cards. If any of our computer chip suppliers or smart-card manufacturers is unable to fulfill our orders in time or at all, we may be unable to
deliver smart cards to our customers.
As a general matter, we do not have long-term contracts with our suppliers. We purchase
substantially all of the computer chips that are used in our smart cards from two suppliers, STMicroelectronics, or STM, and Infineon Technologies AG, or Infineon. In addition, we have arrangements with a number of smart-card manufacturers,
including China Electronics Smart Card Co., Ltd., or China Electronics, the China Sciences Group and Beijing Sanyou Hengrui Technology Co., Ltd., to embed the computer chips into plastic cards. We typically place purchase orders with our computer
chip and smart card suppliers as needed to meet our customers demand. Our computer chip and smart card suppliers are generally not under any contractual obligation to accept our purchase orders or fulfill them within our desired time frame.
However, we currently maintain a one-year contract with each of the manufacturers that requires them to fulfill our orders in accordance with an agreed schedule. Any significant delay or failure by any of our suppliers or manufacturers to fulfill
our orders for computer chips or smart cards could force us to obtain computer chips or smart cards from alternative sources at a higher cost, which would reduce our operating margins, or could prevent us from delivering smart cards in the required
quantities to our customers on a timely basis. Any such failure by us could have a material adverse effect on our reputation and ability to retain customers, as well as our business, financial condition and results of operations, and may also
subject us to claims for compensation from our customers.
9
We face intense competition, which could reduce our market share and harm our financial
performance.
The market for digital television CA systems and software applications is intensely competitive. Several of the
worlds leading developers and producers of CA systems, including Irdeto Access B.V. and NDS Limited, operate in the PRC market. We also compete with domestic CA systems vendors, including DVN Holdings Ltd. and Sumavision Technologies Co., Ltd.
Some of our competitors have substantially greater financial, technical and other resources than we do, and may respond more quickly than we could to technological or commercial changes in our industry. In addition, some competitors offer their CA
systems at a lower price or with a longer credit term than we do. We may need to reduce our prices to compete with them, which may lead to reduced margins or loss of market share. We cannot assure you that we will be able to compete effectively in
the market for digital television CA systems and software applications in the PRC. See Item 4. Information on the CompanyB. Business OverviewCompetition.
We depend upon key personnel, including our senior executives and technical and engineering staff, and our business and prospects would
greatly suffer if we lose their services.
Our future success depends heavily on the continued service of our key executives. In
particular, we rely on the expertise and experience of Dr. Zengxiang Lu, chairman of our board of directors and our chief executive officer, and Jianhua Zhu, member of our board of directors, in our business operations and technology
development efforts, and on their relationships with the regulatory authorities, our customers, our suppliers and our employees. If any of them becomes unable or unwilling to continue in their present positions, or if they join a competitor or form
a competing company, we may not be able to replace them easily, our business may be significantly disrupted and our business, financial condition and results of operations may be materially and adversely affected. We do not currently maintain
key-man insurance for any of our key personnel. Furthermore, our future success depends heavily upon our ability to recruit and retain experienced technical and engineering staff. There is substantial competition for qualified technical personnel
from other companies in our industry as well as from businesses outside our industry, and we may not be successful in retaining technical and engineering employees and recruiting new ones. If we are unsuccessful in our recruitment and retention
efforts, our business and prospects may be materially and adversely affected.
Our attempts to diversify our business and expand our
revenues by providing new solutions and products may not be successful and may prove costly.
We have been pursuing strategies to
expand and diversify our revenues, including developing and commercializing new solutions and products, such as value-added digital television services, cloud computing technology-based digital video delivery solutions and advanced digital
television terminals. To this end, we established Beijing Novel-Super Media Investment Co., Ltd., or N-S Media Investment, Beijing Cyber Cloud Co., Ltd., or Cyber Cloud, and Beijing Joysee Technology Co., Ltd., or Joysee, over the past several
years. See Item 4. Information on the CompanyA. History and Development of the Company. However, we have no prior experience cooperating with television network operators or other third parties in providing new solutions and
products, and may not be successful in doing so. In addition, our attempts to develop this new business model may be time-consuming and may distract our management from developing our existing lines of business, which could have a material adverse
effect on our business, financial condition and results of operations.
We may face difficulties implementing our acquisition
strategy, including identifying suitable opportunities and integrating acquired businesses and assets with our existing operations.
As part of our business strategy, we intend to enhance our capabilities by acquiring other companies, businesses or technologies that
complement our existing business or enhance our product portfolio and proprietary technology. However, our ability to implement our acquisition strategy will depend on our ability to identify suitable acquisition candidates, our ability to compete
effectively to attract and reach agreement with acquisition candidates on commercially reasonable terms and the availability of financing to complete larger acquisitions, as well as our ability to obtain any required shareholder or government
approvals. In addition, any particular acquisition may not produce the intended benefits. For example, we may not be successful in integrating acquisitions with our existing operations and personnel, and the process of integration may cause
unforeseen operating difficulties and expenditures and may divert significant attention of our management that would otherwise be available for the ongoing development of our business. If we make future acquisitions, we may issue new shares that
dilute the interests of our other shareholders, expend cash, incur debt, assume contingent liabilities or create additional expenses related to the impairment of goodwill or the amortization of other intangible assets with estimable useful lives.
10
Our business could be harmed if a defect in our software, technology or services interferes
with, or causes any failure in, our customers systems.
Our software and technology are integrated into the television
transmission infrastructure of our customers. Accordingly, a defect, error or performance problem with our software or technology could interfere with, or cause a critical component of, one or more of our customers systems to fail for a period
of time. Any negligence or error of our employees in the course of their performance of system integration, upgrade or maintenance services for our customers may also cause malfunctioning, suspension or failure of our customers systems.
Occurrence of such incidents could result in claims for substantial damages against us, regardless of whether we are responsible for such failure. Any claim brought against us could be expensive to defend and require the expenditure of a significant
amount of resources, regardless of whether we prevail. In addition, we do not currently maintain any product or business liability insurance. Although we have not experienced any such material interference or failure in the past, our potential
exposure to this risk may increase as sales of our products and customer demand for our upgrade or maintenance services grow. Any future problem in this area could cause severe customer service problems and reputational damage.
N-S Digital TV may be deemed not to be in full compliance with certain legal regulatory requirements relating to the production, sale
and export of encryption products, and the relevant PRC government authorities could require N-S Digital TV to cease such activities and impose administrative penalties including fines, which could have a material adverse effect on our business,
financial condition and results of operations.
The applicable PRC regulations generally require a company that engages in the
production and sale of encryption products to obtain two licenses, one for the production of encryption products and the other for the sale and distribution of encryption products, and the implementation rules for issuing these two licenses were
promulgated in December 2005. Under these regulations and implementation rules, a company generally is only allowed to produce and/or sell encryption products that use algorithms designated by the encryption authority and such products shall also be
certified by the encryption authority. In addition, these regulations and implementation rules also require a company to obtain prior approval from the encryption authority for the export of encryption products. The encryption authority initially
designated permitted algorithms for CA systems in 2007 and a final and official designation remains pending. Like many other vendors of CA systems in the PRC, N-S Digital TV has been producing and selling CA systems using algorithms other than those
initially designated by the encryption authority. We understand that, in practice, the PRC government has allowed a transition period, of a duration yet to be determined at its sole discretion, for vendors of CA systems to comply with this
requirement to use the algorithms to be finally and officially designated by the government. See Item 4. Information on the CompanyB. Business OverviewRegulationRegulation of Encryption Industry. N-S Digital TV has
engaged in the production and sale of encryption products since its establishment in May 2004, but it did not obtain the license for the production of encryption products until June 2006 and the license for the sale of encryption products until
September 2008. In December 2008 and February 2009, certain CA system products we developed by using the algorithms designated by the encryption authority were certified by the encryption authority. However, we have not decided when N-S Digital
TV will produce and sell those products using the designated algorithms, and various factors, in addition to the permissible transition period for adoption, will affect this decision, including whether products using algorithms designated by
the encryption authority will be generally accepted by the cable television industry (including CA system vendors and cable television operators). Furthermore, N-S Digital TV has engaged in the export of encryption products since 2010, but it
did not obtain the prior approval from the encryption authority for such export. If N-S Digital TV fails to adopt the algorithms designated by the encryption authority for any of the CA systems products it produces and sells by the end of the
transition period or at any time during the transition period at the request of the government, it may be required to discontinue the production and sale of its non-compliant CA systems. If the relevant PRC government authorities deem N-S Digital
TVs production of encryption products prior to June 2006, sale of encryption products prior to September 2008 or export of encryption products since 2010 to be in violation of the applicable regulations, they may impose sanctions against N-S
Digital TV. These sanctions may include confiscation of income from non-compliant activities, fines of up to three times the amount of income from non-compliant activities and revocation of the licenses already issued. Imposition of such sanctions
may result in material disruptions to our business operations, damage to our reputation and significant financial losses.
11
Enforcement of certain PRC regulatory requirements regarding the use of encryption products
may prevent prospective customers from purchasing our CA systems.
The applicable PRC regulations require users to use only
encryption products that are certified by the encryption authority. The CA systems we currently produce and sell have not been certified by the encryption authority because we have not adopted the government-designated algorithms for such CA
systems. We believe that because the PRC government provides for a transition period, which will be for a duration to be determined at its sole discretion, for us to adopt the algorithms to be finally and officially designated by the government, it
is unlikely that the government will enforce the above-mentioned regulatory requirements with respect to the use or purchase of our CA systems during that transition period. In December 2008 and February 2009, certain CA system products we developed
by using the algorithms designated by the encryption authority were certified by the encryption authority. However, as stated above, we have not decided when N-S Digital TV will produce and sell those CA system products certified by
the encryption authority and various factors, in addition to the permissible transition period for adoption, will affect this decision. If we have not obtained the certification for the CA systems that we produce and sell upon the expiration of
the transition period or at an earlier time the PRC government may otherwise require, enforcement of the above-mentioned regulatory requirements could prevent our prospective customers from purchasing our non-compliant CA systems, which could
materially reduce our revenues and net income. In addition, even if we produce and sell products certified by the PRC encryption authority, we cannot assure you that we will be able to successfully market and sell such products.
We may incur development costs in order to use the algorithms designated by the PRC encryption authority for CA systems.
A company generally is only allowed to produce and/or sell encryption products that have adopted the algorithms designated by the PRC
encryption authority. As the encryption authority did not designate any algorithms for CA systems until 2007, we have been using algorithms in our CA systems other than those designated by the encryption authority. If we are required by the
government authorities to instead use the algorithms designated by the encryption authority in our CA systems, we may incur costs to develop new products adopting such algorithms. Development costs, the amount of which remains unclear, may cause our
profit margin to decline significantly as well as materially reduce our profitability.
If we fail to protect our intellectual
property rights, it could harm our business and competitive position.
We are required to continually improve our products and
services to stay competitive in the marketplace, and as a result intellectual property is critical to our continued success. We rely on a combination of patent, trademark and copyright laws, trade secrets, confidentiality procedures and contractual
provisions to protect our intellectual property rights and the obligations we have to third parties from whom we license intellectual property rights. Nevertheless, these afford only limited protection and policing unauthorized use of proprietary
technology can be difficult and expensive. In addition, intellectual property rights historically have not been enforced in the PRC to the same extent as in the United States, and intellectual property theft presents a serious risk in doing business
in the PRC. We may not be able to detect unauthorized use of, or take appropriate steps to enforce, our intellectual property rights and this could have a material adverse effect on our business, financial condition and results of operations.
12
We may be exposed to infringement or misappropriation claims by third parties that, if
determined adversely to us, could require us to pay significant damage awards.
Our success depends largely on our ability to use
and develop our technology and know-how without infringing the intellectual property rights of third parties. The validity and scope of any claims relating to our technology patents would involve complex technological, legal and factual questions
and analyses and, as a result, the outcome of such claims would be highly uncertain. We may be subject to litigation involving claims of patent infringement or violation of other intellectual property rights of third parties. The defense of such
claims would be both costly and time-consuming, and could significantly divert the efforts and resources of our management and technical personnel. An adverse determination in any such litigation or proceedings to which we may become a party could
subject us to significant liability to third parties, require us to seek licenses from third parties, pay ongoing royalties or redesign our products, or subject us to injunctions prohibiting the manufacture and sale of our products or the use of our
technologies. Protracted litigation could also result in our customers or potential customers deferring or limiting their purchase or use of our products until resolution of such litigation. In addition, we could face disruptions to our business and
damage to our reputation, and our financial condition and results of operations could be materially adversely affected.
We face
risks associated with the marketing, distribution and sale of our products internationally, which could impair our ability to expand our business abroad.
In 2013 and 2014, we derived 11.0% and 7.9%, respectively, of our sales from outside the PRC. The international marketing, distribution and
sale of our products expose us to a number of risks, including:
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fluctuations in currency exchange rates; |
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difficulty in engaging and retaining distributors that are knowledgeable about, and are able to function effectively in, overseas markets; |
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increased costs associated with maintaining marketing efforts in various countries; |
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difficulty and cost relating to compliance with different commercial and legal requirements in the overseas markets; |
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inability to obtain, maintain or enforce intellectual property rights; and |
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trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses. |
We rely on a single facility for most of our business operations. Any destruction of, or significant disruption to, this facility could
severely affect our ability to conduct normal business operations.
Most of our business operations, including the encoding of our
smart cards, which is an essential part of the smart card manufacturing process, all our research and development activities and our corporate headquarters are concentrated within a single facility that we lease in Beijing, PRC. As we do not
maintain back-up facilities, we rely on this facility for the continued operation of our business. In addition, we currently do not maintain any business disruption or similar insurance coverage. A major earthquake, fire or other catastrophic event
that results in the destruction of, or significant disruption to, the facility could severely affect our ability to complete sales or conduct other normal business operations, which would materially reduce our revenues and net income.
Our operating results may fluctuate significantly from quarter to quarter, which could materially and adversely affect the price of our
ADSs.
Our quarterly operating results have varied significantly in the past and are likely to continue to vary significantly in
the future. Our quarterly revenues may fluctuate as a result of a number of factors, many of which are outside of our control. For example, our quarterly revenues substantially depend upon the timing of smart card orders placed by our customers. A
significant portion of our quarterly revenues has generally reflected orders from a limited number of large customers for our CA systems. Our cost of revenues and operating expenses may also fluctuate from quarter to quarter. As a result, you may
not be able to rely on period-to-period comparisons of our operating results as an indication of our future performance. In addition, our actual quarterly results may differ from market expectations, which may cause the price of our ADSs to decline
significantly.
13
Failure to manage our growth or develop appropriate internal organizational structures, an
effective internal control environment and risk monitoring and management systems in line with our growth could have a material adverse effect on our business and prospects.
Our business and operations have expanded since our inception. Significant management resources must be expended to develop and implement
appropriate structures for internal organization and information flow, an effective internal control environment and risk monitoring and management systems in line with our growth, as well as to hire and integrate qualified employees into our
organization. We cannot assure you that our existing internal control and risk monitoring and management systems would continue to be adequate. If we fail to appropriately develop and implement structures for internal organization and information
flow, an effective internal control environment and a risk monitoring and management system, we may not be able to identify unfavorable business trends, administrative oversights or other risks that could materially and adversely affect our
business, financial condition and results of operations.
We have identified a material weakness in our internal controls over
financial reporting which could, if not remedied, result in material misstatements in our financial statements.
We are subject to
the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires that we include a report of management on our internal controls over financial reporting in our annual report on Form 20-F. In addition, our
independent registered public accounting firm must report on the effectiveness of our internal controls over financial reporting.
Although we have concluded that our consolidated financial statements as of and for the year ended December 31, 2014 present fairly, in all
material respects, the financial position, results of operations and cash flow of our company and its subsidiaries in conformity with generally accepted accounting principles, we have identified a material weakness in internal controls over
financial reporting related to inadequate design and operating ineffectiveness of controls over a complex transaction. See Item 15. Controls and Procedures for further details. Under standards established by the Public Company Accounting
Oversight Board, a material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis.
We have taken and/or plan to take measures to address the material
weakness identified above. We are still in the process of enhancing our relevant controls over planned sale of Super TV and we will design and implement more robust financial reporting and management controls for complex and extraordinary
transactions going forward. If our remedial measures are insufficient to address the material weakness, or if additional material weaknesses or significant deficiencies in our internal controls over financial reporting are discovered or occur in the
future, our consolidated financial statements may contain material misstatements, and we could be required to restate our audited consolidated financial statements. This could cause investors to lose confidence in our reported financial information,
harm our results of operations and lead to a significant decline in the trading price of our ADSs. Furthermore, ineffective internal controls over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and
subject us to potential delisting from the stock exchange on which we list, regulatory investigations and sanctions.
We may need
additional capital and we may not be able to obtain it.
In order for us to grow, remain competitive, develop new products and
services, expand our customer base and carry out acquisitions, we may seek to obtain additional capital in the future through selling additional equity or debt securities or obtaining a credit facility. Our ability to obtain additional capital in
the future is subject to a variety of uncertainties, including:
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conditions in the United States and other capital markets in which we may seek to raise funds; |
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investors perception of, and demand for, securities of digital television components and related companies; and |
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economic, political and other conditions in the PRC and elsewhere. |
We may be unable to obtain
additional capital in a timely manner or on acceptable terms or at all. Furthermore, the additional issuances of equity securities may result in significant dilution to our shareholders. The incurrence of debt would result in increased interest
expense and could require us to agree to operating and financial covenants that would restrict our operations.
Although we were not
classified as a passive foreign investment company, or PFIC, in 2014, we had been classified as a PFIC in prior years, which could result in adverse United States federal income tax consequences to U.S. holders of our ADSs and may result in
additional adverse United States Federal income tax consequences to such holders in subsequent years.
Based on analyses of our
income and the value of our assets, we believe we were not a PFIC for the taxable year ended December 31, 2014 for U.S. federal income tax purposes. However, because we may have substantial passive assets in the form of cash and cash
equivalents, among others, we provide no assurance that we will not be classified as a PFIC for the taxable year ending December 31, 2015 or future taxable years, as PFIC status is tested each year and depends on our assets and income in such
year. Our PFIC status for the current taxable year 2015 will not be determinable until after the close of the taxable year ending December 31, 2015.
We will be classified as a PFIC in any taxable year if either: (1) the average percentage value of our gross assets during the taxable
year that produce passive income or are held for the production of passive income is at least 50% of the value of our total gross assets; or (2) 75% or more of our gross income for the taxable year is passive income. If we hold substantial
cash, cash equivalents and other passive assets, as we currently do, a significant decrease in the market price of our outstanding shares would increase the risk of us becoming a PFIC.
In general, a U.S. holder that owns our ADSs or shares in a year in which we are a PFIC will continue to be treated as owning stock of a PFIC
even if we do not satisfy either of the above tests for being classified as a PFIC in a future year unless such U.S. holder makes certain elections. Accordingly, even though we did not satisfy those tests for being classified as a PFIC for the year
ended December 31, 2014, U.S. holders that previously acquired our ADSs in a year when we were a PFIC may continue to be treated as owning stock in a PFIC.
In any taxable year in which we are classified as a PFIC or you are treated as owning stock in a PFIC, and you are a U.S. holder of our ADSs
or shares, unless you make a mark-to-market election, you will generally be taxed at higher ordinary income rates, rather than lower capital gain rates, if you dispose of our ADSs or shares for a gain, even if we are not a PFIC in the year of
disposition. In addition, a portion of the tax imposed on your gain would be increased by an interest charge if you dispose of our ADSs or shares in a year after the first year in which we were treated as a PFIC that you hold our ADSs or shares.
Similar treatment would apply if you receive distributions from us that are characterized as excess distributions. Moreover, you will not be able to benefit from any preferential tax rate with respect to any dividend distribution that
you may receive from us in a year in which we are a PFIC or in the following year. Finally, you will also be subject to special United States federal income tax reporting requirements. For more information on the United States federal income tax
consequences to you that would result from our classification as a PFIC, including the consequences of making a mark-to-market election, see Item 10. Additional InformationE. TaxationUnited States Federal Income
TaxationPFIC Rules. You should consult your tax advisor regarding the application of the PFIC rules to your investment in our ADSs or shares.
15
Our bank accounts are not fully insured or similarly protected against loss.
As of December 31, 2014, approximately 93.5% of our bank deposits were placed with three commercial banks in the PRC. Applicable
PRC laws did not require that banks provide deposit insurance or similar protections to depositors in the PRC until the State Council promulgated the Regulations on Deposit Insurance in February 2015, which will become effective on May 1, 2015.
The maximum reimbursement limit for all the principal and interest of the deposits in all the insured deposit accounts opened by one depositor with one insured bank is currently set at RMB500,000, which amount may be adjusted by the competent
government authorities. As a result, our bank accounts with deposits in excess of RMB500,000 are not fully insured or similarly protected. If a commercial bank with which we have placed our cash deposits becomes insolvent, or if we are otherwise
unable to withdraw funds, we may be unable to recover the cash on deposit with that bank for amounts in excess of RMB500,000. As a result, our liquidity and cash flows, as well as financial condition and results of operations, could be materially
and adversely affected.
If the PRC government determines that N-S Digital TV is a vendor of non-PRC CA systems by virtue of it
being a subsidiary of a foreign-invested company, we could face difficulty selling our CA systems in the PRC.
SAPPRFT policy
requires any cable television network operator who uses a non-PRC CA system to install a parallel PRC CA system. Under this policy, vendors of non-PRC CA systems may sell only to cable network operators who have already installed a PRC CA system or
who are willing to purchase a parallel PRC CA system. This may result in a competitive disadvantage for vendors of non-PRC CA systems relative to vendors of PRC CA systems. Such policy does not expressly indicate whether the CA systems produced by a
foreign-invested company incorporated in the PRC, such as our subsidiary Super TV, or a subsidiary of a foreign invested company incorporated in the PRC, such as our subsidiary N-S Digital TV, fall into the category of non-PRC CA systems. In light
of the above, at the time of the Companys initial public offering, we established and controlled, through contractual arrangements, N-S Digital TV to conduct our CA system business and obtained the license for the production and sales of
commercial encryption products required for our business. In order to consummate the sale of Super TV to Tongda Venture Capital Co., Ltd., or Tongda Venture, and meet the approval requirements of the China Securities Regulatory Commission, or CSRC,
that, among other things, require that the assets of a China-listed company generally be held and owned by it or its subsidiaries while the contractual arrangements may not be accepted, our contractual arrangements with N-S Digital TV and its
nominee shareholders were terminated, and the 100% equity interest in N-S Digital TV formerly held by the nominee shareholders was transferred to Super TV in June 2014. As a result, N-S Digital TV has become Super TVs subsidiary, a subsidiary
of a foreign-invested company.
There are substantial uncertainties regarding the interpretation and application of the above-described
PRC government policy and relevant PRC laws, rules and regulations. The PRC government may determine that N-S Digital TV is a vendor of non-PRC CA systems by virtue of it being a subsidiary of a foreign-invested company. In such case, cable network
operators may cancel their orders for our CA systems to avoid being required to install a parallel PRC CA system, and we may also lose potential customers who are not willing, or have no plan, to install a parallel PRC CA system for economic or
other reasons. As a result, our business, financial condition and results of operations could be materially and adversely affected.
16
The structure for operating our business may result in the relevant PRC government
regulators revoking or refusing to renew N-S Digital TVs licenses for the production and sale of commercial encryption products, or refusing to issue any other license required to engage in an encryption-related business.
Our CA systems business uses encryption technology and thus is required by relevant PRC laws, rules and regulations to obtain licenses to
produce and sell commercial encryption products. Although foreign-invested enterprises incorporated in the PRC, such as our subsidiaries Super TV and N-S Digital TV, are not expressly prohibited from conducting a business that uses encryption
technology, the PRC encryption authority has generally taken a restrictive approach towards foreign participation in the PRC encryption industry. N-S Digital TV, our wholly-owned subsidiary through which we conduct our CA systems business, has
obtained licenses to produce and sell commercial encryption products as required for our business. If the PRC encryption authority determines that our control over N-S Digital TV is contrary to its generally restrictive approach towards foreign
participation in the PRC encryption industry, we cannot assure you that the PRC encryption authority will not reconsider N-S Digital TVs eligibility to hold the licenses to produce and sell commercial encryption products. The PRC encryption
authority may revoke, or refuse to renew, N-S Digital TVs licenses to produce and sell commercial encryption products, or refuse to grant any other encryption-related license that may be required for our business in the future. If that were to
happen, we might have to discontinue all or a substantial portion of our business pending the reissuance, extension or issuance of the required license. In addition, we might have to restructure our operations in order to have such licenses
reissued, extended or issued. As a result, our business, financial condition and results of operations could be materially and adversely affected.
Certain of our existing shareholders have substantial influence over our company and their interests may not be aligned with the
interests of our other shareholders.
As of March 31, 2015, our two largest shareholders and key executives, namely Dr.
Zengxiang Lu and Jianhua Zhu, beneficially owned a total of approximately 34.73% of our outstanding shares. Accordingly, they will have significant influence in determining the outcome of any corporate transaction or other matter submitted to the
shareholders for approval, including mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. They will also have the power to prevent or cause a change in
control. In addition, without the consent of these shareholders, we could be prevented from entering into transactions that could be beneficial to us. These shareholders may cause us to take actions that are opposed by other shareholders as the
interests of these shareholders may differ from the interests of our other shareholders. See Item 7. Major Shareholders and Related Party Transactions for more information regarding the share ownership of our officers, directors and
significant shareholders.
Risks Relating to the Planned Sale of Super TV
The sale of Super TV may not be completed if the parties fail to obtain applicable regulatory approvals or satisfy other closing
conditions, or otherwise, and the parties ability to realize anticipated benefits of the transaction may be impaired by any requirements, limitations, costs or restrictions that regulatory authorities may impose.
There will be uncertainties in completing the sale of Super TV, which remains subject to conditions precedent involving approvals by the
relevant regulatory authorities, including without limitation, the CSRC and the PRC Ministry of Commerce, or the MOFCOM. See Item 4. Information on the CompanyA. History and Development of the CompanyCapital Expenditures and
DivestituresConditions to Closing. The completion of the private placement, or the Private Placement, by Tongda Venture to fund the consideration in connection with the sale of Super TV, or the Consideration, is also subject to
regulatory clearance. The transaction is expected to be subject to close scrutiny by the regulatory authorities amid increasingly stringent standards for similar transactions. There is no assurance that these approvals or regulatory clearance will
be obtained within an expected timeframe, or at all. The transaction will terminate if it has not been completed by December 31, 2015.
Additionally, as a condition to their approval of the transaction, regulatory authorities may impose requirements, limitations or costs or
require amendments to the terms and conditions of the transaction. If the parties were to agree to these requirements, limitations, costs, or restrictions, the ability to realize the anticipated benefits of the transaction may be impaired.
17
We are obligated to compensate Tongda Venture if Super TV, the divested business, does not
perform as projected.
Under the terms of the profit compensation agreement as part of the agreement to transfer the entire equity
interest in Super TV to Tongda Venture, or the Profit Compensation Agreement, in the event that net profit (before or after adjustment for non-recurring gains and losses, whichever is less) of Super TV in any of 2014, 2015 and 2016, or the Covered
Period, is less than the profit target (being RMB190.10 million, RMB283.67 million and RMB340.66 million for 2014, 2015 and 2016, respectively), Golden Benefit Technology Limited, or Golden Benefit (a wholly-owned subsidiary incorporated in Hong
Kong), will be obligated to compensate Tongda Venture for the deficiencies by transferring its shares in Tongda Venture back to Tongda Venture and/or cash, based on a pre-determined formula. At the end of the Covered Period, if there is an
impairment loss of Super TV and if the amount of such impairment loss is greater than the aggregate compensation already paid by Golden Benefit during the Covered Period, Golden Benefit shall be obligated to compensate Tongda Venture for such
difference, in cash or by transferring its shares in Tongda Venture back to Tongda Venture. Compensation payable in aggregate under the Profit Compensation Agreement shall be subject to a cap equal to the amount of the Consideration.
China Digital TV provides a joint and several guarantee of Golden Benefits obligations under the Profit Compensation Agreement. See
Item 4. Information on the CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresProfit Compensation Scheme.
If Super TV fails to meet the profit targets during the Covered Period or there is any impairment loss at the end of the Covered Period, the
worst-case scenario under the Profit Compensation Agreement would result in Golden Benefit being obligated to return the entire amount of the Consideration to Tongda Venture. Such amount would exceed the net amount of consideration that Golden
Benefit expects to receive from the sale of Super TV, because Golden Benefit is expected to pay PRC withholding tax at a rate of 10% on the gains of Golden Benefit on the sale of Super TV, which equals the consideration minus the original investment
cost, subject to the final assessment by PRC tax authorities. In the event we have to return a portion or all of the Consideration as such compensation, our financial position, liquidity and results of operations may be materially and adversely
affected and the value of your investment in our shares could be significantly diminished. If we are not able to fully settle such obligations due to our limited financial resources or otherwise, we could be subject to lawsuits or petitions for a
voluntary or involuntary bankruptcy of our company.
We will not be able to control the business operations of Super TV after the
consummation of the transaction, although we are obligated to compensate Tongda Venture if Super TV does not perform as projected.
As described above, we are obligated to compensate Tongda Venture if Super TV, the divested business, does not perform as projected.
The terms and conditions of the transaction provide that the board of directors and senior management of Super TV will remain unchanged
following the sale of Super TV and within the Covered Period. It is anticipated that Tongda Venture and the board and the senior management of Super TV after the consummation of the transaction will continue to maximize the profitability of Super
TV. However, as Tongda Venture is entitled to compensation from us in case Super TV fails to reach the profit targets, its interest is not fully aligned with ours in this regard. In addition, since Tongda Venture will be the sole shareholder of
Super TV after the consummation of the transaction, we will not be able to control the business operations of Super TV to ensure the profit targets will be achieved.
We will be liable to Tongda Venture for a breach or violation of any representation, warranty, covenant or other obligation under the
Share Transfer Agreement.
Golden Benefit has made certain representations, warranties and covenants under the share transfer
agreement, or the Share Transfer Agreement. See Item 4. Information on the CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresRepresentations and Warranties and Item 4.
Information on the CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresCovenants. If there is a breach of any representation, warranty, covenant or other obligation under the Share Transfer
Agreement, Golden Benefit will be liable, and we will also be jointly and severally liable through the guarantee we provided under the Share Transfer Agreement. Significant claims by Tongda Venture may expose us to contingent liabilities and have a
material adverse effect on our financial condition and results of operations. See Item 4. Information on the CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresEvent of Default.
18
The businesses to be retained by us after the consummation of the transaction are
significantly smaller than our current operations and still generate losses; we may not be able to rely on the retained businesses to sustain our business operations.
Following the sale of Super TV (which operates our CA, Screen Cross Multi-Screen Broadcasting Systems, or Screen Cross, formerly known as
network broadcasting platform, and video-on-demand businesses) to Tongda Venture, our retained businesses (other than the approximately 17.24% equity interest in Tongda Venture, which will hold a 100% equity interest in Super TV) will primarily
consist of Cyber Cloud, which was established in January 2011 and mainly engages in the research and development of cloud computing technology-based digital video delivery solutions.
We intend to further develop our retained businesses to sustain our business operations. However, given that these companies only have a short
operating history, and we have no substantial track record of cooperating with television network operators or other third parties in providing new solutions and products, we may not be successful in doing so, and these businesses may not become
profitable in the foreseeable future, or at all.
We may also maximize our profitability through further reducing corporate overhead
costs. Because our business will be smaller following the sale of Super TV, we believe that there will be many ways in which corporate overhead costs can be significantly reduced. However, if we are not successful in fully implementing
such cost reductions, our ability to increase our profitability may be impaired.
Our financial performance will be affected
by that of Tongda Venture while we will not have control over Tongda Venture, and our influence over it will be limited.
Under the terms of the share subscription agreement, or the Share Subscription Agreement, Tongda Venture agrees to issue to Golden Benefit
77,294,685 new shares of Tongda Venture as part of the Consideration. As a result, Golden Benefit is expected to hold approximately 17.24% of the share capital of Tongda Venture, and the board of directors of Tongda Venture will be increased from
six members to nine members, among whom Golden Benefit will be entitled to recommend for appointment two directors. These directors will be appointed as members of the Venture and Strategy Committee of Tongda Ventures board of directors. In
addition, Golden Benefit is entitled to recommend for appointment up to two senior management members of Tongda Venture to oversee the business related to Super TV. Moreover, only Cinda Investment Co., Ltd., or Cinda Investment, will hold a greater
percentage of the share capital of Tongda Venture, and to our knowledge, all other shareholders are mutually independent.
Based on the
above facts, we expect to account for this investment using the equity method. As this investment will constitute a material part of our assets, the operating results of Tongda Venture are expected to significantly affect our financial performance.
Tongda Venture was founded in 1991 and is listed on the Shanghai Stock Exchange (Stock Code: 600647), and is mainly engaged in the business of developing and managing real estate properties, including residential communities, office buildings, and
parking lots. Upon the consummation of the transaction, however, it is expected that its businesses will primarily comprise the CA, Screen Cross and video-on-demand businesses to be acquired from our company.
The financial performance of Tongda Venture may affect the financial condition of our Company, and we may have to incur impairment loss on
this investment if the financial performance of Tongda Venture worsens significantly.
Furthermore, the consideration shares (with the
aggregate value of RMB800 million), or the Consideration Shares, will be subject to a 36-month lock-up. During this lock-up period, we are prohibited from disposing of a portion or all of these shares even if it is commercially attractive to do so,
and our ability to otherwise maximize the value of such shares is also significantly restricted.
19
In addition, prior to the Private Placement, Cinda Investment is the controlling shareholder of
Tongda Venture and holds approximately 41.03% of the share capital of Tongda Venture; following the Private Placement, Cinda Investment will hold approximately 26.53% of the share capital of Tongda Venture. As Golden Benefit is expected to hold
approximately 17.24% of the share capital of Tongda Venture following the completion of the sale of Super TV, we will not be able to control the operations of the business of Tongda Venture and our influence thereon is also limited.
Following the sale of Super TV, we may be deemed an investment company and subject to related requirements and restrictions under the
U.S. Investment Company Act.
The regulatory scope of the U.S. Investment Company Act of 1940, as amended, or the Investment
Company Act, which was enacted principally for the purpose of regulating vehicles for pooled investments in securities, generally extends to companies engaged primarily in the business of investing, reinvesting, owning, holding or trading in
securities. However, the Investment Company Act may also be deemed to be applicable to a company that does not hold itself out to be an investment company but that, due to the nature of its financial holdings, may be deemed to fall within the
definitional scope of an investment company under such Act.
Following the consummation of the transaction, China Digital TV will retain
the business of Cyber Cloud and will hold approximately 17.24% of the share capital of Tongda Venture. At that time, the share capital of Tongda Venture will represent a majority of the assets of China Digital TV (excluding cash and cash
equivalents) and, as a result, China Digital TV may be deemed an investment company. If China Digital TV is deemed to be an investment company, it may become subject to certain restrictions relating to its activities, including restrictions on
the nature of its operations and the issuance of securities. In addition, the Investment Company Act imposes certain requirements on companies deemed to be within its regulatory scope, including registration as an investment company.
However, as we intend to, and our board of directors has authorized us to take actions so that we will, be engaged primarily, as soon as
reasonably possible and in any event before the first anniversary of the consummation of the transaction, or the Rule 3a-2 period, in a business other than that of investing, reinvesting, owning, holding or trading in securities, we intend to rely
upon Rule 3a-2 under the Investment Company Act to avoid being deemed an investment company during the Rule 3a-2 period.
In the event
that it is determined that we are unable to rely on Rule 3a-2 under the Investment Company Act or that we are unable to be engaged primarily in a business other than that of investing, reinvesting, owning, holding or trading in securities prior to
the first anniversary of the consummation of the transaction, compliance with the requirements and restrictions of the Investment Company Act would likely have a material adverse effect on us.
The sale of Super TV may have adverse consequences for U.S. taxable investors.
If Super TV was classified as a PFIC at any time during the holding period of a U.S. taxable investor, the sale of Super TV may cause such
U.S. taxable investors to be subject to tax under the indirect disposition rules of the PFIC regime regardless of whether he or she receives any distributions in connection with the sale. See Item 4. Information on the CompanyA. History
and Development of the CompanyCapital Expenditures and DivestituresMaterial U.S. Federal Income Tax Consequences.
If we pay a cash dividend in connection with the sale of Super TV, U.S. taxable investors may be subject to adverse consequences under
the PFIC regime.
Because we have been classified as a PFIC in prior years (although we do not believe we were a PFIC for the
taxable year ended December 31, 2014), and we may be a PFIC in the taxable year ending December 31, 2015 as a result of the consummation of the sale of Super TV, U.S. taxable investors who receive distributions from us may be subject to
adverse consequences under the PFIC regime. See Item 4. Information on the CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresMaterial U.S. Federal Income Tax Consequences.
20
Our ability to pay dividends is contractually restricted.
During the period from the valuation date, or June 30, 2014, to the closing date, or the date on which Tongda Venture is registered as
the shareholder of Super TV, or the Transition Period, Golden Benefit covenants not to permit Super TV or any of its subsidiaries to, among other things, declare, set aside, make or pay any dividend or other distribution to shareholders (except for
any dividend or other distribution already declared prior to the execution of the Share Transfer Agreement).
During the Covered Period,
China Digital TV covenants not to make cash dividends out of the cash consideration (RMB2.4 billion), or the Cash Consideration, for an aggregate amount in excess of US$3.33 per share. Otherwise, in respect of any excess amount of cash dividends out
of the Cash Consideration, China Digital TV shall pay an equal amount to Tongda Venture as earnest money to secure its obligations under the Profit Compensation Agreement. See Item 4. Information on the CompanyA. History and Development
of the CompanyCapital Expenditures and DivestituresCovenants.
Although such restrictions do not apply to any cash
dividends paid out of the revenues generated through our retained businesses, our retained businesses are significantly smaller than the CA, Screen Cross and video-on-demand businesses to be sold and may not be able to generate sufficient free cash
for cash dividends. In addition, the dividend proposal in any given year will be subject to the availability of distributable profits or retained earnings and may be affected by, among other factors, the board of directors views on the
potential future liquidity requirements, including for investments in production capacity, the funding of research and development programs and for acquisition opportunities that may arise from time to time; and by future changes in applicable
income tax and corporate laws. Accordingly, it may be decided to propose not to pay a dividend or pay a lower dividend with respect to any given year, which could have a negative effect on the price of our ADSs.
Our ability to use the sale proceeds is otherwise restricted due to the contingent compensation payments during the Covered Period.
Under the terms of the Profit Compensation Agreement, in the event that net profit (before or after adjustment for non-recurring
gains and losses, whichever is less) of Super TV in any of the fiscal years during the Covered Period is less than the profit target, Golden Benefit will be obligated to compensate Tongda Venture for the deficiencies by transferring its shares in
Tongda Venture back to Tongda Venture and/or cash, based on a pre-determined formula. At the end of the Covered Period, if there is an impairment loss of Super TV and if the amount of such impairment loss is greater than the aggregate compensation
already paid by Golden Benefit during the Covered Period, Golden Benefit shall be obligated to compensate Tongda Venture for such difference, in cash or by transferring its shares in Tongda Venture back to Tongda Venture. Compensation payable in
aggregate under the profit compensation agreement shall be subject to a cap equal to the amount of the Consideration.
In order to prepare
for such potential compensation payments, we may need to reserve a significant amount of cash, which may otherwise be applied to develop our retained businesses, pursue other business opportunities or otherwise maximize our profitability.
Cinda Investments exercise of the warrant may dilute the existing shareholders interest.
Under the terms of the framework agreement, or the Framework Agreement, Cinda Investment has been granted by China Digital TV a warrant,
exercisable within three months after the completion of the sale of Super TV, to subscribe for China Digital TVs new shares for an amount between US$25 million and US$30 million. Shares purchased under the warrant shall be subject to a lock-up
during the Covered Period unless China Digital TV agrees otherwise.
21
The exercise price of the warrant is US$3.33 per share, which equals the weighted average trading
price of the Companys ordinary shares (represented by ADSs) listed on the NYSE for the 20 trading days prior to June 12, 2014, the date on which the original framework agreement was approved by China Digital TVs board of directors.
If Cinda Investment exercises the warrant to purchase new shares of China Digital TV, it will increase the number of the Companys outstanding shares, and dilute the equity interest of our existing shareholders. Based on an exercise price of
US$3.33 per share, up to 9 million shares will be issued upon the exercise of the warrant by Cinda Investment.
For as long as
we remain a public company, we will continue to incur the expenses of complying with public company reporting requirements.
Our
reporting obligations as a SEC registrant and NYSE-listed public company will not be affected as a result of completing the sale of Super TV. For as long as we remain as such, we have an obligation to continue to comply with the applicable
reporting requirements of the Exchange Act, which include the filing with the SEC of periodic reports and other documents relating to our business, financial condition and other matters, even though compliance with such reporting requirements is
economically burdensome.
Tongda Venture may not be able to complete the Private Placement to fund the Consideration.
Tongda Venture needs to complete the Private Placement to fund the Consideration. Completion of the Private Placement is subject to relevant
regulatory approval. See Item 4. Information on the CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresPurchase Price. In addition, even if the relevant regulatory approvals are
obtained, Tongda Venture may still not be able to complete the Private Placement for other reasons. Although completion of the Private Placement is not a condition precedent to the transaction, if the Private Placement by Tongda Venture cannot be
completed for any reason, Tongda Venture may not have the financial ability to fund the Consideration and complete the transaction on time, or at all.
Golden Benefit is obligated to compensate Tongda Venture for any net loss during the Transition Period.
The Share Transfer Agreement does not provide for any adjustment to the Consideration. However, during the Transition Period, any net profit
Super TV records will belong to Tongda Venture, and if Super TV has a net loss, Golden Benefit is obligated to make up for any difference in the amount of net assets of Super TV during the Transition Period. See Item 4. Information on the
CompanyA. History and Development of the CompanyCapital Expenditures and DivestituresCovenants. As a result, Golden Benefit is obligated to compensate Tongda Venture for any net loss during the Transition Period.
Information about Tongda Venture is provided by Tongda Venture and has not been independently verified by our Company.
Information about Tongda Venture contained in this annual report is provided by Tongda Venture and has not been independently verified by our
company, nor has our company made any representation as to the accuracy or reliability of such information. Such information should not be unduly relied upon, and our company and directors disclaim liability for any losses that might arise from any
inaccuracy, omission or misstatement in such information.
There are inherent uncertainties with respect to the final tax assessment
to be made by PRC tax authorities, and we may be obligated to pay a greater amount of tax than we expect.
Pursuant to applicable
PRC tax laws and subject to the final assessment by PRC tax authorities, we are expected to pay PRC withholding tax at a rate of 10% on the proceeds from the sale of Super TV, or the Sale Proceeds, which equals the Consideration minus the cost of
the sale. As the Consideration is determined to be RMB3.2 billion and the cost of sale of Super TV equals the registered capital of Super TV, being US$5 million (or RMB30.6 million), the Sale Proceeds should be RMB3.17 billion.
22
Under the terms of the transaction agreements, the Consideration will be composed of Cash
Consideration of RMB2.4 billion, and Consideration Shares of RMB800 million that Tongda Venture will issue to Golden Benefit at a price of RMB10.35 per share in the Private Placement. According to our PRC tax advisors, in practice, there are
uncertainties regarding whether PRC tax authorities will determine the value of the Consideration Shares based on the issuance price fixed in the transaction agreements or the trading price of Tongda Ventures shares on the date of tax
determination, or the Tax Assessment Date. If the trading price of Tongda Ventures shares on the Tax Assessment Date is higher than RMB10.35 per share and is used by the PRC tax authorities to determine the value of the Consideration Shares,
we would be obligated to pay a greater amount of tax than we currently expect.
Because our business will be smaller following the
sale of Super TV, there is a possibility that our ADSs may be delisted from the NYSE if we fail to satisfy its continued listing criteria.
Following the sale of Super TV, our business will be smaller, and we may fail to satisfy the continued listing criteria of the NYSE. In the
event that we are unable to satisfy the continued listing criteria of the NYSE, our ADSs may be delisted from that market. In order to continue to be listed on the NYSE, we must meet the requirements as set forth in Sections 802.01A to 802.01C of
the NYSE Listed Companies Manual, which require, among other things: (i) an average monthly trading volume of no less than 100,000 shares; (ii) an average global market capitalization over a consecutive 30 trading-day period of no less
than US$50,000,000 and, at the same time, stockholders equity of no less than US$50,000,000; and (iii) an average closing price of a security as reported on the consolidated tape of no less than US$1.00 over a consecutive 30 trading-day
period.
Any delisting of our ADSs from the NYSE could adversely affect our ability to attract new investors, decrease the liquidity of
our outstanding ordinary shares, reduce our flexibility to raise additional capital, reduce the price at which our shares trade, and increase the transaction costs inherent in trading such shares with overall negative effects for our shareholders.
In addition, delisting of our shares could deter broker-dealers from making a market in or otherwise seeking or generating interest in our shares, and might deter certain institutions and persons from investing in our securities at all. For these
reasons and others, delisting could adversely affect the price of our shares and our business, financial condition and results of operations.
Risks
Relating to the Peoples Republic of China
Our operations may be materially and adversely affected by changes in the
economic, political and social conditions of the PRC.
Substantially all of our non-cash assets are located in, and substantially
all of our revenue is sourced from, the PRC. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in the PRC generally and by
continued economic growth in the PRC as a whole.
The PRC economy differs from the economies of most developed countries in many respects,
including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth over the past three decades, growth has been uneven
across different regions and among various economic sectors. The PRC government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall PRC economy, but may
also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. We cannot predict the
possible impact of any future economic policies of the PRC government on our business and operations.
The PRC government has implemented
various measures since 2011 to control inflation, such as tightening bank lending policies. In addition, Chinas annual gross domestic product growth rate in 2014 was 7.4%, the slowest in 24 years. Continued implementation of these or similar
measures, or a variety of other factors, may cause a continued slowdown in the PRC economy, which, in turn, could significantly reduce business activities in the PRC, including a slowing down or decline in investment in cable television networks,
which, in turn, may result in a reduction of demand for our products and services and thus materially reduce our revenues and profitability.
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Uncertainties in the interpretation and enforcement of PRC laws, rules and regulations
could limit the legal protections available to you and us.
The PRC legal system is a civil law system based on written statutes.
Unlike common law systems, it is a system in which legal decisions have limited value as precedents. In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall
effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in the PRC. Super TV is a foreign-invested enterprise and is subject to laws, rules and
regulations applicable to foreign investment in the PRC as well as laws, rules and regulations applicable to foreign-invested enterprises. These laws, rules and regulations change frequently, and their interpretation and enforcement involve
uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or contract. However, since PRC administrative and court authorities have significant discretion
in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These
uncertainties may also impede our ability to enforce the contracts we have entered into, and materially impair our business and operations.
The approval of the CSRC might be required in connection with our initial public offering under certain PRC regulation; failure to
obtain this approval, if required, could have a material adverse effect on our business, financial condition, results of operations and reputation as well as the trading price of our ADSs.
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the State-owned Assets Supervision and Administration Commission,
or the SASAC, the State Administration for Taxation, or the SAT, the State Administration for Industry and Commerce, or the SAIC, the CSRC and the State Administration of Foreign Exchange, or the SAFE, jointly adopted the Regulations on Mergers
and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009. The M&A Rules, among other things, include provisions that purport
to require that an offshore special purpose vehicle formed for the purpose of an overseas listing of securities in a PRC company obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicles securities on an
overseas stock exchange.
We completed the initial listing and trading of our ADSs on the NYSE on October 11, 2007. We did not seek
CSRC approval in connection with our initial public offering. Our PRC counsel, Han Kun, advised us that, based on their understanding of the current PRC laws, regulations and rules, because we completed our restructuring in 2004 in connection with
an equity investment in our company by a private equity investor more than two years prior to the promulgation of the M&A Rules, we were not and are not required by the M&A Rules to apply to the CSRC for approval of our initial public
offering unless we are clearly required to do so by any rules promulgated in the future. See Item 4. Information on the CompanyB. Business OverviewRegulationRegulation of Overseas Listings. However, the application
of the M&A Rules remains unclear. If the CSRC or another PRC regulatory agency subsequently determines that the CSRCs approval was required for our initial public offering, we may face sanctions by the CSRC or another PRC regulatory
agency. If this happens, these regulatory agencies may impose fines and penalties on our operations in the PRC, limit our privileges in the PRC or take other actions that could have a material adverse effect on our business, financial condition,
results of operations and prospects, as well as the trading price of our ADSs.
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PRC regulations relating to offshore investment activities by PRC residents may increase
the administrative burden we face and create regulatory uncertainties that could restrict our overseas and cross-border investment activity, and a failure by our shareholders who are PRC residents to make any required applications and filings
pursuant to such regulations may prevent us from being able to distribute profits and could expose us and our PRC-resident shareholders to liability under PRC law.
The SAFE has promulgated several regulations, including the Notice on Issues Relating to the Administration of Foreign Exchange in
Overseas Investment, Fund-Raising and Round-Trip Investment Activities of Domestic Residents via Offshore Special Purpose Vehicles, or SAFE Notice 37, and its implementation rules and guidance, that require PRC residents (including PRC
individuals and corporate entities) to register with and obtain approvals from relevant PRC government authorities in connection with their direct or indirect offshore investment activities. These regulations may apply to our shareholders who are
PRC residents in connection with our prior and any future offshore acquisitions.
Under SAFE Notice 37, a special purpose
vehicle refers to an offshore entity directly established or indirectly controlled by PRC residents for the purpose of seeking offshore equity financing or making offshore investment, using legitimate domestic or offshore assets or interests
owned by such PRC residents, while round trip investment refers to the direct investment in China by such PRC residents through the special purpose vehicles, including, without limitation, establishing foreign-invested enterprises and using such foreign-invested enterprises to purchase or control onshore assets through contractual arrangements. SAFE Notice 37 requires that,
before making a contribution into a special purpose vehicle, PRC residents are required to complete a foreign exchange registration with the competent local branches of SAFE for their overseas investments. In addition, PRC residents are
required to update their previously filed registrations with respect to such special purpose vehicles to reflect any material change, such as any change of basic information (including change of such PRC residents, name and operation term),
increases or decreases in investment amounts, transfers or exchanges of shares, and mergers or divisions. On February 28, 2015, the SAFE promulgated the Notice on Further Simplifying and Improving Foreign Exchange Policy on Direct
Investment, or SAFE Notice 13, which will become effective on June 1, 2015. After SAFE Notice 13 becomes effective, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct
investment from the SAFE as required under current laws, entities and individuals will be required to apply for such foreign exchange registrations, including those required under SAFE Notice 37, from qualified banks. The qualified banks, under the
supervision of the SAFE, will directly examine the applications and conduct the registration. If a PRC resident fails to make the required SAFE registration or update the previously filed registration, the PRC subsidiaries of such offshore parent
company may be prohibited from making distributions of profit to the offshore parent and from paying the offshore parent proceeds from any reduction in capital, share transfer or liquidation in respect of the PRC subsidiaries. Furthermore, failure
to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.
We have notified holders of our ordinary shares who we know to be PRC residents to register with the local branches of the SAFE and update
their registrations as required by the relevant SAFE regulations described above. However, we cannot assure you that all of our shareholders who are PRC residents will comply with our request to make or obtain any registrations or approvals or
update their previously filed registrations as required under these regulations or other related legislation. If any existing shareholder transfers any of our shares or ADSs to another PRC resident, it is unclear whether such new shareholder is also
required to make the SAFE registration. Furthermore, as the interpretations and practice in implementing these SAFE regulations have been constantly evolving, it is unclear how these regulations, and any future regulation concerning offshore or
cross-border transactions, will be interpreted, amended and implemented by the relevant government authorities. The failure or inability of our PRC resident shareholders to obtain any required approvals or make any required registrations may subject
us to fines and legal sanctions, restrict our cross-border investment activities or obtaining of shareholders loans, and prevent us from being able to make distributions or pay dividends, as a result of which our business as well as our ability to
distribute profits to you could be materially and adversely affected.
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We may be subject to fines and legal sanctions if we or our employees who are domestic
individuals fail to comply with the PRC regulations relating to employee share options granted by overseas-listed companies to domestic individuals.
In February 2012, the SAFE promulgated the Notice relating to Foreign Exchange Administration for Domestic Individuals Participating in
Stock Incentive Plan of Overseas-Listed Companies, or SAFE Notice 7, which superseded the Application Procedures of Foreign Exchange Administration for Domestic Individuals Participating in Employee Stock Holding Plans or Stock Option Plans
of Overseas-Listed Companies, or SAFE Notice 78, promulgated by the SAFE in March 2007. SAFE Notice 7 is applicable to directors, supervisors, senior management personnel and other employees of an overseas-listed company incorporated in the PRC,
PRC subsidiaries or branches of an overseas-listed company, and any PRC entities which are directly or indirectly controlled by an overseas-listed company, or, collectively, Domestic Companies, including PRC citizens (including Hong Kong, Macau and
Taiwan) and foreign citizens who have resided in the PRC for one year or longer, or, collectively, Domestic Individuals. Under SAFE Notice 7, Domestic Individuals who participate in a stock incentive plan of an overseas-listed company are required,
through a Domestic Company or a PRC entity designated by a Domestic Company, or the Domestic Agent, to register with the SAFE or its authorized local counterparts and complete certain other procedures. As we are an overseas-listed company, we and
our employees who are Domestic Individuals and have been granted share options or any other share-related rights and benefits under our stock incentive plans are subject to SAFE Notice 7. We have registered ourselves and on behalf of our employees
with the relevant local SAFE branch pursuant to SAFE Notice 7. However, there exist significant uncertainties in practice with respect to the interpretation and implementation of SAFE Notice 7 and we cannot assure you that we or our employees who
are Domestic Individuals will be in full compliance with SAFE Notice 7. If the SAFE or other PRC government authorities determine that we or our employees who are Domestic Individuals fail to comply with the provisions of SAFE Notice 7, we or they
may be subject to fines and legal sanctions. See Item 4. Information on the CompanyB. Business OverviewRegulationStock Incentive Plans.
We may rely on dividends and other distributions on equity paid by our operating subsidiary to fund cash and financing requirements, and
limitations on the ability of our operating subsidiary to pay dividends to us could materially restrict our ability to conduct our business.
We, as a holding company, may rely on dividends and other distributions on equity paid by our operating subsidiary, Super TV, for our cash and
financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay our operating expenses. If Super TV incurs debt on its own behalf in the future, the
instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Furthermore, relevant PRC laws, rules and regulations permit payments of dividends by Super TV only out of its retained earnings, if any,
determined in accordance with PRC accounting standards and regulations.
Under applicable PRC laws, rules and regulations, Super TV is
required to set aside 10% of its after-tax profits each year to fund a statutory reserve until the accumulated amount of such reserve has exceeded 50% of its registered capital. This reserve is not distributable as cash dividends to equity owners.
As a result of these PRC laws, rules and regulations, Super TV is restricted in its ability to transfer a portion of its net assets to us in the form of dividends. Limitations on the ability of Super TV to pay dividends to us could materially and
adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our businesses, pay dividends, or otherwise fund and conduct our business.
Restrictions on currency exchange may limit our ability to effectively utilize our revenues as well as the ability of our PRC
subsidiaries to obtain debt or equity financing from financial institutions or investors outside the PRC, including us.
A
significant portion of our operating revenues have been denominated in Renminbi. The Renminbi is currently convertible under the current account, which includes dividends, trade and service-related foreign exchange transactions, but not
under the capital account, which includes foreign direct investment and loans. Currently, Super TV may purchase foreign exchange for settlement of current account transactions, including purchase of imported computer chips
and payment of dividends to us, without the approval of the SAFE by complying with certain procedural requirements. However, the relevant PRC government authorities may limit or eliminate our ability to purchase foreign currencies in the future for
current account transactions. Since a significant amount of our future revenues will be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to purchase
computer chips from suppliers outside the PRC or fund our business activities outside the PRC denominated in foreign currencies or pay dividends in foreign currencies to our shareholders, including holders of our ADSs.
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In addition, certain foreign exchange transactions under the capital account are still subject to
limitations and require approvals from, or registration with, the SAFE and other relevant PRC government authorities. In particular, any loans to Super TV or its subsidiaries are subject to PRC regulations and approvals. For example, loans by us to
Super TV, a foreign-invested enterprise, cannot exceed statutory limits and must be registered with the SAFE or its local counterpart.
This could affect the ability of Super TV to obtain foreign exchange through debt or equity financing, including by means of loans or capital
contributions from us.
Fluctuations in exchange rates could result in foreign currency exchange losses.
As a significant portion of our operating revenues are denominated in Renminbi and the net proceeds from our initial public offering are
denominated in U.S. dollars, fluctuations in exchange rates between U.S. dollars and Renminbi will affect the relative purchasing power of these proceeds and our balance sheet and earnings per share in U.S. dollars. Appreciation or depreciation in
the value of the Renminbi relative to the U.S. dollar would affect our financial results reported in U.S. dollar terms without giving effect to any underlying change in our business, financial condition or results of operations. Since July 2005, the
Renminbi is no longer pegged solely to the U.S. dollar. Instead, the Renminbi is reported to be pegged against a basket of currencies, determined by the Peoples Bank of China, against which it can rise or fall by as much as 0.3% each day. This
permitted floating range was increased to 0.5% in May 2007 and was further increased to 2.0% in March 2014. The Renminbi may appreciate or depreciate significantly in value against the U.S. dollar in the long term, depending on the
fluctuation of the basket of currencies against which it is currently valued, or it may be permitted to enter into a full float, which may also result in a significant appreciation or depreciation of the Renminbi against the U.S. dollar.
Fluctuations in the exchange rate will also affect the relative value of dividends, if any, payable on our ordinary shares in U.S. dollar terms and the value of any U.S. dollar-denominated investments we make in the future. In addition, since a
significant portion of our operating revenues are denominated in Renminbi while approximately 28.5% of our cost of revenues is denominated in U.S. dollars, fluctuations in the exchange rate could also impact our financial condition and results of
operations.
Very limited hedging transactions are available in the PRC to reduce our exposure to exchange rate fluctuations. We did not
enter into any hedging transactions in 2012, 2013 or 2014. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of hedging transactions may be limited and we may not be able to successfully hedge
our exposure at all. In addition, our currency exchange losses may be magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into foreign currency.
The discontinuation of any of the preferential tax treatments or the financial incentives currently available to us in the PRC could
materially and adversely affect our business, financial condition, results of operations and prospects.
The PRC government has
provided various incentives to our PRC subsidiaries. These incentives include reduced enterprise income tax rates, value-added tax refunds and tax holidays. For example, as high-and-new technology enterprises, each of Super TV and N-S Digital TV was
entitled to a preferential income tax rate of 15% (against the standard income tax rate of 25%) since 2008. In October 2014, N-S Digital TV and Super TV successfully renewed their respective high-and-new technology enterprise certificates and
qualified for a preferential tax rate of 15% for another three years from 2014 to 2016, and Cyber Cloud also obtained its high-and-new technology enterprise certificate and qualified for a preferential tax rate of 15% for three years from 2014 to
2016. In addition, Super TV was designated as a key software enterprise for the tax years from 2010 to 2014 by the relevant PRC government authorities and, as a result, was entitled to a preferential income tax rate of 10% in each of
those years. Furthermore, for certain software-related products that are qualified as software products by PRC tax authorities, we received tax refunds which effectively reduce the applicable value-added tax rate from 17% to 3%.
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Super TV, N-S Digital TV and Cyber Cloud must meet a number of financial and non-financial
criteria in order to continue to qualify for the above tax incentives. For example, in order to be able to enjoy the preferential income tax rate of 15%, Super TV, N-S Digital TV and Cyber Cloud must be qualified as high-and-new technology
enterprises strongly supported by the State under the PRC Enterprise Income Tax Law, or the 2008 EIT Law, which took effect on January 1, 2008. In addition, in order to continue to enjoy the preferential income tax rate of 10%,
Super TV must reapply for and obtain the designation as a key software enterprise biennially. Moreover, the PRC government could determine at any time to eliminate or reduce the scale of such preferential tax policies. See
Item 5. Operating and Financial Review and ProspectsA. Operating ResultsTaxes and IncentivesPRC.
Any
increase in Super TVs or N-S Digital TVs enterprise income tax rate or discontinuation or reduction of any of the preferential tax treatments or financial incentives currently enjoyed by Super TV or N-S Digital TV could have a material
adverse effect on our business, financial condition, results of operations and prospects.
We may be subject to PRC income tax on
our global income, or dividends we receive from our PRC subsidiary may be subject to PRC withholding tax, depending on whether we are recognized as a resident enterprise in the PRC.
Pursuant to the 2008 EIT Law and Enterprise Income Tax Law Implementation Rules, or the Implementation Rules, enacted by the State Council on
December 6, 2007 and which became effective on January 1, 2008, an enterprise established under the laws of a foreign country or region whose de facto management body is located within the PRC territory is considered a resident
enterprise and will generally be subject to the enterprise income tax at the rate of 25% on its global income as well as PRC enterprise income tax reporting obligations. According to the Implementation Rules, de facto management body
refers to a managing body that exercises, in substance, overall management and control over the production and business, personnel, accounting and assets of an enterprise. The SAT issued the Notice on Issues Relating to Determination of
Chinese-Controlled Offshore Enterprises as PRC Resident Enterprises by Applying the De Facto Management Body Test, or SAT Notice 82, on April 22, 2009, which was amended in January 2014. SAT Notice 82 provides for certain specific
criteria for determining whether the de facto management body of a Chinese-controlled offshore enterprise is located in the PRC. In addition, on July 27, 2011, the SAT issued the Administrative Measures of Enterprise Income Tax of
Chinese-Controlled Offshore Resident Enterprises (Trial), or SAT Bulletin 45, which became effective on September 1, 2011, to provide guidance on the implementation of SAT Notice 82. SAT Bulletin 45 clarifies certain issues relating to:
(i) the determination procedures of PRC resident enterprise status and (ii) tax registration and other related procedures for PRC resident enterprises. SAT Bulletin 45 also provides that if an offshore PRC resident enterprise presents a
copy of the PRC tax resident determination certificate issued by the competent tax authorities to a payer of PRC-sourced dividends, interest, royalties and other income, such payer shall not withhold income tax on these payments to the offshore PRC
resident enterprise. Although each of SAT Notice 82 and SAT Bulletin 45 provides that it only applies to offshore enterprises controlled by PRC enterprises, not those controlled by PRC individuals, like our company, it is generally believed
that the determining criteria set forth therein very likely reflect the SATs general position as to how the de facto management body test should be applied to determine the tax residency of all offshore enterprises, regardless
of whether they are controlled by PRC enterprises or individuals. With reference to the criteria set forth in SAT Notice 82, we believe that we are not a PRC resident enterprise. However, if we were considered a PRC resident enterprise, although
dividends we receive from our PRC operating subsidiary would be exempt from PRC withholding tax, we would be subject to the enterprise income tax at the rate of 25% on our global income as well as PRC enterprise income tax reporting obligations. In
such case, our profitability and cash flow would be materially reduced as a result of our global income being taxed under the 2008 EIT Law.
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If we are considered as a non-resident enterprise under the 2008 EIT Law, we will not be subject
to the enterprise income tax at the rate of 25% on our global income. In such case, however, dividends we receive from our PRC subsidiary will be subject to a PRC withholding tax, the standard rate of which is 10% and may be reduced by an applicable
tax treaty, under the 2008 EIT Law. According to the Arrangement for Avoidance of Double Taxation on Income and Prevention of Tax Evasion entered into between the PRC and Hong Kong in August 2006, as amended, dividends paid by a PRC
foreign-invested enterprise to its shareholder in Hong Kong are generally subject to a 5% PRC withholding tax, subject to satisfaction of certain conditions and requirements, compared to the standard 10% PRC withholding tax under the 2008 EIT Law.
However, on October 27, 2009, the SAT issued the Notice on How to Recognize Beneficial Owners under Relevant Tax Treaties, or SAT Notice 601, which provides that only the enterprises with active operations may be recognized
as beneficial owners under relevant tax treaties that are entitled to enjoy the corresponding tax benefits. SAT Notice 601 further provides that those enterprises that are established solely for the purposes of benefiting from favorable
tax treatment under the relevant tax treaties should not be recognized as beneficial owners and therefore may not enjoy favorable tax treatment. On June 29, 2012, the SAT issued the Announcement of the SAT Regarding Recognition
of Beneficial Owners under Tax Treaties, or the SAT Announcement 30, which provides that a comprehensive analysis based on all the factors listed in SAT Notice 601 should be made to determine the beneficial owner status. We
indirectly hold the 100% interest in Super TV, our PRC subsidiary, through Golden Benefit, a wholly-owned subsidiary incorporated in Hong Kong. As a result, to the extent we are considered as a non-resident enterprise and Golden Benefit is not
recognized as a qualified beneficial owner under the relevant tax treaty, dividends we receive from our PRC subsidiary will be subject to the standard rate of 10%. For example, as a result of our decision in 2012 to distribute the undistributed
retained earnings of our PRC subsidiary without a set schedule, we accrued a US$4.8 million deferred tax liability related to withholding tax on the undistributed earnings of Super TV generated after January 1, 2008. In 2013, we accrued an
additional deferred tax liability of US$3.4 million related to withholding tax on the undistributed earnings of Super TV generated after January 1, 2008, resulting in a deferred tax liability balance of US$8.2 million as of December 31,
2013. In 2014, we accrued deferred tax liability of US$3.4 million and transferred US$7.9 million to current income tax payable for retained earnings declared to be distributed by Super TV, resulting in a deferred tax liability balance of US$3.7
million as of December 31, 2014. Such withholding tax increased our tax burden and reduced the amount of cash available to our company.
Dividends payable by us to our non-PRC shareholders and ADS holders, and gains on the sales of our ordinary shares or ADSs, may be
subject to withholding taxes under PRC tax laws, which may materially reduce the value of your investment.
The 2008 EIT Law and
the Implementation Rules, both of which became effective on January 1, 2008, provide that an income tax rate of 10% (which may be reduced by the relevant tax treaties between the PRC and other jurisdictions) will generally be applicable to
dividends payable to non-resident enterprises, which do not have an establishment or place of business in the PRC or whose establishment or place of business in the PRC has no connection with the dividends, to the extent such dividends are derived
from sources within the PRC and paid out of distributable profits accumulated on or after January 1, 2008. In addition, any gain realized on the transfer of shares by non-resident enterprises is also subject to the 10% income tax if such gain
is regarded as income derived from sources within the PRC, unless the applicable tax treaties provide for an alternative withholding arrangement. Furthermore, dividends payable to non-PRC individual investors and any gain realized on the transfer of
our ADSs or ordinary shares by such non-PRC individual investors may be subject to PRC income tax at a rate of 20% (which may be reduced or exempted by the relevant tax treaties between the PRC and other jurisdictions).
If we are considered as a PRC resident enterprise, our dividends payable to our non-PRC shareholders and ADS holders, and any gain realized
from the transfer of our ordinary shares or ADSs, would be treated as income derived from sources within the PRC and would as a result be subject to PRC tax. If dividends payable to our non-PRC shareholders and ADS holders are subject to PRC tax, or
if non-PRC shareholders and ADS holders are required to pay PRC tax on the transfer of our ordinary shares or ADSs, the value of your investment in our ordinary shares or ADSs may be materially reduced.
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We face uncertainties with respect to indirect transfers of equity interests in PRC
resident enterprises by their non-PRC holding companies. Enhanced scrutiny over acquisition transactions by the PRC tax authorities may have a negative impact on potential acquisitions we may pursue in the future.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or
Circular 698, issued by the State Administration of Taxation, which became effective retroactively as of January 1, 2008, where a non-resident enterprise investor transfers equity interests in a PRC resident enterprise indirectly by way of
disposing of equity interests in an overseas holding company, the non-resident enterprise investor, being the transferor, may be subject to PRC enterprise income tax, if the indirect transfer is considered to be an abusive use of company structure
without reasonable commercial purposes. As a result, gains derived from such indirect transfer may be subject to PRC withholding tax at the rate of up to 10%. In addition, the PRC resident enterprise may be required to provide necessary assistance
to support the enforcement of Circular 698.
On February 3, 2015, the State Administration of Tax issued a Public Notice Regarding
Certain Corporate Income Tax Matters on Indirect Transfer of Properties by Non-Tax Resident Enterprises, or Public Notice 7. Public Notice 7 has introduced a new tax regime that is significantly different from that under Circular 698. Public
Notice 7 extends its tax jurisdiction to not only indirect transfers set forth under Circular 698 but also transactions involving transfer of other taxable assets, through the offshore transfer of a foreign intermediate holding company. In addition,
Public Notice 7 provides clearer criteria than Circular 698 on how to assess reasonable commercial purposes and has introduced safe harbors for internal group restructurings and the purchase and sale of equity through a public securities market.
Public Notice 7 also brings challenges to both the foreign transferor and transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a non-resident enterprise conducts an indirect transfer by
transferring the taxable assets indirectly by disposing of the equity interests of an overseas holding company, the non-resident enterprise being the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may report
to the relevant tax authority such indirect transfer. Using a substance over form principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was
established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC enterprise income tax, and the transferee or other person who is obligated to pay for the transfer
is obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity interests in a PRC resident enterprise. Both the transferor and the transferee may be subject to penalties under PRC tax laws if the transferee
fails to withhold the taxes and the transferor fails to pay the taxes.
We face uncertainties on the reporting and consequences on future
private equity financing transactions, share exchange or other transactions involving the transfer of shares in our company by investors that are non-PRC resident enterprises, or sale or purchase of shares in other non-PRC resident companies or
other taxable assets by us. We and our non-resident enterprises may be subject to filing obligations or being taxed if we and our non-resident enterprises are transferors in such transactions, and may be subject to withholding obligations if we and
our non-resident enterprises are transferees in such transactions, under Circular 698 and Public Notice 7. For the transfer of shares in our company by investors that are non-PRC resident enterprises, our PRC subsidiaries may be requested to assist
in the filing under Circular 698 and Public Notice 7. As a result, we may be required to expend valuable resources to comply with Circular 698 and Public Notice 7 or to request the relevant transferors from whom we purchase taxable assets to comply
with these circulars, or to establish that we and our non-resident enterprises should not be taxed under these circulars, which may have a material adverse effect on our financial condition and results of operations.
The PRC tax authorities have the discretion under Circular 698 and Public Notice 7 to make adjustments to the taxable capital gains based on
the difference between the fair value of the taxable assets transferred and the cost of investment. If we are considered a non-resident enterprise under the 2008 EIT Law and if the PRC tax authorities make adjustments to the taxable income of the
transactions under Circular 698 and Public Notice 7, our income tax costs associated with such potential acquisitions will be increased, which may have an adverse effect on our financial condition and results of operations.
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The M&A Rules and other recent PRC laws, rules and regulations have established more
complex procedures for acquisitions conducted by foreign investors, which could make it more difficult for us to pursue growth through acquisitions.
The M&A Rules established certain procedures and requirements that could make mergers and acquisitions by foreign investors in China more
time-consuming and complex. In addition, PRC national security review rules, which became effective on September 1, 2011, subject acquisitions by foreign investors of PRC companies that conduct business in military-related or certain other
industries that are crucial to national security to a security review before the consummation of any such acquisition. Furthermore, the PRC Antitrust Law, which became effective on August 1, 2008, requires, among other things, that the MOFCOM
be notified in advance of any change-of-control transaction in which a foreign investor acquires control of a PRC domestic enterprise or a foreign company with substantial PRC operations, if certain thresholds set forth in the Provisions on
Thresholds for Prior Notification of Concentrations of Undertakings issued by the State Council on August 3, 2008 are triggered.
We may grow our business in part by pursuing potential strategic acquisitions that are complementary to our business and operations. Complying
with the requirements of these PRC laws, rules and regulations to complete such acquisitions could be time-consuming, and any required approval procedures, including obtaining approvals from the MOFCOM, may delay or inhibit our ability to complete
such transactions, which could affect our ability to expand our business or maintain our market position.
Natural disasters and
health hazards in the PRC may severely disrupt our business and operations and may have a material adverse effect on our financial condition and results of operations.
From time to time, certain parts of China have experienced devastating natural disasters and health hazards causing tens of thousands of
deaths and widespread injuries. In addition, parts of Mainland China, in particular its southern, central and eastern regions, have in the past experienced what was reportedly the most severe winter weather in the country in half a century, which
resulted in significant and extensive damage to factories, power lines, homes, automobiles, crops and other properties, blackouts, transportation and communications disruptions and other losses in the affected areas. Moreover, certain countries and
regions, including China, have encountered incidents of the H5N1 strain of bird flu, or avian flu, as well as severe acute respiratory syndrome, or SARS, and the outbreak of influenza (H7N9). We are unable to predict the effect, if any, that any
future natural disasters and health and public security hazards may have on our business. Any future natural disasters and health and public security hazards may, among other things, significantly disrupt our ability to adequately staff our
business, and may generally disrupt our operations. Furthermore, such natural disasters and health and public security hazards may severely restrict the level of business activity in affected areas, which may, in turn, materially and adversely
affect our business and prospects. As a result, any natural disasters or health hazards in China may have a material adverse effect on our financial condition and results of operations.
The implementation of the PRC Labor Contract Law may increase our operating expenses and adversely affect our business and results of
operations.
The PRC Labor Contract Law, as amended, and its implementation rules formalize workers rights concerning
overtime hours, pensions, layoffs, employment contracts and the role of trade unions and provide for specific standards and procedure for the termination of an employment contract. In addition, the Labor Contract Law requires the payment of a
statutory severance pay upon the termination of an employment contract in most cases, including in cases of the expiration of a fixed-term employment contract. As there has been little guidance as to how the Labor Contract Law will be interpreted
and enforced by the relevant PRC authorities, there remains substantial uncertainty as to its potential impact on our business and results of operations. The implementation of the Labor Contract Law may increase our operating expenses, in particular
our personnel expenses and labor service expenses. In the event that we decide to significantly reduce the number of our employees or otherwise change our employment or labor practices, the Labor Contract Law may also limit our ability to effect
these changes in a manner that we believe to be cost-effective or desirable, which could materially and adversely affect our business, financial condition and results of operations.
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If additional remedial measures are imposed on the Big
Four PRC-based accounting firms, including our independent registered public accounting firm, in administrative proceedings brought by the SEC alleging the firms failure to meet specific criteria set by the SEC, with
respect to requests for the production of documents, we may not be able to timely file future financial statements in compliance with the requirements of the Exchange Act.
Starting in 2011, the Chinese affiliates of the big four accounting firms (including our independent registered public accounting
firm) were affected by a conflict between U.S. and Chinese law. Specifically, for certain U.S. listed companies operating and audited in mainland China, the SEC and the PCAOB sought to obtain from the Chinese firms access to their audit work papers
and related documents. The firms were, however, advised and directed that under PRC laws they could not respond directly to the U.S. regulators on those requests, and that requests by foreign regulators for access to such papers in China had to be
channeled through the CSRC.
In late 2012, this impasse led the SEC to commence administrative proceedings under Rule 102(e) of its Rules
of Practice and also under the Sarbanes-Oxley Act against the Chinese accounting firms (including our independent registered public accounting firm). A first instance trial of the proceedings in July 2013 in the SECs internal administrative
court resulted in an adverse judgment against the firms. The administrative law judge proposed penalties on the firms, including a temporary suspension of their right to practice before the SEC, although that proposed penalty did not take effect
pending review by the Commissioners of the SEC. On February 6, 2015, before a review by the Commissioner had taken place, the firms reached a settlement with the SEC. Under the settlement, the SEC accepts that future requests by the SEC for the
production of documents will normally be made to the CSRC. The firms will receive matching Section 106 requests, and are required to abide by a detailed set of procedures with respect to such requests, which in substance require them to
facilitate production through the CSRC. If they fail to meet specified criteria, the SEC retains authority to impose a variety of additional remedial measures on the firms depending on the nature of the failure. Remedies for any future noncompliance
could include, as appropriate, an automatic six-month bar on a single firms performance of certain audit work, commencement of a new proceeding against a firm, or in extreme cases, the resumption of the current proceeding against all four
firms.
In the event that the SEC restarts the administrative proceedings, depending upon the final outcome, listed companies in the
United States with major PRC operations may find it difficult or impossible to retain auditors in respect of their operations in the PRC, which could result in financial statements being determined not to be in compliance with the requirements of
the Exchange Act, including possible delisting. Moreover, any negative news about any such future proceedings against these audit firms may cause investor uncertainty regarding China-based, United States-listed companies and the market price of our
ADSs may be adversely affected.
If our independent registered public accounting firm were denied, even temporarily, the ability to
practice before the SEC and we were unable to find another registered public accounting firm to audit and issue an opinion on our financial statements in a timely manner, our financial statements could be determined not to be in compliance with the
requirements of the Exchange Act. Such a determination could ultimately lead to the delisting of our ordinary shares from the NYSE or deregistration from the SEC, or both, which would substantially reduce or effectively terminate the trading of our
ADSs in the United States.
The audit reports included in this annual report are prepared by auditors who are not inspected by the
Public Company Accounting Oversight Board and, as such, you are deprived of the benefits of such inspection.
Our independent
registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, as auditors of companies that are traded publicly in the United States and a firm registered with the United States Public Company
Accounting Oversight Board, or the PCAOB, is required by the laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards. Because our auditors are
located in the PRC, a jurisdiction where the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities, our auditors are not currently inspected by the PCAOB.
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Inspections of other firms that the PCAOB has conducted outside China have identified
deficiencies in those firms audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. This lack of PCAOB inspections in China prevents the PCAOB from regularly
evaluating our auditors audits and its quality control procedures. As a result, investors may be deprived of the benefits of PCAOB inspections.
The inability of the PCAOB to conduct inspections of auditors in China makes it more difficult to evaluate the effectiveness of our
auditors audit procedures or quality control procedures as compared to auditors outside of China that are subject to PCAOB inspections. Investors may lose confidence in our reported financial information and procedures and the quality of our
financial statements.
Substantial uncertainties exist with respect to the enactment timetable, interpretation and implementation of
the draft PRC Foreign Investment Law and how it may impact the viability of our current corporate structure, corporate governance and business operations.
The MOFCOM published a discussion draft of the proposed Foreign Investment Law in January 2015, or draft Foreign Investment Law, aiming to,
upon its enactment, replace the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the
Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment
regulatory regime in line with prevailing international practice and the legislative efforts to unify the corporate legal requirements for both foreign and domestic investments. The MOFCOM is currently soliciting comments on this draft and
substantial uncertainties exist with respect to its enactment timetable, interpretation and implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate
governance and business operations in many aspects.
Among other things, the draft Foreign Investment Law expands the definition of
foreign investment and introduces the principle of actual control in determining whether a company should be treated as a foreign-invested enterprise, or an FIE. According to the definition set forth in the draft Foreign Investment Law,
FIEs shall refer to enterprises established in China pursuant to PRC laws that are solely or partially invested by foreign investors. The draft Foreign Investment Law specifically provides that entities established in China (without direct foreign
share ownership) but controlled by foreign investors, via contracts or trust, for example, will be treated as FIEs. Once an entity falls within the definition of FIE, it may be subject to foreign investment restrictions or prohibitions
set forth in a negative list to be separately issued by the State Council at a later date. If the underlying business of an FIE is subject to foreign investment restrictions, it needs to go through a market entry clearance process
carried out by the MOFCOM before the FIE can be established. If the underlying business of the FIE is subject to foreign investment prohibitions, it may not enter such business in China. However, an FIE, during the market entry clearance process,
may apply in writing to be treated as a PRC domestic enterprise if its foreign investor(s) is/are controlled by PRC government authorities and its affiliates and/or PRC citizens. In this connection, control is broadly defined
in the draft law to cover the following summarized categories: (i) holding 50% of more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of
the seats on the board or other equivalent decision-making bodies, or having the voting power to exert material influence on the board, the shareholders meeting or other equivalent decision-making bodies; or (iii) having the power to exert
decisive influence, via contractual or trust arrangements, over the subject entitys operations, financial matters or other key aspects of business operations. The draft also emphasizes the security review requirements, whereby all foreign
investments concerning national security must be reviewed and approved in accordance with the security review procedure. If the enacted version of the Foreign Investment Law and the final negative list mandate further actions, such as a
market entry clearance or certain restructuring of our corporate structure and operations, we face substantial uncertainties as to whether these actions can be timely completed, or at all, and our business and financial condition may be materially
and adversely affected.
The draft Foreign Investment Law, if enacted as proposed, may also materially impact our corporate governance
practice and increase our compliance costs. For instance, the draft imposes stringent ad hoc and periodic information reporting requirements on foreign investors and applicable FIEs. In addition to investment implementation reports and investment
amendment reports, which are required for each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company found to
be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.
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Risks Relating to the ADSs
The trading price of our ADSs has been and may continue to be volatile, which could result in substantial losses to you.
The trading price of our ADSs has been volatile and subject to
wide fluctuations. Since October 5, 2007, the closing prices of our ADSs on the NYSE have ranged from US$1.68 to US$51.08 per ADS and the last reported sale price on April 27, 2015 was US$4.24. Our ADSs may continue to fluctuate
in response to various factors beyond our control. The financial markets in general, and the market prices for many other PRC companies listed on stock exchanges in the United States in particular, have experienced extreme volatility. These broad
market and industry factors may significantly affect the market price and volatility of our ADSs, regardless of our actual operating performance.
In addition to market and industry factors, the price and trading volume for our ADSs may be highly volatile for specific business reasons. In
particular, factors such as variations in our revenues, earnings and cash flow, announcements of new investments and cooperation arrangements, acquisitions or disposition could cause the market price for our ADSs to change substantially. Any of
these factors may result in large and sudden changes in the volume and trading price of our ADSs. In the past, following periods of volatility in the market price of a companys securities, shareholders have often instituted securities class
action litigation against that company. If we were involved in a class action suit, it could divert the attention of senior management, and, if adversely determined, have a material adverse effect on our financial condition and results of
operations.
The sale or availability for sale of substantial amounts of our ADSs could adversely affect their trading price and
could materially impair our future ability to raise capital through offerings of our ADSs.
Sales of substantial amounts of our
ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our ADSs and could materially impair our future ability to raise capital through offerings of our ADSs.
As of March 31, 2015, we had 59,770,311 ordinary shares outstanding (excluding 752,781 ordinary shares that were issued and held for our
account in preparation for the exercise of share options by option holders under our employee stock incentive plans), including 39,277,950 ordinary shares represented by 39,277,950 ADSs (excluding the 752,781 ADSs that were held for our account in
preparation for exercise of share options by option holders under our employee stock incentive plans). All ADSs are freely transferable without restriction or additional registration under the Securities Act. The remaining ordinary shares
outstanding have been available for sale, subject to volume and other restrictions that may be applicable under Rule 144 and Rule 701 under the Securities Act. In addition, we have filed registration statements on Form S-8 to register the
ordinary shares to be issued to the share option holders under our employee stock incentive plans. The ordinary shares to be received by such share option holders who are not affiliated with us may be resold freely to the public market. We cannot
predict what effect, if any, market sales of securities held by our significant shareholders or any other shareholder or the availability of these securities for future sale will have on the market price of our ADSs.
Your interest in our ADSs will be diluted as a result of our stock incentive plans or other share option grants.
As of March 31, 2015, options to purchase an aggregate of 4,471,431 ordinary shares had been granted and were outstanding under the 2005
Stock Incentive Plan, the 2008 Stock Incentive Plan, the 2010 Stock Incentive Plan and the 2012 Stock Incentive Plan. For a description of these plans, see Item 6. Directors, Senior Management and EmployeesB. Compensation of
Directors and Senior OfficersShare Options. The exercise of those options would result in a reduction in the percentage of ownership of the holders of ordinary shares and of ADSs, and therefore would result in a dilution in the earnings
per ordinary share and per ADS.
You may face difficulties in protecting your interest, and your ability to protect your rights
through the United States federal courts may be limited, because we are incorporated under Cayman Islands law.
Our
corporate affairs are governed by our Second Amended and Restated Memorandum and Articles of Association, the Cayman Islands Companies Act and the common law of the Cayman Islands. The rights of shareholders to take action against the directors and
actions by minority shareholders are to a large extent governed by the common law of the Cayman Islands. Cayman Islands law in this area may not be as established and may differ from provisions under statutes or judicial precedent in existence in
the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against our management or directors than would shareholders of a corporation incorporated in a jurisdiction within the
United States.
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The rights of shareholders and the responsibilities of management and members of the board of
directors under Cayman Islands law, such as in the areas of fiduciary duties, are different from those applicable to a company incorporated in a jurisdiction of the United States. For example, the Cayman Islands courts are unlikely:
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to recognize or enforce against us judgments of courts of the United States based on the civil liability provisions of United States federal securities laws; and |
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in original actions brought in the Cayman Islands, to impose liabilities against us based on the civil liability provisions of United States federal securities laws that are penal in nature. |
As a result, our public shareholders may have more difficulty in protecting their interests in connection with actions taken by our management
or members of our board of directors than they would as public shareholders of a company incorporated in the United States.
Certain
judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company and substantially all
of our assets are located outside the United States. Substantially all of our current operations are conducted in the PRC. In addition, most of our directors and officers are nationals and residents of countries other than the United States. A
substantial portion of the assets of these persons are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the United States in the event that you
believe that your rights have been infringed under the United States federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of the PRC may render you unable to enforce
a judgment against our assets or the assets of our directors and officers.
Your voting rights as a holder of our ADSs are limited
by the terms of the deposit agreement.
You may exercise your voting rights with respect to the ordinary shares underlying your
ADSs only in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions from you in the manner set forth in the deposit agreement, the depositary for our ADSs will endeavor to vote your underlying ordinary shares in
accordance with these instructions. Under our Second Amended and Restated Memorandum and Articles of Association and Cayman Islands law, the minimum notice period required for convening a general meeting is 15 days. When a general meeting is
convened, you may not receive sufficient notice of a shareholders meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter at the meeting. In addition, the depositary and its
agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not
receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in
which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.
The depositary for our ADSs will give us a discretionary proxy to vote our ordinary shares underlying your ADSs if you do not vote at
shareholders meetings, except in limited circumstances, which could adversely affect your interests.
Under the deposit
agreement for our ADSs, the depositary will give us a discretionary proxy to vote our ordinary shares underlying your ADSs at shareholders meetings if you do not vote, unless:
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we have failed to timely provide the depositary with our notice of meeting and related voting materials; |
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we have instructed the depositary that we do not wish a discretionary proxy to be given; |
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we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting; |
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a matter to be voted on at the meeting would have a material adverse impact on shareholders; or |
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voting at the meeting is made on a show of hands. |
The effect of this discretionary proxy is
that you cannot prevent our ordinary shares underlying your ADSs from being voted, absent the situations described above, and it may make it more difficult for shareholders to influence the management of our company.
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You may not receive distributions on our ordinary shares or any value for them if it is
illegal or impractical to make them available to you.
The depositary of our ADSs has agreed to pay you the cash dividends or
other distributions it or the custodian for our ADSs receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of our ordinary shares that
your ADSs represent. However, the depositary is not responsible if it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of
securities that require registration under the Securities Act but that are not properly registered or distributed pursuant to an applicable exemption from registration. The depositary is not responsible for making a distribution available to any
holders of ADSs if any government approval or registration required for such distribution cannot be obtained after reasonable efforts made by the depositary. We have no obligation to take any other action to permit the distribution of our ADSs,
ordinary shares, rights or anything else to holders of our ADSs. This means that you may not receive the distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These
restrictions may have a material and adverse effect on the value of your ADSs.
You may not be able to participate in rights
offerings and may experience dilution of your holdings.
We may, from time to time, distribute rights to our shareholders,
including rights to acquire securities. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from
registration under the Securities Act with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. The depositary may, but is not required to, attempt to sell these undistributed rights to third parties, and may
allow the rights to lapse. We may be unable to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to
have a registration statement declared effective. Accordingly, holders of ADSs may be unable to participate in our rights offerings and may experience dilution of their holdings as a result.
You may be subject to limitations on transfer of your ADSs.
Your ADSs represented by ADRs are transferable on the books of the depositary. However, the depositary may close its books at any time or from
time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during
which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver,
transfer or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or any government or governmental
body, or under any provision of the deposit agreement, or for any other reason.
Item 4. |
Information on the Company |
A. |
History and Development of the Company |
Our holding company, China Digital TV Holding
Co., Ltd., was incorporated as an exempted limited liability company on April 19, 2007 under the laws of the Cayman Islands. We are headquartered in Beijing, China, and provide CA systems to the PRCs digital television market. We conduct
substantially all of our business through our operating subsidiary in the PRC, Super TV, and through N-S Digital TV, a PRC company that we controlled through contractual arrangements until June 2014 and a subsidiary of Super TV thereafter. See
Item 7. Major Shareholders and Related Party TransactionsB. Related Party Transactions.
Our principal executive
office is located at Jingmeng High-Tech Building B, 4th Floor, No. 5 Shangdi East Road, Haidian District, Beijing 100085, PRC. Our telephone number is (8610) 6297 1199. Information contained on our website does not constitute a part of
this annual report. Our agent for service of process is CT Corporation System, located at 111 Eighth Avenue, New York, New York 10011, U.S.A.
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N-T Information Engineering was established as a limited liability company under the PRC law
by Tsinghua Enterprise Group, a company affiliated with Tsinghua University, and Hong Kong-based Tsinghua Novel Hi-Tech Investment Holding Ltd. in July 1998, and initially focused on developing, producing and selling digital data
broadcasting equipment for cable television operators. In December 2002, N-T Information Engineering completed its acquisition of the CA systems-related assets of Tsinghua Tongfang Co., Ltd., or Tsinghua Tongfang. In March 2004, China Digital
TV Technology Co., Ltd., or CDTV BVI, was incorporated as a holding company in the British Virgin Islands, or BVI. Following the establishment of CDTV BVI, we restructured our operations, in connection with an investment by SAIF, by establishing
Super TV, a limited liability company under the PRC law and a wholly-owned subsidiary of CDTV BVI, on May 31, 2004. On the same day, N-T Information Engineering and Li Yang, a PRC citizen then employed by SAIF, established N-S Digital TV.
In June 2004, N-S Digital TV acquired from N-T Information Engineering its smart card and CA systems business and, in August 2006, N-S Digital TV acquired from N-T Information Engineering its set-top box design business. In April 2007, a
new holding company, China Digital TV Holding Co., Ltd., or CDTV Holding, was established in the Cayman Islands. In May 2007, CDTV BVI executed a 40-for-1 share split of its ordinary shares and Series A preferred shares. Following this share
split, the shareholders of CDTV BVI exchanged all of their shares of CDTV BVI for shares of CDTV Holding in proportion to their percentage interest in CDTV BVI, as a result of which CDTV BVI became a wholly-owned subsidiary of CDTV Holding. In
August 2007, with our consent, Ms. Yang transferred her entire equity interest in N-S Digital TV to Wei Gao, a PRC citizen employed by an affiliated company of SAIF.
In October 2007, we completed the initial public offering of our ADSs representing our ordinary shares and listed the ADSs on the NYSE.
In order to benefit from certain beneficial tax arrangements between the PRC and Hong Kong, in December 2007, CDTV BVI acquired Golden
Benefit, a company incorporated in Hong Kong, for a nominal consideration, and transferred its 100% equity interest in Super TV to Golden Benefit. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples
Republic of ChinaWe may be subject to PRC income tax on our global income, or dividends we receive from our PRC subsidiary may be subject to PRC withholding tax, depending on whether we are recognized as a resident enterprise in the PRC
and Item 5. Operating and Financial Review and ProspectsA. Operating ResultsTaxes and IncentivesPRC.
Since December 2007, new entities have been established or acquired in the PRC to offer new solutions and products, including N-S Media
Investment, Cyber Cloud, Joysee, Super Movie, Beijing Shibo Movie Technology Co., Ltd., or Shibo Movie and Beijing Xinsi Yijia Technology Co., Ltd., or Xinsi Yijia. Super Movie later dissolved in November 2013.
In June 2008, Ms. Gao transferred all of her equity interests in N-S Digital TV to Junming Wu, who is a PRC citizen and is currently our
employee. In November 2008, N-T Information Engineering transferred all of its equity interest in N-S Digital TV to Lei Zhang and Shizhou Shen, both of whom are PRC citizens and are currently our employees. In July 2011, Junming Wu transferred all
of his equity interests in N-S Digital TV to Tianxing Wang, who is a PRC citizen and is currently our employee. In addition, in July 2011, Tianxing Wang and Lei Zhang, who are PRC citizens and are currently our employees, and Wenjun Wang, who is a
PRC citizen and was then our employee, each contributed cash to increase the registered capital of N-S Digital TV to RMB150 million using the loan proceeds from Super TV. As a result of these transactions, Tianxing Wang, Lei Zhang, Shizhou Shen and
Wenjun Wang in aggregate owned all of the equity interest of N-S Digital TV.
N-S Digital Technology Co., Ltd., or N-S Digital Technology,
and N-S Investment Holdings Co., Ltd., or N-S Investment Holdings, were incorporated in the PRC as wholly-owned subsidiaries of our company in April and July 2010, respectively. In March 2011, N-S Digital Technology was dissolved. In June 2014, N-S
Investment Holdings was renamed Beijing N-S Information Technology Co., Ltd., or N-S Information Technology, and Super TV transferred its equity interest in N-S Information Technology to China Super Media Holdings Limited, or CSM Holdings.
In June 2014, we conducted an internal reorganization in preparation of our sale of Super TV, as a result of which we obtained legal ownership
of N-S Digital TV, the variable interest entity that we controlled through contractual agreements in China, or VIE structure, and adjusted our senior management team. Specifically, we terminated the series of contractual agreements underlying the
VIE structure between the nominee shareholders of N-S Digital TV, namely Tianxing Wang, Lei Zhang, Shizhou Shen and Wenjun Wang, and Super TV, and transferred the 100% equity interest of N-S Digital TV held by these nominee shareholders to Super TV.
As a result, N-S Digital TV became an indirectly wholly-owned subsidiary of the Company.
Our Investments and Acquisitions
In August 2006, N-S Digital TV entered into an asset transfer agreement to purchase from N-T Information Engineering its
set-top box design business for an initial purchase price of RMB29.4 million (US$3.8 million), subject to certain post-closing downward adjustments. As an adjustment to the initial purchase price, N-T Information Engineering refunded
RMB12.1 million (US$1.5 million) to N-S Digital TV in April 2007.
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In August 2006, N-S Digital TV entered into an equity transfer agreement to purchase from
N-T Information Engineering its 51% equity interest in Foshan Nanhai Guokai Digital TV Technology Co., Ltd., or Guokai, for a cash consideration of RMB2.4 million (US$0.3 million). The parties entered into a new agreement in March
2007 to reduce the consideration to RMB2.3 million (US$0.3 million). Guokai is a company primarily engaged in the research, development and sale of digital TV-related systems, software and products. A Japanese multinational company holds
the remaining 49% equity interest in Guokai. This transaction was completed on July 27, 2007. In June 2013, Guokai was dissolved.
In
March 2007, N-S Digital TV and Jiangsu Qingda Technology Co. Ltd., or Jiangsu Qingda, one of our customers, entered into an agreement to set up a joint venture in Nanjing of Jiangsu Province mainly engaging in digital television technology
development and services, Nanjing Qingda Yongxin Culture & Media Co. Ltd., or Qingda Yongxin. N-S Digital TV contributed cash of RMB0.8 million (US$0.1 million), representing 40% of equity interest in the joint venture. Jiangsu
Qingda contributed cash of RMB1.2 million (US$0.2 million) representing 60% of equity interest in the joint venture. N-S Digital TV had an option to purchase up to an additional 30% of the equity interest of Qingda Yongxin, which expired
in 2010 without being exercised.
In June 2008, N-S Digital TV and Xitao Lai, a PRC citizen, established Dongguan SuperTV Video Info Co.,
Ltd., or Dongguan SuperTV, a joint venture in Dongguan, Guangdong Province, mainly to provide value-added services to television viewers. N-S Digital TV and Mr. Lai each contributed cash of RMB5.0 million (US$0.7 million),
representing 50% of equity interest in the joint venture. In September 2008, N-S Digital TV exercised an option to purchase an additional 10% equity interest in the joint venture from Mr. Lai. In July 2009, N-S Digital TV sold its 20% equity
interest in Dongguan SuperTV to a new investor, Guangdong Jiacai Digital Technology Co., Ltd., or Guangdong Jiacai. In August 2010, N-S Digital TV entered into an equity transfer agreement with Guangdong Jiacai to repurchase the 20% equity interest
in Dongguan SuperTV from Guangdong Jiacai. After those transactions, the equity interest of Dongguan SuperTV held by N-S Digital TV increased to 60% and N-S Digital TV became entitled to 70% of shareholders voting rights and appointing three
out of the five members of the board of directors of Dongguan SuperTV. In November 2011, Dongguan SuperTV transferred all of its high-definition interactive television services-related assets to the Dongguan branch of the Guangdong Broadcasting TV
Network Co., Ltd. In December 2011, N-S Digital TV transferred its entire equity interest in Dongguan SuperTV to a third party for total consideration of RMB6.6 million (US$1.0 million).
In August 2008, we acquired from N-T Information Engineering all of its intellectual property rights relating to digital watermarking and
image tracing technologies, including one issued patent and five then pending patent applications in the PRC. As of the date of this annual report, these five pending patents have all been issued to us. For details of these acquisitions, see
Item 4. Information on the CompanyB. Business OverviewIntellectual Property.
On January 4, 2010, we
entered into a share purchase agreement with OpenV China Holdings Company, or OpenV, a PRC online video company, and several other parties to make a strategic investment in OpenV. Pursuant to the share purchase agreement and related transaction
documents, we acquired an 11.5% equity interest (subject to adjustment based on, among other things, OpenVs performance) in OpenV for a consideration of US$5.0 million and received a warrant to purchase ordinary shares of OpenV of up to
US$4.5 million. As part of this investment transaction, we also agreed to extend to OpenV a US$2.5 million interest-free convertible loan, which could be converted into ordinary shares of OpenV, subject to certain closing conditions. The
Company did not purchase additional ordinary shares of OpenV pursuant to the warrant, which has expired, and the interest-free convertible loan was not extended to OpenV due to OpenVs performance in 2010. In 2010, we wrote off our entire
investment in OpenV because we had doubts on OpenVs ability to continue as a going concern. As of December 31, 2013, we understood that OpenVs normal online video services had not been restored. On October 11, 2012, we entered
into a share redemption agreement with OpenV, pursuant to which OpenV repurchased 460,080 of its shares from us for US$0.82 million. We continue to hold 2,345,267 shares of OpenV after the share repurchase.
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In February 2010, N-S Digital TV acquired from Beijing Shi Xun Hu Lian Technology Co., Ltd., or
Beijing Shi Xun, and another shareholder of Guangdong Digital Media Technology Research & Development Institute Co., Ltd., or Guangdong R&D, their entire equity interest in Guangdong R&D for RMB3.0 million (US$0.4 million)
and became the sole shareholder of Guangdong R&D. We decided to discontinue the business of Guangdong R&D and dissolved Guangdong R&D in April 2013.
In May 2010, we entered into a share subscription agreement with 3DiJoy Corp., or 3DiJoy, a company specializing in the research and
development of interactive and motion-sensing gaming products, and several other parties to make a strategic investment in 3DiJoy. Pursuant to the share subscription agreement, we acquired an aggregate of 4,953,798 series C convertible preferred
shares of 3DiJoy, representing a 24% equity interest, for an aggregate subscription price of US$6.0 million. In 2012, we accrued a full impairment charge of US$4.5 million related to our investment in 3DiJoy based on the fair value of 3DiJoy we
estimated with the assistance of a third party valuation firm, as we had doubts regarding 3DiJoys ability to operate as a going concern given that it had been experiencing financial difficulties.
In May 2010, Super TV acquired an aggregate 34.45% equity interest in Guangzhou Rujia Network Technology Co., Ltd., or Guangzhou Rujia,
through both purchase of existing shares from a shareholder of Rujia and contribution to its capital increase, for total consideration of RMB16.5 million (US$2.5 million).
In August 2010, N-S Digital TV entered into an equity transfer agreement with Guangzhou Rujia to transfer all of its equity interest in
Guangdong SuperTV, a wholly-owned subsidiary of N-S Media Investment, for a consideration of RMB30.3 million (US$4.6 million).
In December 2010, Super TV and Beijing Yuewu Yuntian Software Technology Ltd., or Yuewu Yuntian, agreed to establish Cyber Cloud in Beijing,
which mainly engages in research and development of cloud computing technology-based digital video delivery solutions. Super TV and Yuewu Yuntian contributed cash of RMB45.0 million (US$6.8 million) and RMB5.0 million
(US$0.8 million), representing 90% and 10% of the equity interest in Cyber Cloud, respectively. Cyber Cloud was formally established on January 19, 2011. Pursuant to a series of agreements dated April 30, 2014, Cyber Cloud acquired a 100%
equity interest in Xinsi Yijia from Yuewu Yuntian and Beijing Holch Capital Investment Center, or Holch Capital, and in exchange, Yuewu Yuntian and Holch Capital obtained certain noncontrolling interests in Cyber Cloud. Moreover, Super TV
transferred its remaining equity interest in Cyber Cloud to CSM Holdings. As a result of these transactions, CSM Holdings, Yuewu Yuntian and Holch Capital held 75%, 15% and 10% of the equity interest in Cyber Cloud, respectively. Xinsi Yijia became
a wholly-owned subsidiary of Cyber Cloud. Beijing Dingyuan Technology Co., Ltd., or Dingyuan, is controlled by Xinsi Yijia through a series of contractual arrangements. Dingyuan is immaterial from a financial perspective.
In April 2011, Super TV and Beijing Ying Zhi Cheng Technology Co., Ltd., or Ying Zhi Cheng Technology, an entity that is held mainly by
employees of Joysee, agreed to establish Joysee in Beijing, which mainly engages in the research and development of advanced digital television terminals. Super TV and Ying Zhi Cheng Technology contributed cash of RMB27.0 million (US$4.2 million)
and RMB3.0 million (US$0.5 million), representing 90% and 10% of the equity interest in Joysee, respectively. Pursuant to an agreement, dated May 24, 2011, among Super TV, N-S Digital TV and Ying Zhi Cheng Technology, N-S Digital TV contributed
RMB6.0 million (US$0.9 million) in cash, representing a 16.7% equity interest in Joysee. Pursuant to an agreement, dated June 13, 2011, among Super TV, N-S Digital TV, Ying Zhi Cheng Technology and Intel Semiconductor (Dalian) Ltd., or Intel, a
wholly-owned subsidiary of Intel Corporation in the PRC, Intel contributed RMB33.0 million (US$5.1 million) in cash, representing a 37.5% equity interest in Joysee. Pursuant to an equity transfer agreement, dated June 13, 2011, between N-S
Digital TV and Intel, Intel transferred 7.5% of its equity investment in Joysee to N-S Digital TV for a nominal consideration. As a result of these transactions, Super TV, N-S Digital TV, Ying Zhi Cheng Technology and Intel each holds a 46.9%,
17.9%, 5.2% and 30% equity interest in Joysee, respectively. In June 2014, Super TV and N-S Digital TV transferred their equity interest in Joysee to N-S Information Technology and Ying Zhi Cheng Technology, respectively. As a result of these
transactions, N-S Information Technology, Ying Zhi Cheng Technology and Intel held 46.9%, 23.1% and 30% of the equity interests in Joysee, respectively. According to the article of association of Joysee, N-S Information Technology is entitled to
recommend for appointment three out of the five members to the board of directors of Joysee. As a result, we are considered to have the ability to control Joysee.
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In June 2011, Super TV and Beijing AirMedia Advertising Co., Ltd., or AirMedia, entered into a
framework cooperation agreement for the establishment of two joint ventures, Shibo Movie and Beijing Xinghe Union Media Co., Ltd., or Xinghe Union, in the PRC, each of which mainly engages in movie-related content sourcing and distribution services.
In December 2011, Super TV, N-S Digital TV and AirMedia entered into a supplemental agreement, pursuant to which Super TV transferred its rights and obligations under the framework cooperation agreement to N-S Digital TV. N-S Digital TV and Air
Media each contributed in cash RMB5.0 million (US$0.8 million), representing 50% of the equity interest in Shibo Movie, and cash of RMB5.0 million (US$0.8 million), representing 50% of the equity interest in Xinghe Union. Shibo Movie and Xinghe
Union were formally established on February 15, 2012 and March 13, 2012, respectively. On September 29, 2013, N-S Digital TV and AirMedia entered into a share swap agreement, pursuant to which N-S Digital TV transferred its equity
interest in Xinghe Union to AirMedia, in exchange for AirMedias equity interest in Shibo Movie. Upon completion of the registration update of Shibo Movie with the relevant PRC authorities in February 2014, Shibo Movie became wholly-owned by
N-S Digital TV. In June 2014, N-S Digital TV transferred its equity interest in Shibo Movie to N-S Information Technology.
In August
2011, Super TV and Beijing Chaoying Weichuang Technology Ltd. agreed to establish Super Movie, which mainly engages in video program delivery services. Super TV and Beijing Chaoying Weichuang Technology Ltd. contributed cash in the amount of RMB13.5
million (US$2.1 million) and RMB1.5 million (US$0.2 million), respectively, representing 90% and 10% of the equity interest in Super Movie, respectively. Super Movie was formally established on September 23, 2011. We decided to discontinue the
business of Super Movie and dissolved Super Movie in November 2013.
Capital Expenditures and Divestitures
See Item 5. Operating and Financial Review and ProspectsB. Liquidity and Capital ResourcesCapital Expenditures for
information concerning our principal capital expenditures for the previous three years and those currently in progress.
On
October 9, 2014, we entered into a share transfer agreement (as amended by a supplementary agreement dated October 27, 2014, the Share Transfer Agreement) with CDTV BVI, Golden Benefit, Cinda Investment and Tongda Venture,
pursuant to which Tongda Venture will acquire a 100% equity interest in Super TV. In connection with the planned sale of Super TV, we entered into certain ancillary agreements to complete the transactions contemplated thereby, including granting
Cinda Investment, the immediate parent of Tongda Ventures, a warrant to purchase our new shares of between US$25 million and US$30 million. The sale of Super TV and related transactions have been approved by the respective board of directors and
shareholders of us and Tongda Venture, and is pending approval from PRC regulatory authorities.
Cinda Investment and Tongda
Venture. Cinda Investment is a wholly-owned subsidiary of China Cinda Asset Management Co., Ltd., or China Cinda (one of the major asset management firms in China), and also the flagship subsidiary of China Cindas investment and asset
management business. With registered capital of RMB2 billion, Cinda Investment is an integrated investment company incorporating alternative asset management, investment and operations in capital markets, real estate, commercial property and hotels.
As China Cindas dedicated investment platform, Cinda Investment specializes in asset management, particularly the management of non-performing assets, with a focus on the real estate and financial sectors. The registered office of Cinda
Investment is at No. 1 Building, No. 9 Naoshikou Street, Xicheng District, Beijing, PRC.
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Tongda Venture was established in 1991 and is listed on the Shanghai Stock Exchange (Ticker:
600647). Cinda Investment is currently the largest and controlling shareholder of Tongda Venture. Tongda Venture currently develops and manages real estate properties in China, and its business covers high-and-new technology investment, industrial
investment and asset management, agricultural development, operation and domestic trade, and food production and sales. The registered office of Tongda Venture is at 24/F, Yinqiao Plaza, No. 58 Jinxin Road, Pudong New District, Shanghai, PRC.
The Transaction Agreements and the Sale of Super TV. Pursuant to the terms of the Share Transfer Agreement, as well as
certain ancillary agreements in connection therewith (the Ancillary Agreements), which consist of a profit compensation agreement dated October 9, 2014 (as amended and supplemented by a supplementary agreement dated October 27,
2014, the Profit Compensation Agreement), a share subscription agreement (the Share Subscription Agreement) dated October 9, 2014, and a framework agreement dated June 13, 2014 (as amended and supplemented by a
supplementary agreement dated October 9, 2014, the Framework Agreement) among all or some of the parties to the Share Transfer Agreement (together with the Ancillary Agreements, the Transaction Agreements; the
transactions contemplated under the Transaction Agreements, the Transaction), we have agreed to sell the Companys CA, Screen Cross and video-on-demand businesses, through the sale of 100% equity interest in our indirectly
wholly-owned subsidiary, Super TV, to Tongda Venture (the sale of Super TV).
Purchase Price. In consideration
of the sale of Super TV pursuant to the Share Transfer Agreement, we will receive a total consideration of RMB3.2 billion, or the Consideration, consisting of:
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77,294,685 shares of Tongda Venture to be issued to Golden Benefit, or the Consideration Shares, at a per share price of RMB10.35, with the aggregate value of RMB800 million; and |
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RMB2.4 billion in cash, or the Cash Consideration. |
Golden Benefit is obligated to compensate
Tongda Venture for any net loss of Super TV during the period from the valuation date, or June 30, 2014, to the closing date, or the date on which Tongda Venture is registered as the shareholder of Super TV, or the Transition Period. In
addition, Golden Benefit is obligated to pay certain compensation amounts under certain situations pursuant to the Profit Compensation Agreement.
To fund the Consideration, Tongda Venture will effect a private placement of its new shares, or the Private Placement. As part of the Private
Placement, the Consideration Shares will be issued pursuant to the Share Subscription Agreement and, upon receipt of the Consideration Shares, Golden Benefit is expected to hold approximately 17.24% of the share capital of Tongda Venture. These
Consideration Shares will be subject to a 36-month lock-up.
The issuance of the Consideration Shares is subject to the following
conditions precedent: (i) the approval by the shareholders and the board of directors of Tongda Venture of the Private Placement; (ii) the internal approval by Golden Benefit pursuant to its organizational documents for its subscription of
the A-shares issued in the Private Placement; (iii) the approval of the relevant authorities of the Private Placement; (iv) the approval by the MOFCOM of Golden Benefits investment in Tongda Venture; (v) the approval by the CSRC
of the Private Placement; (vi) the waiver from the CSRC with respect to any tender offer obligation of Golden Benefit that may be triggered by the Private Placement; (vii) the execution of the Share Subscription Agreement by Tongda Venture
and Golden Benefit; and (viii) the taking effect of the Framework Agreement, the Share Transfer Agreement, and the Profit Compensation Agreement.
Golden Benefit is expected to pay PRC withholding tax at a rate of 10% on the Consideration, subject to the final assessment by PRC tax
authorities under applicable tax laws and regulations in China.
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The Cash Consideration will be settled according to the following schedule: (i) within five
business days upon receiving the funds raised from the Private Placement and the satisfaction of certain tax declaration conditions, Tongda Venture will declare to PRC tax authorities the payment of the applicable PRC withholding tax on behalf of
Golden Benefit; (ii) subject to compliance with any applicable PRC regulations on tax and foreign exchange and within fifteen business days upon paying the aforesaid PRC withholding tax, Tongda Venture will pay no less than 35% of the Cash
Consideration to Golden Benefit; and (iii) within five business days upon the registration of Tongda Venture as the shareholder of Super TV and the satisfaction of certain foreign exchange conditions, Tongda Venture will pay the remainder of
the Cash Consideration, deducted by the applicable PRC withholding tax.
Profit Compensation Scheme. Under the terms of the
Profit Compensation Agreement, in the event that the net profit (before or after adjustment for non-recurring gains and losses, whichever is less) of Super TV in 2014, 2015 and 2016 is less than the profit target (being RMB190.10 million, RMB283.67
million and RMB340.66 million, respectively), Golden Benefit will be obligated to compensate Tongda Venture for the deficiency by transferring its shares in Tongda Venture back to Tongda Venture and/or cash, based on a pre-determined formula.
The formula for compensation in cash is as follows: Compensation Payable of Current Period = (Cumulative Projected Net Profits of Super TV at
the End of Current Period - Cumulative Realized Net Profits (before or after adjustment for non-recurring gains and losses, whichever is less) at the End of Current Period) ÷ Sum of Projected Net Profits of Super TV within the Covered
Period × Consideration - Compensation Already Paid within the Covered Period. Where the compensation payable calculated for each year in the Covered Period per the said formula is negative, no compensation is payable, and the shares and
cash already paid in compensation will not be returned or refunded.
The formula for compensation in shares is as follows: Number of
Compensation Shares of Current Period = Compensation Payable of Current Period ÷ Private Placement Offer Price.
At the end of the
Covered Period, if there is an impairment loss of Super TV and if the amount of such impairment loss is greater than the aggregate compensation already paid by Golden Benefit during the Covered Period, Golden Benefit shall be obligated to compensate
Tongda Venture for such difference in cash or by transferring its shares in Tongda Venture back to Tongda Venture.
Compensation payable
in aggregate under the Profit Compensation Agreement shall be subject to a cap equal to the amount of the Consideration.
We provide a
joint and several guarantee of Golden Benefits obligations under the Profit Compensation Agreement. In the event that all Consideration Shares held by Golden Benefit have been used in compensating Tongda Venture and Golden Benefit fails to
make adequate cash compensation or at all, we will make up for any deficiency.
Use of Proceeds from the Sale of Super TV.
Net proceeds from the sale of Super TV may be used in connection with cash dividend payment, development of new technologies in emerging fields, and investment in operations and other businesses operations. If we decide to pay cash dividends out of
the proceeds from the sale of Super TV during the Covered Period, we may not pay in aggregate more than US$3.33 per share, unless a surety has been placed with Tongda Venture pursuant to the Transaction Agreements. Our board of directors has not
made any decision as to whether to pay a cash dividend, and such decision will be based on what the board determines is in the best interest of CDTV Holding and its shareholders (subject to compliance with Cayman Islands and PRC laws), and the
timing of the payment of a cash dividend may vary depending on a number of factors, including any contingent liabilities such as the potential compensation under the Profit Compensation Agreement or other unforeseen matters. If we elect to pay
a cash dividend, prior to making such cash dividend, we will announce, at least ten days in advance, the record date for such distribution. Only holders of our ordinary shares (the Shares) or ADSs on the record date for a cash
dividend will be entitled to receive a cash dividend. Please note that if we elect to pay a cash dividend, the record date for such cash dividend will be after the completion of the sale of Super TV and is different from the record date for
determining which holders of the Shares are entitled to vote on the matters described in the proxy statement in relation to the sale of Super TV furnished on Form 6-K filed with the SEC on November 10, 2014, or the Proxy Statement.
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Directors and Senior Management following the Sale of Super TV. The board of
directors and senior management of Super TV will remain unchanged following the sale of Super TV and within the Covered Period, namely, 2014, 2015 and 2016.
Upon the consummation of the sale of Super TV, Tongda Ventures board of directors will be increased from six members to nine members,
including three independent directors. Golden Benefit will be entitled to recommend for appointment two directors, and Cinda Investment has agreed to vote in favor of the director candidates recommended by Golden Benefit and their appointment as
members of the Venture and Strategy Committee of Tongda Ventures board of directors. Cinda Investment has also agreed that one or two professional managers, who will be either recommended by Golden Benefit or identified in a process in line
with market practice, will be employed to serve as senior executives of Tongda Venture and to oversee the business related to Super TV.
When the Sale of Super TV is Expected to be Completed. We expect to complete the sale of Super TV as soon as practicable
after all of the closing conditions in the Share Transfer Agreement have been satisfied or waived. We and Tongda Venture are working toward satisfying the conditions to closing and completing the sale of Super TV as soon as reasonably
practicable. However, there can be no assurance that the sale of Super TV will be completed at all or, if completed, when it will be completed.
If the sale of Super TV shall not have been consummated by December 31, 2015, unless all parties agree to extend such deadline, the Share
Transfer Agreement will be automatically terminated.
Representations and Warranties. Golden Benefits representations
and warranties in the Share Transfer Agreement relate to, among other things:
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corporate matters of Golden Benefit, including due organization, qualification and the absence of insolvency proceedings; |
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due authorization of Golden Benefit and the absence of violation of or conflict with its organizational documents, agreements or applicable laws; |
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ownership of Golden Benefit in Super TV; |
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corporate matters of Super TV and its subsidiaries, including due organization, qualification and the absence of insolvency proceedings; |
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assets and businesses of Super TV and its subsidiaries; |
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intellectual property owned by Super TV and its subsidiaries and the absence of infringement of third-party intellectual property; |
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capital expenditure commitments by Super TV and its subsidiaries; |
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the absence of bank borrowings and other liabilities of Super TV and its subsidiaries other than provided in Super TV`s financial statement and the valuation report; |
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Super TVs financial statements; |
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labor and employment matters in respect of Super TV and its subsidiaries; |
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litigation or legal proceedings in respect of Super TV and its subsidiaries; |
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compliance with laws and issuance of permits to Super TV and its subsidiaries; |
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tax matters in respect of Super TV and its subsidiaries; and |
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non-competition matters. |
The representations and warranties made by Golden Benefit were made
as of the date of the Share Transfer Agreement and shall be true and correct in all material respects as of the date of the consummation of the sale of Super TV. Certain of the representations and warranties made by Golden Benefit are qualified by
materiality or material adverse change standard.
Tongda Ventures representations and warranties in the Share Transfer Agreement
relate to, among other things:
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corporate matters of Tongda Venture, including due organization, qualification and the absence of insolvency proceedings; |
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due authorization of Tongda Venture and the absence of violation of or conflict with its organizational documents, agreements or applicable laws; and |
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financial capability to fund the Transaction. |
Covenants. (i) Net
Profit/Loss during the Transition Period. During the Transition Period, if Super TV has net profit (after adjustment for non-recurring gains and losses), then, upon completion of the sale of Super TV, such profit shall belong to Tongda Venture;
if Super TV has net loss, Golden Benefit is required to make up for any difference in the amount of net assets of Super TV during the Transition Period.
Upon the completion of the sale of Super TV, an audit will be conducted to determine the net profit/loss of Super TV during the Transition
Period.
(ii) Conduct of Business Pending the Sale of Super TV. Golden Benefit has agreed that, subject to certain exceptions,
prior to the closing of the sale of Super TV, it will cause Super TV and its subsidiaries to (i) conduct the respective businesses of Super TV and its subsidiaries in the ordinary course of business in a manner consistent with past practices
and (ii) use commercially reasonable efforts to preserve the business operations, organization and goodwill of Super TV and its subsidiaries, and their relationships with customers and suppliers. Golden Benefit will provide information
reasonably requested by Tongda Venture regarding Super TV and its subsidiaries.
Additionally, Golden Benefit has agreed that, subject to
certain exceptions, prior to the closing of the sale of Super TV, it will not permit Super TV or any of its subsidiaries to, other than in the ordinary course of business:
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make any investment, or any acquisition or disposal of material assets; |
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permit any material adverse change in their respective financial condition or indebtedness; |
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waive or assign to any other parties any material right (including creditors rights or security interest); |
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enter into any material contracts, and modify, amend or terminate any existing material contracts (except the implementation of contracts entered into prior to the execution of the Share Transfer Agreement);
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provide loans to any other parties or guarantee any indebtedness; |
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incur any indebtedness or other obligations, or waive any related rights; |
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increase or decrease their respective registered capital; |
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declare, set aside, make or pay any dividend or other distribution to shareholders (except for any dividend or other distribution already declared prior to the execution of the Share Transfer Agreement); or
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take any other actions that may have a material adverse effect on Tongda Ventures financial consolidation of Super TV and its subsidiaries in accordance with the Share Transfer Agreement. |
In addition, Golden Benefit agreed to promptly notify Tongda Venture of any event or occurrence with respect to Super TV and any of its
subsidiaries that would reasonably be expected to have a material adverse effect on the Transaction.
(iii) Covenants by CDTV
Holding. CDTV Holding guarantees the performance of Golden Benefits obligations under the Share Transfer Agreement and the Profit Compensation Agreement.
During the Covered Period, CDTV Holding covenants not to make cash dividends out of the Cash Consideration for an aggregate amount in excess
of US$3.33 per share. Otherwise, in respect of any excess amount of cash dividends out of the Cash Consideration, CDTV Holding shall pay an equal amount to Tongda Venture as surety to secure the potential compensation payments under the Profit
Compensation Agreement.
(iv) Covenants by Cinda Investment. As the controlling shareholder of Tongda Venture, Cinda Investment
agrees to vote in favor of the Transaction and the appointment of the directors recommended by Golden Benefit to the board of directors of Tongda Venture following the sale of Super TV. Cinda Investment would also use its best efforts to cause
Tongda Venture to make timely and full payment of the Consideration.
(v) Covenants by Tongda Venture. Subject to applicable PRC
laws and regulatory requirements for listed companies, Tongda Venture agrees that it would provide certain information (including its audited and unaudited financial statements filed with the Shanghai Stock Exchange) for inclusion in CDTV
Holdings disclosure documents and communications with shareholders (including proxy statements) to CDTV Holding in its ongoing compliance with U.S. securities laws.
Conditions to Closing. The obligations of the parties to consummate the Transaction are subject to the satisfaction or waiver of
the following closing conditions:
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the approval by the shareholders and the board of directors of Tongda Venture of the Private Placement; |
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the approval by the shareholders and the board of directors of CDTV Holding of the Transaction; |
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the completion by Cinda Investment of applicable approval process with respect to the Private Placement; |
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the approval by the MOFCOM of Golden Benefits investment in Tongda Venture; |
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the approval by the CSRC of the Private Placement; |
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the approval by the relevant MOFCOM authority of the Transaction in respect of Super TV. |
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Event of Default. Where the purpose of the Share Transfer Agreement is frustrated
due to any partys non-performance or improper performance of any of its obligations hereunder, any non-breaching party may terminate that agreement, and if the breaching party causes any loss to other parties, it shall fully indemnify such
loss.
Where any loss is caused to Golden Benefit due to any breach of Article 5 (in relation to corporate governance) of the Share
Transfer Agreement by Cinda Investment and/or Tongda Venture, the breaching party or parties shall fully indemnify such loss.
Termination of the Share Transfer Agreement. If the sale of Super TV shall not have been consummated by December 31,
2015, unless all parties agree to extend such deadline, the Share Transfer Agreement will be automatically terminated.
Where a force
majeure event and its effect last for 30 days or longer and cause a party to be unable to continue performing its obligations under the Share Transfer Agreement, any party has the right to terminate the Share Transfer Agreement.
Accounting Treatment. As a result of the sale of Super TV, the assets and liabilities of Super TV will be removed from our
consolidated balance sheet, and a gain or loss that equals the difference between the fair value of the Consideration received and the book value of our ownership interest in Super TV will be recorded in respect of the sale of Super TV.
Material U.S. Federal Income Tax Consequences. If Super TV was classified as a PFIC for U.S. federal income tax purposes at any
time during the holding period of a U.S. holder of ADSs or shares that is treated as owning shares in a PFIC, the sale of Super TV may cause such U.S. taxable investors to be subject to tax under the indirect disposition rules of the PFIC regime
regardless of whether he or she receives any distributions in connection with the sale. Specifically, if that indirect disposition is treated as being made at a gain for U.S. federal income tax purposes, the U.S. holder would be subject to the
excess distribution regime with respect to that gain even if we make no distribution to the U.S. holder with respect to the sale of Super TV.
Under these rules, if you are a U.S. holder:
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this gain would be allocated ratably over your holding period for the ADSs, |
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the amount allocated to the taxable year in which we sell Super TV and years before Super TV was classified as a PFIC with respect to you, if there are any such years, will be taxed as ordinary income,
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the amount allocated to each other prior year will be taxed at the highest tax rate in effect for that year, and |
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the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other prior year. |
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC. Even if you made a
mark-to-market election with respect to your ADSs, this election generally would not apply to your indirect interest in Super TV.
Under
the PFIC rules, if we make distributions in any single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ADSs during the three preceding taxable years or, if shorter, your holding period
for the ADSs, the excess would generally be subject to the same tax rules described above (i.e., the amount would be allocated ratably over your holding period for the ADSs and subject to U.S. tax in the manner described above).
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U.S. holders should consult their own tax advisors about the application of the PFIC rules to the
sale of Super TV, any distributions we make in connection with such sale, the interaction of the excess distribution rules as they apply to indirect dispositions with their application to actual distributions and any special U.S. tax filing
requirements that may arise under the PFIC rules or otherwise as a result of these transactions.
Effects on CDTV Holding if the
Sale of Super TV is Completed and Nature of CDTV Holdings Business Following the Sale of Super TV. If the sale of Super TV is completed, we will no longer conduct our CA, Screen Cross and video-on-demand businesses. Instead, we
will focus on our remaining businesses and interests, which are Cyber Cloud and our 17.24% equity interest in Tongda Venture, and also on development of new technologies in emerging fields and investments in other businesses. The assets of CDTV
Holding that are currently used in connection with Cyber Cloud will not be transferred to Tongda Venture as part of the Transaction.
Following the sale of Super TV, we expect Cyber Cloud to continue to operate in our headquarters in Beijing, China.
Our reporting obligations as a SEC-registered public company will not be affected as a result of completing the sale of Super
TV. However, following the sale of Super TV, our business will be smaller, and therefore we may fail to satisfy the continued listing standards of the NYSE. In the event that we are unable to satisfy the continued listing standards of the
NYSE, our ADSs may be delisted from that market. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Planned Sale of Super TVBecause our business will be smaller following the sale of Super TV, there is a
possibility that our ADSs may be delisted from the NYSE if we fail to satisfy its continued listing criteria.
We also intend to
continue to evaluate and potentially explore other available strategic options. We will continue to work to maximize shareholder interests with a goal of returning value to our shareholders. The sale of Super TV will not alter the rights,
privileges or nature of the issued and outstanding shares of our Company. A shareholder who owns our shares or ADSs immediately prior to the closing of the sale of Super TV will continue to hold the same number of shares or ADSs immediately
following the closing. Our reporting obligations as a SEC-registered public company will not be affected as a result of completing the Transaction.
The transactions contemplated by the Transaction Agreements are not a first step in a going private transaction under Rule 13e-3
promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Effects on CDTV Holding if the Sale of
Super TV is Not Completed. If any of the closing conditions set forth in the Share Transfer Agreement are not satisfied or waived, including if Tongda Venture fails to complete the Private Placement or we are unable to obtain
regulatory clearance (including with limitation by the CSRC and the MOFCOM), we will continue to conduct our CA, Screen Cross and video-on-demand businesses, and we may consider and evaluate other strategic opportunities. In such a
circumstance, there can be no assurances that our continued operation of our CA, Screen Cross and video-on-demand businesses or any alternative strategic opportunities will result in the same or greater value to our shareholders as the sale of Super
TV.
Overview
We are the leading provider of CA systems to the PRCs digital television market. Our CA systems, which consist of smart cards, head-end
software for television network operators and terminal-end software for set-top box manufacturers, enable digital television network operators in the PRC to control the distribution of content and value-added services to their subscribers and block
unauthorized access to their networks. As of December 31, 2014, we had installed CA systems at 436 digital television network operators in 31 of the 32 provinces, autonomous regions and centrally administered municipalities in the PRC. We were
the leading vendor of smart cards for CA systems in terms of smart cards shipped in the PRC in 2014, with a market share of approximately 51.20%, according to Researchdtv. We derive a substantial majority of our revenues from sales of our smart
cards, which accounted for 88.5% and 80.9% of our total revenues in 2013 and 2014, respectively. We expect that the sales of our smart cards will continue to constitute the majority of our revenues in the near future. In addition, we sell advanced
digital television application software such as electronic program guides, or EPGs, and subscriber management systems, or SMSs, to digital television network operators. We are also developing and commercializing certain new solutions and products,
including value-added digital television services, cloud computing technology-based digital video delivery solutions and advanced digital television terminals. Furthermore, we have been installing CA systems outside the PRC since 2010, including
countries such as Myanmar, India and Venezuela.
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PRC television network operators are in the process of migrating from analog to digital
transmissions. We are a primary beneficiary of this transition because CA systems are an essential component of any pay-television platform. We sell our CA systems and digital television application software to PRC television network operators,
including cable, mobile, satellite and terrestrial television network operators, enterprises that maintain private cable television networks within their facilities and media operators.
Our top five customers in terms of revenues in 2014 were Jiangsu Qingda, Sichuan Cable TV Network Co., Ltd., Guangdong Broadcasting TV Network
Co., Ltd., Jiangxi Broadcasting TV Network Co., Ltd. and Fujian Broadcasting TV Network Co., Ltd., which in aggregate contributed 26.9% of our total revenue in 2014.
We were founded in 2004 by Dr. Zengxiang Lu and Jianhua Zhu, who had worked together since 2001 at N-T Information Engineering, one
of the PRCs earliest CA systems vendors. We purchased N-T Information Engineerings CA systems business in 2004 and continued to build upon the strong reputation that business had achieved. We sold 15.3 million,
17.0 million and 15.6 million smart cards in 2012, 2013 and 2014, respectively, and our net revenues were US$88.7 million, US$87.2 million and US$81.5 million in 2012, 2013 and 2014, respectively. Our net income was US$5.5 million, US$22.6
million and US$19.2 million in 2012, 2013 and 2014, respectively.
Our Products and Services
Our core products and services include the following:
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end-to-end CA systems, including smart cards, head-end software and terminal-end software; |
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other digital television application systems for television network operators; and |
CA Systems
Our CA systems consist of: software that is installed at the premises of the television network operator, or the head end; software that is
installed in a set-top box at the subscribers end, or the terminal end; and smart cards that are inserted into the set-top boxes. At both the head end and the terminal end, our CA systems are designed to interface easily with the software and
hardware of as many other vendors as possible. This gives our customers maximum flexibility in selecting the components of their digital transmission systems, and allows us to cooperate with the other vendors in promoting each others products
to the network operators.
Our CA systems give cable television network operators the flexibility to charge subscribers on a per-channel
or per-view basis, and to restrict viewers from making copies of the programs they watch. Our CA systems also support or offer the following functions:
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Video on demand. Video on demand is a system that allows subscribers to select and watch video on demand and provides subscribers with a large subset of personal-video-reorder functions, such as
pause, fast forward, slow forward and jump to previous/future frame. Television network operators need to have two-way transmission capacity in order to apply such systems, which either stream content through a set-top box for viewing in real time,
or download the content to subscribers local storage devices for viewing at any time. |
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Near video-on-demand. Television network operators who do not yet have two-way transmission capacity, which is necessary for full-blown video on demand, can broadcast the same program repeatedly at short
intervals, typically of 10 to 20 minutes, giving subscribers many choices of time to start watching the program. |
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Push video-on-demand. Television network operators who do not yet have two-way transmission capacity can record programs onto subscribers local storage devices based on subscribers
instructions, giving subscribers the flexibility to watch the programs at a time of their own choice. |
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Personal video recorder. A personal video recorder, or digital video recorder, is a device that records video in a digital format to a disk drive or other memory medium within the device. Access to the
contents, such as television programs, recorded in the personal video recorder is controlled by the CA system module and the smart card installed in the personal video recorder. |
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Parental control. Parents can use the set-top box to set viewing controls by creating a password that must be entered to watch television or to watch certain programs, and can block access to the system at
certain hours. |
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Location control. Television network operators can authorize each smart card and set-top box to function only on the premises of the subscriber in whose name the smart card and set-top box are registered,
preventing subscribers from providing their smart cards and set-top boxes to others. |
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E-wallets. Information about pre-payment by subscribers for programs or services can be recorded on their smart cards. As subscribers order programs or services, the fees are deducted from the amounts
recorded on their smart cards. |
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Messaging. Network operators can communicate with their subscribers by transmitting electronic messages about bill status, rate changes and new programs and services to their subscribers televisions.
Network operators also can allow other vendors, such as water or electricity companies, to send billing or other service messages via this messaging platform. |
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Upgrades. CA systems upgrades can be accomplished by transmitting software over the transmission network to the terminal end. |
We guarantee the security of the encryption technologies of our CA systems during the periods generally ranging from one to three years after
sale. In the event of a security problem, we undertake to attempt to resolve the problem by taking steps such as resetting the encryption code or adding additional layers of encryption. If these or other system modifications do not resolve the
problem, we undertake to replace our smart cards. Upon expiration of the applicable period, the customer bears some portion or all of the cost. To date, we have not encountered any material problems with the security of our CA systems.
Smart Cards. Our smart cards are manufactured by third-party manufacturers based on our blueprints, and then are encoded
by us on our premises with security codes unique to each customer. We forward the chips to smart card manufacturers in the PRC, which embed the chips in plastic cards. When we receive the cards from the smart card manufacturers, we program each one
with a unique security code so that it can communicate with the CA systems of its intended network. We currently have enough equipment and trained staff to encode 100,000 smart cards on our premises during an eight-hour shift. An additional layer of
security code is added at the customers premises using software that we install as part of our CA systems.
Our customers generally
wait until after they have purchased, installed and tested our head-end CA systems software before placing purchase orders for smart cards. We may offer discounts for large smart card orders. We sold 15.3 million, 17.0 million and
15.6 million smart cards in 2012, 2013 and 2014, respectively.
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Our smart cards are manufactured to meet the ISO-7816 standard for card readability. We guarantee
the quality of our smart cards for periods generally ranging from one to three years and if any of our cards are found to have defects during the applicable warranty period, we replace them for free. To date, we have not experienced a material rate
of smart card failure.
Head-End Software. Our head-end software includes: an entitlement management message
generator, which notifies the smart card whether the subscriber is entitled to view a program or not; an entitlement control message generator, which sends messages that the set-top box uses to unscramble the digital television signal; and
encryption software, which encrypts the outgoing messages.
Our head-end software also includes simulcryption software that allows network
operators to install parallel CA systems from multiple vendors and transmit their programs to some subscribers using one CA systems security codes and to other subscribers using another CA systems security codes. Many of the cable
television network operators in the PRC who use digital transmission have installed two or more CA systems sourced from different vendors in order to reduce dependency on a single vendor. Moreover, in 2003, the SAPPRFT issued a policy requiring
digital cable television network operators who install non-PRC CA systems to also install a domestic CA system. Our simulcryption software and open-interface technology enable us to work with operators to install parallel CA systems, and we have
integrated our CA systems with those of DVN Holdings Ltd., Sumavision Technologies Co., Ltd., Irdeto Access BV and NDS Group, among others.
As of December 31, 2014, our CA systems had been installed at 436 digital television network operators.
We generally install, customize, test and commission our CA systems over a period of months and train our customers staff to operate it.
Our prices vary according to the size and complexity of each customers network, as well as market conditions. Generally, the contract price is payable in installments with the respective installments due on issuance of
a preliminary acceptance, issuance of a final acceptance or within a certain period thereafter, or, in the case of a single acceptance, due prior, on and/or after the issuance of the acceptance.
Terminal-End Software. We license our CA systems terminal-end software to whichever set-top box manufacturer has been chosen by
our customer to produce set-top boxes compatible with our CA systems. More than 150 set-top box manufacturers in the PRC have installed our technology in their set-top boxes.
Once our customer has selected one or more set-top box manufacturers, the selected manufacturers enter into contracts with us to license our
terminal-end software for use in their manufacturing processes so that their set-top boxes can be used on the planned network. The manufacturers agree to pay us a one-time license fee, including fees for testing and certifying their set-top boxes,
and royalties for each box they manufacture using our software. We have also entered into agreements with certain television network operators who purchase our CA systems pursuant to which the operators agree to pay us royalties for each set-top box
deployed on their networks that uses our CA systems terminal-end software.
Other Digital Television Application Systems for
Television Network Operators
Our other digital television application systems for television network operators primarily include
SMSs, EPGs, Screen Cross and Cyber Cloud Platform.
Subscriber Management Systems. We produce SMS software, which can be
used by television network operators to reduce the cost and improve the efficiency of their subscriber management. Our SMS software is compatible with the CA systems of other vendors, and we sell it on a stand-alone basis as well as packaged with
our CA systems. Our SMS software performs the following functions:
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maintains and updates a database of subscriber information; |
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processes subscriber orders for new services; |
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maintains billing, payment and authorization records and sends e-mail bills and receipts to subscribers; and |
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processes subscriber requests to repair or replace defective or lost set-top boxes or smart cards. |
As of December 31, 2014, our SMS software had been installed by 124 television network operators. Our prices vary according to the size
and complexity of each customers network, as well as market conditions.
Electronic Program Guides. An EPG is an
on-screen guide to the programs and services available to subscribers. Our EPG is a software application that is installed at the head end of a CA system and can be controlled by a remote control. Viewers can use the guide to obtain program
schedules as well as information about specific programs, such as plot descriptions and the names of the cast.
As of December 31,
2014, our EPG software had been installed by 247 television network operators. Our EPG software may be sold together with our CA systems, but it is also compatible with the CA systems of other vendors. When we sell our EPGs packaged with our CA
systems, we provide the same maintenance terms as for the CA systems. Our prices vary according to the size and complexity of each customers network, as well as market conditions.
Screen Cross. A Screen Cross is a digital television broadcast system developed for mobile devices. It transmits digital
television programs through channels in the digital television broadcast system to the Screen Cross gateway, then to mobile devices through wireless local area network, or WLAN. As of December 31, 2014, 17 television network operators from 14
provinces in China had purchased head-end and terminal-end Screen Cross products.
Cyber Cloud Platform. Our Cyber Cloud
Platform provides cloud computing technology-based digital video delivery solutions to television network operators. The working principle of this service is that end users requests are processed on centralized servers known as the
cloud, with content and solutions delivered through the network in the form of audio and video streams that are decoded and presented by the terminal to the end users.
Our Cyber Cloud Platform enables television network operators to use their two-way set-top boxes that have already been installed to run a
large number of value-added applications, such as video games, 3D games, educational applications, and business service applications, which are accessible on smart phones, tablet computers, personal computers, Internet TVs and other devices.
As of December 31, 2014, we have entered into cooperation agreements with over 20 well-known television network operators.
Other Products
We
sell other products sourced from third party suppliers, such as surface mounted device chips.
Surface mounted device chips.
Surface mounted device chips are of similar function as smart cards, except that surface mounted device chips are not embedded in plastic cards. Surface mounted device chips may be packed in different forms and are widely used in different
kinds of terminals. We sold 1.8 million, 0.3 million and 1.0 million surface mounted device chips in 2012, 2013 and 2014, respectively.
Technical Support and Services
We offer
system integration services for television network operators who are digitalizing and installing our CA systems. As system integrators, we purchase additional hardware and software from third parties and integrate it with our CA systems software. If
our customers install multiple CA systems from more than one vendor, we integrate these systems with our own so that all the hardware and software operate as a seamless whole.
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As of December 31, 2014, we had a total of 52 technicians and engineers located in Beijing
and two other cities available 24 hours a day to respond to customer requests for information and assistance. Our two regional service centers are strategically located in eastern (Hangzhou) and southern (Nanhai) China. Each service center maintains
a 24-hour telephone hotline. Upon receiving a call for assistance, our technical support employees first attempt to identify and resolve the problem over the telephone or by accessing the software remotely, and then arrange a site visit if
necessary. In addition, each customer is assigned a project manager who oversees the initial software installation and remains primarily responsible for ensuring that after-sale requests for assistance are handled promptly.
Sales and Marketing
As of
December 31, 2014, we had 153 full-time sales personnel. We maintain regular contact with our customer base through contacts at industry forums and sales visits, and use these opportunities to educate them about digital television systems. We
actively monitor which operators are moving towards digitalization, and when we learn that a particular operator is planning to launch a digital network, we target that operator for more frequent contact by our sales and technical personnel. We
compensate our sales personnel by means of base salaries and performance bonuses.
We also cooperate informally with other providers of
digital television software and hardware with whom we do not compete, such as set-top box manufacturers, to promote each others products to our respective customers, and thereby benefit from each others marketing efforts.
Jiangsu Qingda, a Nanjing-based company, is our exclusive distributor for CA systems and smart cards in Jiangsu Province in eastern China.
Jiangsu Qingda also provides after-sales technical support and maintenance services for our customers in Jiangsu Province. We entered into a 13-year distribution contract with Jiangsu Qingda effective January 1, 2007. We account for revenues
contributed by Jiangsu Qingda in the same way as revenues from our customers who are television network operators. Jiangsu Qingda was our largest contributor to revenues in 2012, 2013 and 2014. In addition to Jiangsu Qingda, we also engage fee-based
sales agents to assist us in selling and maintaining our CA systems and smart cards in designated regions or to designated customers. Such sales agents also provide certain related services, including gathering market
intelligence regarding potential customers and pricing information in the relevant market.
Customers
Our primary customers are cable television network operators. We sell our products and services to networks of all sizes. Our top five
customers in 2014 were Jiangsu Qingda, Sichuan Cable TV Network Co., Ltd., Guangdong Broadcasting TV Network Co., Ltd., Jiangxi Broadcasting TV Network Co., Ltd. and Fujian Broadcasting TV Network Co., Ltd., which contributed 6.4%, 5.7%, 5.6%, 5.0%
and 4.2%, respectively, to our total revenues for the year.
We have also sold our CA systems to:
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satellite and terrestrial television network operators, including the China Central Satellite Television Transmission Center; |
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a commercial satellite transmission platform, namely China Dbstar Co., Ltd.; |
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large enterprises that maintain private cable television networks within their facilities, including the Beijing Capital International Airport and Daqing Oilfield Company Limited, a wholly-owned subsidiary of PetroChina
Company Limited; |
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media operators who use CA systems to encrypt their programs for distribution to television operators, including China DTV Media Inc., Ltd. and Huacheng Digital Movie & TV Co., Ltd.; and |
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a mobile television operator, namely China Broadcasting (Group) Co., Ltd. (formerly known as China Satellite Mobile Broadcasting Corporation or China Broadcasting Co., Ltd.). |
52
We currently derive, and we expect to continue to derive, a significant portion of our revenues
each period from a limited number of large customers, although the particular customers may vary from period to period. As digital cable television systems are at the developing stage in the PRC, the largest shipments of smart cards are to operators
who are launching new digital transmission systems and need to purchase in bulk for their established networks. We may face certain risks from this concentration of revenues. See Item 3. Key InformationD. Risk FactorsRisks
Relating to Our Business and IndustryWe depend, and expect to continue to depend, on a limited number of customers for a significant portion of our revenues in any single period. If one customer defers or cancels its orders or chooses our
competitors products or services, our revenues and net income could decline significantly.
As most cable television network
operators in the PRC are state-owned, they are required to follow a public bidding process for major purchases. As a result, the majority of our CA systems sales are made pursuant to a formal bid process. In such cases, the network operator
generally submits its CA systems requirements to a state-owned bidding company, which posts a request for bids on its website and specifies the necessary financial and technical qualifications of bidders. We are generally required to accompany our
bid with a cash deposit, which generally is from US$300 to US$117,000 and which is refundable in full if we fail to win the sales contract. If we succeed in winning the contract, some network operators require that we leave our deposit in their
account until we have installed and tested our software and the network operator has signed a certificate of acceptance. The time from when a request for bids is posted until a winner is selected is usually one to two months.
Our customers also include set-top box manufacturers, to whom we license terminal-end software for our CA systems. More than 150 set-top box
manufacturers in the PRC, including Shenzhen Jiuzhou Electric Co., Ltd., Shenzhen Skyworth Digital Technology Co., Ltd., Shenzhen Coship Electronics Co., Ltd., Sichuan Changhong Network Technology Co., Ltd. and Huawei Technologies Co., Ltd., have
installed our terminal-end software in their set-top boxes.
Suppliers
Before 2006, we bought most of our computer chips for our smart cards from STM. In order to maintain a secure supply of computer chips,
beginning in 2006 we have purchased a significant portion of our computer chips from Infineon, initially indirectly through AdvanIDe Pte. Ltd. (formerly known as ACG Identification Technologies Asia Pte. Ltd.), an agent of Infineon, and since
February 2009, directly from Infineon.
STM and Infineon produce chips that use our card operating system and deliver them to Beijing by
air freight. We do not have long-term contracts with any of our computer chip suppliers, but place orders according to our customers demands. We pay based upon the prevailing market price at the time of order.
The time required from placing a new chip order with the fabricators to shipping finished smart cards to our customers may be as long as 15
weeks. To ensure that we are able to meet our customers demands, we plan at all times to have enough chips and smart cards on order or in inventory to meet our demand for an average 15-week period.
We have arrangements with a number of smart-card manufacturers, including China Electronics, the China Sciences Group and Beijing Sanyou
Hengrui Technology Co., Ltd., to embed the computer chips into plastic cards. We currently maintain a one-year contract with each of the manufacturers that guarantees us a volume-based price discount for each purchase order and requires the
manufacturer to fulfill our orders in accordance with an agreed schedule. Our contracts with the manufacturers require them to meet the ISO-7816 standard for card readability. In addition, we believe that there are numerous alternative smart-card
manufacturers from whom we would be able to obtain smart cards if any of our current suppliers were unable to meet our needs.
For more
information about risks relating to our relationships with our suppliers, see Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryWe generally do not have long-term contracts with suppliers
of computer chips or the companies that manufacture our smart cards. If any of our computer chip suppliers or smart-card manufacturers is unable to fulfill our orders in time or at all, we may be unable to deliver smart cards to our customers.
53
Competition
We face competition in the CA systems market from both international and domestic companies. We compete on the basis of:
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customer service and technical support; |
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brand name, track record and market recognition; |
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encryption management and other technologies, including our smart cards; |
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the number of set-top box manufacturers with whom we cooperate; and |
Our main international competitors in the CA systems business are Irdeto Access B.V.
and NDS Limited. These companies have longer operating histories and substantially greater financial, technical and other resources than we do, which may enable them to respond more quickly than we could to technological or commercial changes in our
industry. In addition, several of these companies entered the PRC market before us, but have to date been less successful in capturing market share. Historically, these companies have generally focused on sales to the television network operators in
the PRCs largest cities. To the extent that our international competitors may begin targeting small and mid-size television network operators, we believe that we can continue to compete successfully because of our local knowledge and
relationships and our more extensive customer support and service network.
Our main domestic competitors are DVN Holdings Ltd. and
Sumavision Technologies Co., Ltd., both of which are non-state-owned companies operating mainly in the PRC. They may offer their CA systems at a lower price or with a longer credit term than we do. However, we believe that we have more advanced
technology than they do, and that our strong technology and leading market position will enable us to continue to compete successfully against these companies.
According to Researchdtv, we were the leader in the PRC CA systems market in 2013 and 2014. According to Researchdtv, in 2014, we had an
approximately 51.20% market share based on the number of smart cards shipped, followed by DVN Holdings Ltd. with approximately 17.58% market share, Sumavision Technologies Co., Ltd. with approximately 11.51% market share, Irdeto Access B.V. with
approximately 7.68% market share, NDS Limited with approximately 6.12% market share and others accounting for the remaining 5.91%. For more information about risks relating to our competitors, see Item 3. Key InformationD. Risk
FactorsRisks Relating to Our Business and IndustryWe face intense competition, which could reduce our market share and harm our financial performance.
Research and Development
Our success to
date has in large part resulted from our strong research and development capabilities. As of December 31, 2014, our research and development team consisted of 362 employees, compared to 419 as of December 31, 2013 and 439 as of
December 31, 2012. Our research and development expenses increased from US$17.4 million in 2012 to US$19.3 million in 2013, and decreased to US$17.3 million in 2014.
Our business and the market in which we operate are characterized by rapid technological change, evolving industry standards and frequent
product enhancements. As digital broadcasting becomes more popular in the PRC, television network operators are likely to seek more sophisticated CA technology that offers them greater reliability, flexibility and functionality in delivering
protected content or value-added services to viewers. As methods of distributing information and entertainment evolve, CA technology also needs to evolve to provide content protection for distribution platforms other than television. Our continued
success will depend, in part, on our ability to develop and market products and services that respond to technological changes and evolving market demand or industry standards in a timely and cost-effective manner.
54
Many of our current research and development staff are graduates of the PRCs top science
and engineering universities, including Tsinghua University, and have extensive experience in digital television and encryption technologies. Our research team played a leading role in drafting the PRC industry standards for CA systems, EPGs and
other key industry standards. We are active in the China Digital Rights Management Forum, which aims to develop a PRC standard for digital rights management.
Our research and development personnel focus our research on: (1) actively seeking ways to improve the security and reliability of our CA
systems, as well as to prevent content theft at other stages of the television network operators chain of transmission; (2) adapting our CA systems for use on new television platforms, such as satellite television, mobile television, IPTV
and Internet TV; (3) enhancing our CA systems to support applications such as video-on-demand, near video-on-demand, push video-on-demand and personal video recorders; (4) developing new value-added services that will enhance operator
revenues; (5) enhancing Screen Cross to extend television services to mobile phones, tablet computers and other devices, with content protection; (6) developing a new line of products and technologies, including digital rights management products
that allow content providers to control the way their content is distributed and reproduced, such as advanced digital television terminals; (7) applying cloud computing to television applications; and (8) developing our CA systems for use
outside the PRC.
Intellectual Property
We develop all of our software internally, and our proprietary intellectual property is critical to our success. We rely primarily on a
combination of patent, trademark and copyright laws, trade secrets, licenses and employee and third-party confidentiality agreements to safeguard our intellectual property. We generally enter into confidentiality and non-disclosure agreements with
our employees, customers and suppliers.
As of December 31, 2014, we had a total of 93 patents issued and 77 pending patent
applications in the PRC. Our issued patents and pending patent applications relate primarily to digital transmission technologies, encryption and decryption technologies, technologies relating to the production of set-top boxes and smart cards and
technologies relating to value-added services. We have also completed copyright registration of 109 software programs relating to digital television in the PRC.
In August 2008, we acquired from N-T Information Engineering all intellectual property rights relating to the digital watermarking and image
tracing technologies, including one issued patent and five then pending patent applications in the PRC. Four of these pending patent applications relate to the digital watermarking technology, while the remaining pending patent application and the
issued patent relate to the image tracing technology. As of the date of this annual report, these five pending patents have all been issued to us. The digital watermarking technology is aimed to enhance cable television operators counterfeit
tracking and broadcasting restriction capabilities and can also be used to provide anti-piracy and TV rating services. The image tracing technology is used for remote control of personal computers, set-top boxes and televisions as well as gaming
consoles.
When we license our intellectual property to third parties, we generally receive a combination of license fees and royalties.
We mainly license our terminal-end software to the set-top box manufacturers.
We have a non-exclusive license to use the English and
Chinese names for NOVEL-TONGFANG and a graphic logo, free of charge, pursuant to an agreement with N-T Information Engineering. N-T Information Engineering has registered these names and the logo as trademarks. Our term of use
is from June 1, 2004 until such trademark registrations expire at various dates in 2023. In November 2007, we ceased using NOVEL-TONGFANG in N-S Digital TVs name by changing the name from Beijing Novel-Tongfang Digital
TV Technology Co., Ltd. to Beijing Novel-Super Digital TV Technology Co., Ltd. In January 2008, we ceased using the English and Chinese names for NOVEL-TONGFANG as trademarks for our products and we intend not to use
such trademarks in the future. We started to use the English and Chinese names for NOVEL SUPERTV in combination with the graphic logo we licensed from N-T Information Engineering as the trademarks for our products. In December 2008, we
acquired for free the licensed graphic logo from N-T Information Engineering. In 2010, we completed the registration of the trademarks of the English and Chinese names for NOVEL SUPERTV, as well as the trademark for a combination of
Chinese and English names for NOVEL SUPERTV and the graphic logo.
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As of December 31, 2014, we owned 63 trademarks, 53 of which are registered trademarks and
10 of which are in the process of being registered. We have 23 registered domain names, five of which were filed with the Ministry of Industry and Information Technology, or MIIT, including novel-supertv.com and chinadtv.cn.
Insurance
In 2014, we purchased
short-term export credit insurance policies to cover the credit risks we bear in collecting proceeds from certain customers located in overseas markets. Other than these insurance policies, we do not maintain any business insurance or key-man
insurance. Insurance companies in the PRC offer limited business insurance products and, to our knowledge, offer limited business liability insurance. While business disruption insurance is available to a limited extent in the PRC, we have
determined that the risks of disruption, cost of such insurance and the difficulties associated with acquiring such insurance on commercially reasonable terms make it impractical for us to have such insurance. As a result, we do not have any
business liability, disruption or litigation insurance coverage for our operations in the PRC. We also generally do not maintain property insurance, except for insurance that covers the company automobiles.
Employees
We had 778, 722 and 680
full-time employees as of December 31, 2012, 2013 and 2014, respectively. We have no part-time employees. Substantially all of our employees are located in the PRC. The table below shows the number of employees categorized by business area and
as a percentage of our workforce as of December 31, 2012, 2013 and 2014:
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As of December 31, 2012 |
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As of December 31, 2013 |
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As of December 31, 2014 |
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Number |
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% |
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Number |
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% |
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Number |
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% |
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Research and development |
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439 |
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56.4 |
% |
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419 |
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58.0 |
% |
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362 |
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53.2 |
% |
Technical service |
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|
58 |
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|
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7.4 |
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|
|
51 |
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7.1 |
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|
53 |
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|
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7.8 |
|
Sales and marketing |
|
|
168 |
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|
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21.6 |
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|
145 |
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|
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20.1 |
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153 |
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22.5 |
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General and administration |
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|
83 |
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10.7 |
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78 |
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10.8 |
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|
82 |
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12.1 |
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Smart card production |
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|
30 |
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3.9 |
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29 |
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4.0 |
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30 |
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4.4 |
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Total |
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778 |
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100.0 |
% |
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722 |
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|
100.0 |
% |
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680 |
|
|
|
100.0 |
% |
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As required by applicable PRC regulations, we participate in various employee benefit plans that are organized
by municipal and provincial governments, including housing, pension, medical and unemployment benefit plans. We are required under PRC law to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and
certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Members of the retirement plan are entitled to a pension equal to a fixed proportion of the salary prevailing at the members
retirement date. The total contributions made to employee benefit plans in 2012, 2013 and 2014 were approximately US$5.0 million, US$5.7 million and US$5.8 million, respectively.
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Our employees are not represented by any collective bargaining agreements or labor unions. We
believe that we maintain a good working relationship with our employees and we have not experienced any significant labor disputes.
We
typically enter into a standard confidentiality agreement with our employees. We also enter into an agreement with each of our employees giving us full rights to any inventions developed by such persons during the course of their employment by us.
In addition, we enter into a non-competition agreement with each of our executive officers and key research and development personnel. These agreements include a covenant that prohibits each of them from engaging in any activities that directly or
indirectly compete with our business during, and for one year after, the period of their employment with us.
Regulation
We operate substantially all of our business in the PRC and various aspects of our business activities are subject to the laws, rules and
regulations of the PRC, including laws, rules and regulations relating to the encryption industry, the cable television industry and the software industry. These laws, rules and regulations require us to obtain certain licenses and certificates for
our encryption products. In addition, certain laws, rules and regulations of the PRC also affect the rights of our shareholders to receive dividends and other distributions from us. This section summarizes the principal regulations relevant to our
lines of business.
Regulation of Encryption Industry
Encryption software is an essential component of our CA systems. The development, production and sale of commercial encryption products in the
PRC is regulated by the PRC National Encryption Administrative Bureau, or the Encryption Bureau, and its authorized local branches. The principal regulations governing the encryption business in the PRC are the Administrative Regulation for
Commercial Cryptogram promulgated by the State Council in 1999 and a series of rules issued by the Encryption Bureau thereunder.
A
company generally is only allowed to produce and/or sell encryption products that have adopted the algorithms designated by the Encryption Bureau and such products shall also be certified by the Encryption Bureau. The Encryption Bureau did not
initially designate algorithms for CA systems until 2007, and a final and official designation still remains pending. As a result, like many other vendors of CA systems in the PRC, N-S Digital TV has been making and selling CA systems using
algorithms other than those initially designated by the Encryption Bureau. Based on our consultation with the Encryption Bureau, we have no reason to believe, given that N-S Digital TV commenced its CA systems business when the initially designated
algorithms were not yet available, that the Encryption Bureau would impose any sanctions against N-S Digital TV for not using initially designated algorithms in the past. In addition, since the Encryption Bureau did not initially designate any
algorithms for CA systems until 2007 with a final and official designation pending, and algorithms for CA systems other than those initially designated by the Encryption Bureau have been widely used and accepted in the market, the PRC government has
allowed vendors of CA systems a transition period, of a duration yet to be determined at its sole discretion, during which such vendors, including N-S Digital TV, may continue to produce and sell CA systems without using government-designated
algorithms. The PRC government may require vendors of CA systems to adopt the algorithms to be finally and officially designated by the authority at the expiration of such transition period or at any time during the transition period.
In addition, a company engaging in the encryption-related business is subject to certain licensing requirements. For example, a company
engaging in the production of commercial encryption products must obtain a production license from the Encryption Bureau, and a company engaging in the sale and distribution of commercial encryption products must obtain a sales license. In addition,
a company engaging in research and development of commercial encryption systems, protocols, algorithms or technical standards shall obtain a license for research and development from the Encryption Bureau. To obtain such licenses, a company must
meet requirements established by the Encryption Bureau, among other things, with respect to its technological capabilities, its equipment, its production and quality control processes, the level of security of its algorithms and the qualifications
of its employees. Furthermore, both importing and exporting products or equipment containing encryption technologies are subject to the prior approval of the Encryption Bureau.
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In the opinion of Han Kun, our PRC counsel, the business of N-S Digital TV does not require a
license for research and development. N-S Digital TV has engaged in the production and sale of encryption products since its establishment in May 2004, but it did not obtain the license for the production of encryption products until June 2006,
which was renewed in May 2009 and June 2012, and the license for the sale of encryption products until September 2008, which was renewed in September 2011 and September 2014. For risks relating to the potential legal penalties against N-S Digital TV
for its operations prior to its obtaining the production and sales licenses, see Item 3. Key InformationD. Risk FactorsRisk Relating to Our Business and IndustryN-S Digital TV may be deemed not to be in full compliance
with certain legal regulatory requirements relating to the production, sale and export of encryption products, and the relevant PRC government authorities could require N-S Digital TV to cease such activities and impose administrative penalties
including fines, which could have a material adverse effect on our business, financial condition and results of operations.
Furthermore, the Administrative Regulation for Commercial Cryptogram and the Provisions on the Administration of the Use of Commercial
Encryption Products, which became effective in October 1999 and May 2007, respectively, allow users to use only encryption products that are certified by the encryption authority and purchased from vendors who hold an encryption product sales
license. Our CA systems that we currently produce and sell have not been certified by the Encryption Bureau because we have not adopted the government-designated algorithms for those CA systems. We believe that because, in practice, the PRC
government has allowed a transition period, of a duration yet to be determined at its sole discretion, for us to adopt the algorithms to be finally and officially designated by the authority, it is unlikely that the government will enforce the
above-mentioned regulatory requirements with respect to the use or purchase of our CA systems during that transition period. See also Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and
IndustryEnforcement of certain PRC regulatory requirements regarding the use of encryption products may prevent prospective customers from purchasing our CA systems.
Although foreign-invested enterprises incorporated in the PRC, such as our subsidiary, Super TV, are not expressly prohibited from conducting
encryption-related business, they may have difficulties obtaining the licenses or permits required for conducting such business from the Encryption Bureau due to the Encryption Bureaus generally restrictive approach towards foreign
participation in the PRC encryption industry. In light of the above, at the time of the Companys initial public offering, we established and controlled, through contractual arrangements, N-S Digital TV to conduct our CA system business, and
obtained the license for the production and sales of commercial encryption products required for our business. In order to consummate the sale of Super TV to Tongda Venture and meet the CSRCs approval requirements that, among other things,
require that the assets of a China-listed company generally be held and owned by it or its subsidiaries while the contractual arrangements may not be accepted, our contractual arrangements with N-S Digital TV and its nominee shareholders were
terminated, and the 100% equity interest in N-S Digital TV formerly held by the nominee shareholders was transferred to Super TV in June 2014. As a result, N-S Digital TV has become Super TVs subsidiary, a subsidiary of a foreign-invested
company. If the Encryption Bureau determines that the ownership structure of N-S Digital TV is contrary to its generally restrictive approach towards foreign participation in the PRC encryption industry, it may reconsider N-S Digital TVs
eligibility to hold the license to produce and sell commercial encryption products. The Encryption Bureau may revoke, or refuse to renew, N-S Digital TVs licenses to produce and sell commercial encryption products, or refuse to grant any other
encryption-related license that may be required for our business in the future. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryThe structure for operating our business may result in the
relevant PRC government regulators revoking or refusing to renew N-S Digital TVs licenses for the production and sale of commercial encryption products, or refusing to issue any other license required to engage in an encryption-related
business and Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryN-S Digital TV may be deemed not to be in full compliance with certain legal regulatory requirements relating to the
production, sale and export of encryption products, and the relevant PRC government authorities could require N-S Digital TV to cease such activities and impose administrative penalties including fines, which could have a material adverse effect on
our business, financial condition and results of operations.
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Regulation of the Cable Television Industry
The PRC cable television industry, in which most of our customers operate, is subject to extensive government regulation and control. All PRC
cable television network operators are directly or indirectly owned or controlled by provincial or local governments, and their business decisions and strategies are significantly affected by government budgets and spending plans. In April 2005, the
PRC State Council issued a notice to allow domestic private investors to invest in PRC companies engaged in the operation and infrastructure development of cable networks, subject to a 49% ownership cap. Foreign ownership of cable television
networks and stations, however, is still prohibited.
Cable television network operators are subject to the laws, rules and regulations
promulgated from time to time by the State Council, the SAPPRFT and other ministries and government departments. These regulations include the Administrative Regulations for Television Broadcasting promulgated by the State Council in 1997,
the Interim Measures regarding the Management of Cable TV promulgated by a predecessor government agency of the SAPPRFT in 1990 and amended in January 2011, and the Measures Concerning Network Access Certification of Broadcasting and
Television Equipment, which became effective on August 1, 2004. Under these laws, rules and regulations:
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the establishment of a television station or cable television network requires the approval of the SAPPRFT or its relevant local branch; |
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the establishment of a digital pay-television channel requires the approval of the SAPPRFT; |
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basic cable television subscription rates are set by local governments and may not be increased without a public hearing; |
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cable television networks must be designed, constructed and installed by institutions or companies that meet the qualifications set by the SAPPRFT; |
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each province and municipality, respectively, can have only one provincial or municipal cable television network; and |
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various restrictions on television programming must be complied with, including a requirement that television operators shall procure programs only from licensed production companies. |
According to the relevant regulations of the SAPPRFT, cable television network operators may not use any network equipment or system unless
the SAPPRFT has issued a network access certificate with respect to such equipment or system. In determining whether to issue such a certificate, the SAPPRFT reviews the quality assurance system of the relevant manufacturer or vendor and the results
of tests of the equipment or systems. A network access certificate has a term of three years and is subject to annual review by the SAPPRFT or its local branches. N-S Digital TV has obtained network access certificates for our CA systems and SMS
products.
According to a policy introduced by the SAPPRFT in 2003 and the Policies to Encourage the Development of Digital TV
Industry jointly promulgated by SAPPRFT and other government authorities in January 2008, any cable network operator that uses a non-PRC CA system should use such non-PRC CA system together with a PRC CA system when transmitting broadcasting
signals. To satisfy this requirement, a cable network operator that uses a non-PRC CA system must install a parallel PRC CA system. Under these policies, vendors of non-PRC CA systems may sell only to cable network operators that have already
installed a PRC CA system or who are willing to purchase a parallel PRC CA system. This may result in a competitive disadvantage for vendors of non-PRC CA systems relative to vendors of PRC CA systems. Such policies do not expressly indicate whether
the CA systems produced by a foreign-invested company incorporated in the PRC, such as our subsidiary, Super TV, fall into the category of non-PRC CA systems. In light of this ambiguity, at the time of the Companys initial public offering, we
had established N-S Digital TV, which was wholly owned by PRC citizens, to produce and sell our CA systems. In June 2014, our contractual arrangements with N-S Digital TV and its shareholders were terminated, and the 100% equity interest in N-S
Digital TV was transferred to Super TV. There are substantial uncertainties regarding the interpretation and application of the above-described PRC government policies and relevant PRC laws, rules and regulations. Accordingly, the PRC government may
determine that N-S Digital TV is a vendor of non-PRC CA systems because N-S Digital TV is a wholly-owned subsidiary of Super TV, a foreign-invested enterprise, and cable network operators may cancel their orders for our CA systems to avoid being
required to install a parallel PRC CA system, and we may also lose potential customers who are not willing, or have no plan, to install a parallel PRC CA system for economic or other reasons. As a result, our business, financial condition and
results of operations could be materially and adversely affected. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryIf the PRC government determines that N-S Digital TV is a vendor of
non-PRC CA systems by virtue of it being a subsidiary of a foreign-invested company, we could face difficulty selling our CA systems in the PRC.
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Software Products Registration
On March 5, 2009, the MIIT issued the Measures Concerning Software Products Administration, or Software Measures, which became
effective on April 10, 2009 and superseded the prior measures issued in 2000, to regulate software products and promote the development of the software industry in the PRC.
In order to manufacture software products, a software producer must possess the copyright of such software or have obtained a license from a
legitimate copyright owner or licensor in connection with such software. Software producers must censor the content of their software products. Software developers or producers are allowed to sell or license their registered software products
independently or through agents. Software products developed in the PRC may be registered with the local provincial government authorities in charge of the information industry and filed with the MIIT. If no objection is raised within seven business
days from the date of the public announcement made by the MIIT after its receipt of the filing, the software products shall be granted registration certificates. Each registration certificate is valid for five years and may be renewed upon
expiration. Registered software products may be qualified for certain tax and other preferential treatments under the industrial policies. The MIIT and other relevant departments may carry out supervision and inspection over the development,
production, operation and importing and exporting of software products in the PRC. As of December 31, 2014, we had 36 registered software products.
Tax
See
Item 5. Operating and Financial Review and ProspectsA. Operating ResultsTaxes and IncentivesPRC.
Foreign Currency Exchange
Foreign currency exchange in the PRC is primarily governed by the following regulations:
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Foreign Exchange Administration Rules (1996), as amended in 2008; and |
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Regulations of Settlement, Sale and Payment of Foreign Exchange (1996). |
Under the
Foreign Exchange Administration Rules, the Renminbi is freely convertible for current account items, including the distribution of dividends, payment of interest, trade and service-related foreign exchange transactions. Conversion of Renminbi
for capital account items, such as direct investment, loans, securities investment and repatriation of investment, however, is still generally subject to the approval or verification of the SAFE.
Under the Regulations of Settlement, Sale and Payment of Foreign Exchange, foreign-invested enterprises may only buy, sell or remit
foreign currencies at those banks authorized to conduct foreign exchange business after providing valid commercial documents and, in the case of capital account item transactions, obtaining approval from the SAFE. Capital investments by
foreign-invested enterprises outside the PRC are also subject to limitations, which include approvals by the MOFCOM, the SAFE and the National Development and Reform Commission.
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On February 28, 2015, the SAFE promulgated the Notice on Further Simplifying and
Improving Foreign Exchange Policy on Direct Investment, or SAFE Notice 13, which will become effective on June 1, 2015. After SAFE Notice 13 becomes effective, instead of applying for approvals regarding foreign exchange registrations of
foreign direct investment and overseas direct investment from the SAFE as required under current laws, entities and individuals will be required to apply for such foreign exchange registrations from qualified banks. The qualified banks, under the
supervision of the SAFE, will directly examine the applications and conduct the registration.
Stock Incentive Plans
On December 25, 2006, the Peoples Bank of China issued the Administrative Measures on Individual Foreign Exchange Control,
and on January 5, 2007, the SAFE issued the Implementation Rules of the Administrative Measures on Individual Foreign Exchange Control, both of which became effective on February 1, 2007. Under these regulations, all foreign
exchange matters involved in employee share ownership plans, share option plans and other equity incentive plans participated in by PRC individuals are to be transacted upon the approval of the SAFE or its authorized branches.
On February 15, 2012, the SAFE promulgated SAFE Notice 7, which superseded SAFE Notice 78. Under SAFE Notice 7, Domestic Individuals who
are granted stock options or any other stock-related rights and benefits under a stock incentive plan by an overseas-listed company are required, through a Domestic Agent, to register with the SAFE or its authorized local counterparts and complete
certain other procedures. The Domestic Agent is required to submit information relating to a stock incentive plan with the authorized local counterparts of the SAFE within three business days of each quarter and complete foreign exchange
cancellation procedures within 20 business days after the termination of a stock incentive plan.
Dividend Distribution
The principal regulations governing distribution of dividends paid by wholly foreign-owned enterprises include:
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Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000 and 2014; and |
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Wholly Foreign-Owned Enterprise Law Implementation Rules (1990), as amended in 2001 and 2014. |
Under these regulations, wholly foreign-owned enterprises in the PRC may pay dividends only out of their accumulated profits, if any,
determined in accordance with PRC accounting standards and regulations. In addition, according to the PRC Company Law, wholly foreign-owned enterprises in the PRC, like other PRC companies, are required to set aside to fund a statutory
reserve each year at least 10% of their after-tax profit, based on PRC accounting standards, until the cumulative total of such reserve reaches 50% of its registered capital. This reserve is not distributable as cash dividends to equity owners.
Regulation of Foreign Exchange in Certain Onshore and Offshore Transactions
In July 2014, the SAFE issued SAFE Notice 37, to replace the Notice on Relevant Issues Concerning Foreign Exchange Administration for PRC
Residents Engaging in Financing and Roundtrip Investments via Overseas Special Purpose Vehicles, or SAFE Notice 75. SAFE Notice 37 provides that PRC residents, whether natural or legal persons, must register with the relevant local SAFE branch
in connection with establishing or taking control of an offshore entity established for the purpose of overseas equity financing involving legitimate onshore or offshore assets or equity interests held by them. The term PRC legal person
residents as used in the SAFE regulations refers to those entities with legal person status or other economic organizations established within the territory of the PRC. The term PRC natural person residents as used in the SAFE
regulations includes all PRC citizens and all other natural persons, including foreigners, who habitually reside in the PRC for economic benefit.
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PRC residents are also required to complete amended registrations or filing with the local SAFE
branch after any material change in the shareholding or capital of the offshore entity, such as changes of basic information, increase or decrease in investment amount, share transfers or exchanges, and mergers or divisions. On February 28,
2015, the SAFE promulgated the Notice on Further Simplifying and Improving Foreign Exchange Policy on Direct Investment, or SAFE Notice 13, which will become effective on June 1, 2015. After SAFE Notice 13 becomes effective, instead of
applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from the SAFE as required under current laws, entities and individuals will be required to apply for such foreign exchange
registrations, including those required under SAFE Notice 37, from qualified banks. The qualified banks, under the supervision of the SAFE, will directly examine the applications and conduct the registration.
The registration and filing procedures under the SAFE regulations are prerequisites for other approval and registration procedures necessary
for capital inflow from the offshore entity, such as inbound investments or shareholders loans, or capital outflow to the offshore entity, such as the payment of profits or dividends, liquidating distributions, equity sale proceeds, or the return of
funds upon a capital reduction.
Regulation of Overseas Listings
On August 8, 2006, six PRC regulatory agencies, including the MOFCOM, the SASAC, the SAT, the SAIC, the CSRC and the SAFE, jointly adopted
the M&A Rules, which became effective on September 8, 2006 and were amended on June 22, 2009. The M&A Rules, among other things, include provisions that purport to require that an offshore special purpose vehicle formed for the
purpose of an overseas listing of securities in a PRC company and controlled directly or indirectly by PRC companies or individuals obtain the approval of the CSRC prior to the listing and trading of such special purpose vehicles securities on
an overseas stock exchange.
We completed the initial listing and trading of our ADSs on the NYSE on October 11, 2007. We did not
seek CSRC approval in connection with our initial public offering, as we were advised by our PRC counsel that, based on their understanding of the current PRC laws, regulations and rules, because we completed our restructuring before
September 8, 2006, the effective date of the M&A Rules, we were not required by the M&A Rules to apply to the CSRC for approval of the listing and trading of our ADSs on a U.S. stock exchange, unless we were clearly required to do so by
any rules promulgated in the future. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaThe approval of the CSRC might be required in connection with our initial public
offering under certain PRC regulation; failure to obtain this approval, if required, could have a material adverse effect on our business, financial condition, results of operations and reputation as well as the trading price of our ADSs.
Regulations on PRC Foreign Investment
The MOFCOM published the draft Foreign Investment Law in January 2015, aiming to, upon its enactment, replace the trio of existing laws
regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their
implementation rules and ancillary regulations. The draft Foreign Investment Law embodies an expected PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative
efforts to unify the corporate legal requirements for both foreign and domestic investments. The MOFCOM is currently soliciting comments on this draft and substantial uncertainties exist with respect to its enactment timetable, interpretation and
implementation. The draft Foreign Investment Law, if enacted as proposed, may materially impact the viability of our current corporate structure, corporate governance and business operations in many aspects.
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Among other things, the draft Foreign Investment Law expands the definition of foreign investment
and introduces the principle of actual control in determining whether a company should be treated as a foreign-invested enterprise, or an FIE. According to the definition set forth in the draft Foreign Investment Law, FIEs shall refer to
enterprises established in China pursuant to PRC laws that are solely or partially invested by foreign investors. The draft Foreign Investment Law specifically provides that entities established in China (without direct foreign share ownership) but
controlled by foreign investors, via contracts or trust, for example, will be treated as FIEs. Once an entity falls within the definition of FIE, it may be subject to foreign investment restrictions or prohibitions set forth in a
negative list to be separately issued by the State Council at a later date. If the underlying business of an FIE is subject to foreign investment restrictions, it needs to go through a market entry clearance process carried out by the
MOFCOM before the FIE can be established. If the underlying business of the FIE is subject to foreign investment prohibitions, it may not enter such business in China. However, an FIE, during the market entry clearance process, may apply in
writing to be treated as a PRC domestic enterprise if its foreign investor(s) is/are controlled by PRC government authorities and its affiliates and/or PRC citizens. In this connection, control is broadly defined in the draft
law to cover the following summarized categories: (i) holding 50% of more of the voting rights of the subject entity; (ii) holding less than 50% of the voting rights of the subject entity but having the power to secure at least 50% of the
seats on the board or other equivalent decision-making bodies, or having the voting power to exert material influence on the board, the shareholders meeting or other equivalent decision-making bodies; or (iii) having the power to exert
decisive influence, via contractual or trust arrangements, over the subject entitys operations, financial matters or other key aspects of business operations.
The draft also emphasizes the security review requirements, whereby all foreign investments concerning national security must be reviewed and
approved in accordance with the security review procedure. In addition, the draft imposes stringent ad hoc and periodic information reporting requirements on foreign investors and applicable FIEs. In addition to investment implementation reports and
investment amendment reports, which are required for each investment and alteration of investment specifics, an annual report is mandatory, and large foreign investors meeting certain criteria are required to report on a quarterly basis. Any company
found to be non-compliant with these information reporting obligations may potentially be subject to fines and/or administrative or criminal liabilities, and the persons directly responsible may be subject to criminal liabilities.
The draft is now open for public review and comments. It is still uncertain when the draft would be signed into law and whether the final
version would have any substantial changes from the draft. When the Foreign Investment Law becomes effective, the trio of existing laws regulating foreign investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law, the
Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-invested Enterprise Law, together with their implementation rules and ancillary regulations, will be abolished.
C. |
Organizational Structure |
We are a Cayman Islands holding company and conduct
substantially all of our business through our operating subsidiaries in the PRC. We own 100% of the equity interest of CDTV BVI, a BVI holding company, that directly owns 100% of the equity interest of Golden Benefit and CSM Holdings, each a Hong
Kong holding company. Golden Benefit directly owns 100% of the equity interest of Super TV, which owns 100% of the equity interest in N-S Digital TV. CSM Holdings directly owns a 100% and 75% equity interest in N-S Information Technology and Cyber
Cloud, respectively. N-S Information Technology holds a 46.9%, 100% and 100% equity interest in Joysee, N-S Media Investment and Shibo Movie, respectively. And Cyber Cloud holds a 100% equity interest in Xinsi Yijia.
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The following diagram illustrates our corporate structure as of the date of this annual report:
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N-T Information Engineering was established by Tsinghua Enterprise Group, a company
affiliated with Tsinghua University, and Hong Kong-based Tsinghua Novel Hi-Tech Investment Holding Ltd. in July 1998, and initially focused on developing, producing and selling digital data broadcasting equipment for cable television operators. In
December 2002, N-T Information Engineering completed its acquisition of the CA systems-related assets of Tsinghua Tongfang. In March 2004, CDTV BVI was incorporated as a holding company in the BVI. Following the establishment of CDTV BVI, we
restructured our operations in connection with an investment by SAIF. As part of this restructuring, we established Super TV, a wholly-owned subsidiary of CDTV BVI, on May 31, 2004. On the same day, N-S Digital TV was also established. In June
2004, N-S Digital TV acquired from N-T Information Engineering its smart card and CA systems business and, in August 2006, N-S Digital TV acquired from N-T Information Engineering its set-top box design business. In April 2007, a new
holding company, CDTV Holding, was established in the Cayman Islands. In May 2007, CDTV BVI executed a 40-for-1 share split of its ordinary shares and Series A preferred shares. Following this share split, the shareholders of CDTV BVI exchanged
all of their shares of CDTV BVI for shares of CDTV Holding in proportion to their percentage interest in CDTV BVI. As a result, CDTV BVI became a wholly-owned subsidiary of CDTV Holding. As a result of a series of transactions over the years,
Tianxing Wang, Lei Zhang, Shizhou Shen and Wenjun Wang in aggregate owned all of the equity interest of N-S Digital TV.
In order to
benefit from the tax arrangement between the PRC and Hong Kong, in December 2007, CDTV BVI acquired Golden Benefit, a company incorporated in Hong Kong, for a nominal consideration, and transferred its 100% equity interest in Super TV to Golden
Benefit. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaWe may be subject to PRC income tax on our global income, or dividends we receive from our PRC subsidiary may be subject
to PRC withholding tax, depending on whether we are recognized as a resident enterprise in the PRC and Item 5. Operating and Financial Review and ProspectsA. Operating ResultsTaxes and IncentivesTax Arrangement
between the PRC and Hong Kong.
In December 2007, Super TV established a wholly-owned subsidiary, N-S Media Investment, and
transferred the equity interest of N-S Media Investment to N-S Information Technology in June 2014. In February 2008, CDTV BVI established a wholly-owned subsidiary, CSM Holdings, in Hong Kong. In July 2010, we established N-S Investment
Holdings, a wholly-owned subsidiary of Super TV, in the PRC. In June 2014, N-S Investment Holdings was renamed N-S Information Technology, and Super TV transferred its 100% equity interest in N-S Information Technology to CSM Holdings.
In January 2011, we established Cyber Cloud, a subsidiary in which Super TV holds a 90% equity interest, in the PRC. Pursuant to a series of
agreements dated April 30, 2014, Cyber Cloud acquired 100% equity interest in Xinsi Yijia from Yuewu Yuntian and Holch Capital, and in exchange, Yuewu Yuntian and Holch Capital obtained certain noncontrolling interests in Cyber Cloud. Moreover,
Super TV transferred its remaining equity interest in Cyber Cloud to CSM Holdings. As a result of these transactions, CSM Holdings, Yuewu Yuntian and Holch Capital held 75%, 15% and 10% of the equity interest in Cyber Cloud, respectively. Dingyuan
is controlled by Xinsi Yijia through a series of contractual arrangements. Joysee was established in May 2011, and as a result of a series of equity transactions, N-S Information Technology owns a 46.9% equity interest in Joysee. In September 2011,
we established Super Movie, a subsidiary in the PRC in which Super TV holds a 90% equity interest. Super Movie was later dissolved in November 2013. Shibo Movie was established in February 2012 as a joint venture of Super TV and became wholly owned
by N-S Information Technology upon completion of a series of equity transactions in June 2014. See Item 4. Information on the CompanyA. History and Development of the CompanyOur Investments and Acquisitions.
Any cable network operator who uses a non-PRC CA system is required under a policy promulgated by the SAPPRFT to install a parallel PRC CA
system. Under this policy, vendors of non-PRC CA systems may sell only to cable network operators who have already installed a PRC CA system or are willing to purchase a parallel PRC CA system. This may result in a competitive disadvantage for
vendors of non-PRC CA systems relative to vendors of PRC CA systems. Such policy does not expressly indicate whether the CA systems produced by a foreign-invested company incorporated in the PRC, such as our subsidiary Super TV, fall into the
category of non-PRC CA systems. In light of this ambiguity, we established N-S Digital TV in May 2004, which was incorporated in the PRC and wholly owned by PRC citizens, to produce and sell our CA systems to avoid our CA systems being deemed as
non-PRC CA systems. We conduct a significant portion of our operations through N-S Digital TV. Prior to June 2014, we did not directly or indirectly have any equity interest in N-S Digital TV, but Super TV, our wholly-owned subsidiary in the PRC,
had entered into a series of contractual arrangements with N-S Digital TV and its shareholders. As a result of these contractual arrangements, we were considered the primary beneficiary of N-S Digital TV and, accordingly, we consolidated N-S Digital
TVs results of operations in our financial statements.
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Super TV mainly engages in supplying software products relating to smart cards to N-S Digital TV,
providing technical support and related services to N-S Digital TV, and developing technology for use by N-S Digital TV. Specifically, Super TV and N-S Digital TV had entered into the following contracts:
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a products and software purchase agreement, pursuant to which N-S Digital TV purchased from Super TV all software products relating to smart cards required for N-S Digital TVs CA systems; |
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a technical support and related services agreement, pursuant to which Super TV exclusively provided N-S Digital TV and/or its customers with technical support, technical training, personnel services in connection with
N-S Digital TVs marketing activities and services relating to the maintenance and optimization for the products and software of N-S Digital TVs customers at N-S Digital TVs request; |
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a technology license agreement, pursuant to which N-S Digital TV granted Super TV, free of charge, an exclusive license to use certain software copyrights, patents, unpatentable technologies and technical secrets
relating to the digital television business that was transferred from N-T Information Engineering to N-S Digital TV; and |
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a technology development agreement, pursuant to which N-S Digital TV engaged Super TV to develop all technology required by N-S Digital TV or its customers. |
In addition, Super TV had entered into the following agreements with N-S Digital TV and its shareholders that provided us with the ability to
control N-S Digital TV, which were subsequently terminated on June 20, 2014:
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Equity Transfer Option Agreement, pursuant to which the shareholders of N-S Digital TV had jointly granted Super TV or its designated party an exclusive and irrevocable option to purchase all of their equity interests
in N-S Digital TV at any time, and, without Super TVs prior written consent, the shareholders of N-S Digital TV were not permitted to: (1) transfer or pledge their equity interests in N-S Digital TV; (2) cause N-S Digital TV to issue
new shares; (3) receive any dividends, loan interest or other benefits from N-S Digital TV; or (4) make any material adjustment or change to N-S Digital TVs business or operations; |
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Business Operating Agreement, pursuant to which N-S Digital TV and its shareholders agreed to: (1) accept the policies and guidelines furnished by Super TV with respect to the hiring and dismissal of employees, the
operational management and financial system of N-S Digital TV; (2) appoint the candidates recommended by Super TV as directors of N-S Digital TV and appoint the senior management personnel of Super TV as the general manager, chief financial
officer and other senior officers of N-S Digital TV based on Super TVs recommendations; (3) replace or remove a director or senior management personnel of N-S Digital TV upon Super TVs request; and (4) seek a guarantee from
Super TV first when any guarantee is required to secure performance by N-S Digital TV of any contract or working capital loans borrowed by N-S Digital TV; |
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loan agreements, pursuant to which each shareholder of N-S Digital TV had obtained loans from Super TV to fund its contribution to N-S Digital TVs registered capital and had agreed to: (1) not repay the loan
prior to the termination date of the relevant loan agreement, unless so requested by Super TV; and (2) only repay the loan by (i) transferring all its equity interests in N-S Digital TV to Super TV or any third party designated by Super TV
and (ii) paying Super TV with the entire proceeds obtained by it from such transfer; |
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powers of attorney, pursuant to which each shareholder of N-S Digital TV had irrevocably appointed Super TV or one of its directors as their attorneys-in-fact to exercise all its voting rights as shareholders of N-S
Digital TV; and |
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share pledge agreements, pursuant to which each shareholder of N-S Digital TV had pledged all of its respective equity interests in N-S Digital TV to Super TV to secure the performance of its and N-S Digital TVs
obligations under certain contractual arrangements between N-S Digital TV and/or its shareholders and Super TV. |
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For a more detailed description of these contractual agreements, see Item 7. Major
Shareholders and Related Party TransactionsB. Related Party TransactionsSuper TV and N-S Digital TV Arrangements and Item 7. Major Shareholders and Related Party TransactionsB. Related Party
TransactionsShareholder Rights and Corporate Governance.
D. |
Property, Plants and Equipment |
We currently maintain our headquarters and most of our
operations at Jingmeng High-Tech Building B, 4th Floor, No. 5 Shangdi East Road, Haidian District, Beijing 100085, PRC, where we lease 7,747 square meters of office space pursuant to seven short-term lease agreements with the same landlord
for separate portions of the total space. The seven lease agreements are: (1) a lease agreement of N-S Digital TV with respect to an aggregate area of 1,138 square meters for its operational use; (2) a lease agreement of Super TV with
respect to an aggregate area of 1,984 square meters for its operational use and an aggregate area of 140 square meters for storage; (3) a lease agreement of N-S Information Technology with respect to an area of 2,655 square meters for its
operational use; (4) a lease agreement of N-S Information Technology with respect to an area of 480 square meters for its operational use; (5) a lease agreement of Cyber Cloud with respect to an area of 878 square meters for its
operational use; (6) a lease agreement of Xinsi Yijia with respect to an area of 236 square meters for its operational use; and (7) a lease agreement of Dingyuan with respect to an area of 236 square meters for its operational use. All the
lease agreements expired in April 2015. We intend to continue leasing the forgoing space and are currently in the process of finalizing the relevant leasing arrangements with the landlord. In addition, the manufacturing department of N-S Digital TV
is located at Building 4, 2nd Floor, No. 7 Yuexiu Road, Haidian District, Beijing. N-S Digital TV has entered into a lease agreement with another landlord with respect to an aggregate area of 618 square meters for its manufacturing use. That
lease agreement will expire in 2016.
In addition, we lease office space for service and support centers in Hangzhou and Nanhai. We
routinely review our needs for office space in light of the development of our operations. We believe that the office space that we currently lease is sufficient for our current and immediately foreseeable needs. We may lease additional space if
needed in the future.
Item 4A. Unresolved Staff Comments
On September 17, 2014, we received a comment letter from the SEC relating to our annual report on Form 20-F for the fiscal year ended December
31, 2013. On October 27, 2014, we submitted a response letter to the SEC.
On December 10, 2014 and February 5, 2015, we received comment
letters from the SEC relating to issues with respect to our planned sale of Super TV and investment in Tongda Venture as described in the Proxy Statement. We submitted response letters to the SEC on January 8, 2015 and March 18, 2015,
respectively. On April 11, 2015, we received follow-up verbal comments from the SEC on these matters, and we submitted a supplemental response letter to the SEC on April 16, 2015.
As of the date of the filing of this annual report on Form 20-F, we are working on responding to the latest comment letter received from the
SEC on April 22, 2015 concerning these matters. We will continue to cooperate with the SEC to resolve any remaining comments.
Item 5. |
Operating and Financial Review and Prospects |
The following discussion and analysis
should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report. Our audited consolidated financial statements have been prepared in accordance with U.S. GAAP. This discussion
contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information
provided in Item 3. Key InformationD. Risk Factors.
In light of the uncertainties in completing the planned sale
of Super TV, the discussion below has been presented without regard to that pending transaction. Following the planned sale of Super TV (which operates our CA, Screen Cross and video-on-demand businesses) to Tongda Venture, our retained businesses
(other than the approximately 17.24% equity interest in Tongda Venture) will primarily consist of Cyber Cloud, which mainly engages in the research and development of cloud computing technology-based digital video delivery solutions.
67
Overview
We are the leading provider of CA systems to the PRC digital television market. Our CA systems, which consist of smart cards, head-end software
for television network operators and terminal-end software for set-top box manufacturers, enable digital television network operators in the PRC to control the distribution of content and value-added services to their subscribers and block
unauthorized access to their networks. In addition, we sell advanced digital television application software, such as EPGs and SMSs, to digital television network operators.
We sell our CA systems and digital television application software to PRC television network operators, including cable, satellite and
terrestrial television network operators and enterprises that maintain private cable television networks within their facilities. We currently derive, and we expect to continue to derive, a significant portion of our revenues during any given period
from a limited number of customers, primarily cable television network operators who are launching new digital transmission systems, although the particular customers may vary from period to period.
As of December 31, 2014, we had installed CA systems at 436 digital television network operators in 31 of the 32 provinces, autonomous
regions and centrally administered municipalities in the PRC. We have also been installing CA systems outside the PRC since 2010, including countries such as Myanmar, India and Venezuela. We derive a substantial majority of our revenues from sales
of our smart cards, which accounted for 83.3%, 88.5% and 80.9% of our total revenues in 2012, 2013 and 2014, respectively. We sold 15.3 million, 17.0 million and 15.6 million smart cards in 2012, 2013 and 2014, respectively, and our
net revenues were US$88.7 million, US$87.2 million and US$81.5 million in 2012, 2013 and 2014, respectively. Our net income was US$5.5 million, US$22.6 million and US$19.2 million in 2012, 2013 and 2014, respectively.
Among the most significant factors affecting our business, financial condition and results of operations are:
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Progress of continued digitalization and growth of digital television network operators subscriber base in the PRC. On the one hand, our continued success depends on the pace at which PRC television
network operators continue to switch from analog to digital transmission as well as further growth in our customers subscriber base. If the PRC government postpones its target date for digitalization, or our customers fail to roll out
analog-to-digital conversion or attract subscribers to digital television, we may be unable to sustain or grow our revenues. On the other hand, as digitalization progresses, the number of cable TV operators who have not switched to digital
transmission and thus are potential customers of our CA systems and smart cards is decreasing. |
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Pricing. The business in which we operate is subject to intense competition, particularly with respect to pricing of our products and services. Our customers generally expect to receive volume-based
discounts from us, and we may be required to reduce prices for large purchases or if competition intensifies. |
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Purchasing patterns of our customers. Our customers generally purchase smart cards from us based on the number of digital television subscribers they expect to add in the immediate near term, resulting in
significant fluctuations in our revenues from period to period due to the uncertainty of both the timing and the amount of such customer orders. |
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Ability to respond effectively to technological and commercial changes. Our business and the market in which we operate are characterized by rapid commercial and technological change, evolving industry
standards and frequent product enhancements. Our continued success will depend, in part, on our ability to continue developing and marketing products and services that respond to technological changes and evolving market demand or industry standards
in a timely and cost-effective manner. |
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Cost structure. Our profitability also depends on the cost structure of our operations, including, among other things, the costs of computer chips sourced from third-party suppliers and personnel costs.
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In addition to the factors discussed above, our reported results are also affected by the
fluctuations in the value of the Renminbi against the U.S. dollar, as our reporting currency is the U.S. dollar while the functional currency of our subsidiaries and variable interest entities in China, which operate substantially all of our
business, is the Renminbi. In 2012 and 2013, the Renminbi appreciated against the U.S. dollar by approximately 1.0% and 2.8%, respectively, and in 2014, the Renminbi depreciated against the U.S. dollar by approximately 2.5%. The appreciation of the
Renminbi against the U.S. dollar contributed to the increase in our net income reported in U.S. dollar terms in 2012 and 2013, respectively, and the depreciation of the Renminbi against the U.S. dollar contributed to the decrease in our net income
reported in U.S. dollar terms in 2014. For additional information relating to the fluctuations in the value of the Renminbi against the U.S. dollar, see Item 3. Key InformationA. Selected Financial DataExchange Rate
Information, Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaFluctuations in exchange rates could result in foreign currency exchange losses and Item 11.
Quantitative and Qualitative Disclosures About Market RisksForeign Currency Risk.
Our business is managed as a single
operating segment. Our management reviews our consolidated results of operations prepared in accordance with U.S. GAAP when making decisions about allocating our resources and assessing our performance.
Revenues
We derive revenues primarily
from the following two sources:
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Products. We currently derive a substantial majority of our revenues from sales of smart cards and other products to digital television network operators. Smart cards are an essential part of our CA
systems. Our customers purchase our smart cards for distribution to and use by their subscribers in their set-top boxes. Revenues from the sales of our smart cards account for substantially all of our revenues from the sales of our products. In
addition, we also sell small quantities of other products, such as surface mounted device chips and Screen Cross. |
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Services. We derive revenues from providing head-end system integration services and head-end system development services to digital television network operators, collecting licensing fees and/or royalty
income from set-top box manufacturers and digital television operators. Our head-end system integration services involve providing head-end software, hardware and related system integration services to our customers. Head-end software mainly
consists of software for CA systems, SMSs and EPGs. Our head-end system development services involve the development of customized digital television-related software applications for our customers. In addition, we provide set-top box manufacturers
with our CA system terminal-end software that enables them to manufacture set-top boxes compatible with our CA systems, and receive one-time licensing fees as well as royalties from such set-top box manufacturers. |
In certain circumstances, we receive royalties from digital television network operators who purchase smart cards for use with set-top boxes
that were manufactured using our CA system terminal-end software, in lieu of collecting royalties from the relevant set-top boxes manufacturers. We include such royalty income as part of the revenue from sales of the related smart cards.
Revenues from the sales of our products and services accounted for 88.6% and 11.4%, respectively, of our total revenues in 2014 compared to
93.8% and 6.2%, respectively, of our total revenues in 2013. Our revenues also include certain refunds of value-added taxes from PRC tax authorities that we previously paid with respect to some of our software products. See Item 5.
Operating and Financial Review and ProspectsA. Operating ResultsTaxes and IncentivesPRCValue-Added Tax and Business Tax below for more information.
69
Our net revenues represent total revenues less PRC business tax and related surcharges. See
Item 5. Operating and Financial Review and ProspectsA. Operating ResultsTaxes and IncentivesPRCValue-Added Tax and Business Tax below for more information.
Cost of Revenues
Cost of revenues
primarily includes: costs of raw materials, such as computer chips manufactured by third-party suppliers and used in our smart cards and other products; personnel costs directly relating to provision of our services; warranty costs relating to our
smart card sales; depreciation and amortization costs; share-based compensation allocated to the production and processing of our smart cards and other products; fees paid to our sales agents; and other miscellaneous costs. These costs are allocated
to our two types of revenue-generating activities as their respective cost of revenues. Cost of revenues related to the sales of our products and to the sales of our services accounted for 76.0% and 24.0%, respectively, of our total cost of revenues
in 2014 compared to 78.5% and 21.5%, respectively, of our total cost of revenues in 2013. As a percentage of our net revenues, cost of revenues decreased from 24.9% in 2013 to 22.4% in 2014.
Gross Profit and Gross Margin
Gross
profit is equal to net revenues less cost of revenues. Gross margin is equal to gross profit divided by net revenues. Our gross margin was 76.5%, 75.1% and 77.6% in 2012, 2013 and 2014, respectively. The increase in our gross margin from 2013 to
2014 was mainly due to a decrease in cost of revenues relating to inventory write-downs with respect to surface mounted chips, video-on-demand and other products.
The average unit cost of our smart cards in U.S. dollar terms decreased by approximately 14.5% from 2012 to 2013 and increased slightly by
1.3% from 2013 to 2014.
Operating Expenses
Our operating expenses consist of research and development expenses, selling and marketing expenses and general and administrative expenses.
Each of these components of our operating expenses includes a portion of our total share-based compensation expenses, which are generally allocated according to the functions of those individuals who received share-based awards.
Research and Development Expenses. Research and development expenses consist primarily of costs associated with the design,
development and testing of our products and technologies. Among other things, these costs include compensation and benefits for our research and development staff, rental for our office premises used for research and development activities,
depreciation expenses related to equipment used in research and development activities, expenditures for purchases of supplies and other relevant costs. Compensation and benefits for our research and development staff accounted for the majority of
our research and development expenses. Research and development expenses as a percentage of our net revenues were 22.1% and 21.2% in 2013 and 2014, respectively.
Selling and Marketing Expenses. Selling and marketing expenses consist primarily of compensation and benefits for our sales and
marketing staff, expenses for promotional, advertising, travel and entertainment activities, marketing-related consulting fees, expenditures for purchases of supplies and amortization of intangible assets. Selling and marketing expenses as a
percentage of our net revenues were 17.2% and 17.0% in 2013 and 2014, respectively.
General and Administrative Expenses.
General and administrative expenses consist primarily of compensation and benefits for our general management, finance and administrative staff, professional advisory fees, depreciation and amortization with respect to equipment used for general
corporate purposes, rental costs for our office premises used by general management, finance and administrative staff, and other expenses incurred in connection with general corporate purposes. General and administrative expenses as a percentage of
our net revenues were 11.4% and 13.4% in 2013 and 2014, respectively.
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Share-Based Compensation Expenses. We account for share-based compensation expenses
based on the fair value of share option grants at the date of grant.
We adopted our 2005, 2008, 2010 and 2012 Stock Incentive Plans in
February 2005, September 2007, November 2010 and May 2012, respectively, and options to purchase an aggregate of 4,471,431 ordinary shares have been granted and were outstanding under the plans as of March 31, 2015. We incurred
share-based compensation expenses of US$2.6 million, US$2.3 million and US$1.7 million in 2012, 2013 and 2014, respectively. For additional information regarding our share-based compensation expenses, see Note 20 to our consolidated financial
statements included elsewhere in this annual report.
The table below shows the allocation of share-based compensation charges to cost of
revenues and our operating expense line items for the periods indicated:
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For the years ended December 31, |
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Share-Based Compensation Related to: |
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2012 |
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2013 |
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2014 |
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(In thousands) |
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Cost of revenues |
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US$ |
5 |
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US$ |
41 |
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US$ |
12 |
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Research and development expenses |
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552 |
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380 |
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98 |
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Selling and marketing expenses |
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356 |
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492 |
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130 |
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General and administrative expenses |
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1,701 |
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1,358 |
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1,459 |
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Total |
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US$ |
2,614 |
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US$ |
2,271 |
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US$ |
1,699 |
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Income from Operations
Income from operations represents gross profit less operating expenses.
Non-operating Income/(Expenses)
Non-operating income/(expenses) includes interest income/(expense), gain from foreign currency forward contracts, impairment loss on long-term
investments and other income/(expense), each as presented in our consolidated statements of comprehensive income. Our interest income was US$6.3 million, US$1.9 million and US$1.3 million in 2012, 2013 and 2014, respectively. We had interest expense
of US$0.7 million, nil and nil in 2012, 2013 and 2014, respectively. We recorded a loss from foreign currency forward contracts of US$0.7 million in 2012. Our impairment loss on long-term investments was US$4.5 million, nil and nil in 2012, 2013 and
2014, respectively. We also had other income of US$0.5 million, US$0.5 million and US$3.1 million in 2012, 2013 and 2014, respectively.
Critical
Accounting Policies
We prepare our financial statements in conformity with U.S. GAAP, which requires us to make estimates and
assumptions that affect our reporting of, among other things, assets and liabilities, contingent assets and liabilities and revenues and expenses. We continually evaluate these estimates and assumptions based on the most recently available
information, our own historical experiences and other factors that we believe to be relevant under the circumstances. Since our financial reporting process inherently relies on the use of estimates and assumptions, our actual results could differ
from what we expect. This is especially true with some accounting policies that require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our consolidated
financial statements because they involve the greatest reliance on our managements judgment.
Revenue
Recognition
We derive revenues primarily from two sources: (1) sales of products, including smart cards and other
products sourced from third-party suppliers, such as surface mounted device chips; and (2) provision of services, including head-end system integration services, head-end system development services and CA system terminal-end software that
generate licensing income and royalty income.
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For sales of our products, we recognize revenue when the products are delivered to and received
by customers.
Our head-end integration services primarily involve provision of our head-end software, third-party hardware and software,
related installation and integration services, training and post-contract customer support, or PCS, including telephone support and bug-fixing. Our head-end system development services involve the development of customized digital television
technology-related software applications. Head-end software offered by us includes CA systems head-end software, SMS software and EPG software.
We sign head-end system integration contracts with cable television network operators to install and integrate our software with third-party
hardware and software. Once the service is substantially completed, customers will issue a preliminary acceptance, while a final acceptance is usually issued six months to one year after the issuance of preliminary acceptance if no major technical
problems are discovered. In the majority of our head-end system integration contracts, we offer free PCS for one year, beginning from preliminary acceptance by customers. Based on historical information, we believe that a final acceptance is not a
significant event because essentially all the services we were obligated to provide have been delivered and all technical problems, if any, have been detected at the point of the preliminary acceptance by the customer and the cost of additional work
between a preliminary acceptance and a final acceptance has historically been insignificant.
With respect to the contracts in which we
offer free PCS for one year or less, we recognize revenue when all installation and integration services are completed, which is generally indicated by obtaining the preliminary acceptances from customers. With respect to contracts in which we offer
free PCS for more than one year, although the costs incurred during the PCS term have historically been insignificant, we defer the revenue and ratably recognize it over the PCS term. Where we offer PCS for an unspecified period, we ratably
recognize the relevant revenue over the estimated useful life of our CA systems, which we determined to be five years.
With respect to
our head-end system development services, we use the completed-contract method to recognize revenue when the software application development is finished and accepted by customers, as we currently do not have a reliable mechanism to measure the
progress toward completion of the service.
We receive licensing fees from set-top box manufacturers who license our CA systems
terminal-end software, and we are also entitled to receive royalties from them based on the quantity of set-top boxes manufactured under such licenses. Royalty income is recognized upon receipt of sales reports from the set-top box manufacturers and
when payment is received, while licensing income is recognized upon the issuance of certificates to the set-top box manufacturers by us.
Goodwill
The excess of the purchase price over the fair value of net assets acquired is recorded on the consolidated balance sheet as goodwill. Goodwill
is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the stock prices, business climate, legal factors, operating performance
indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test
requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Estimating fair value
is performed by utilizing various valuation techniques, with a primary technique being a discounted cash flow which requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of
the long term rate of growth for the Companys business, estimation of the useful life over which cash flows will occur, and determination of the Companys weighted average cost of capital.
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In the evaluation of the goodwill for impairment, the Group may first assess qualitative factors
to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is more
likely than not that the fair value of a reporting unit is less than its carrying amount, goodwill is then tested following a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill.
If the fair value of each reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the
implied fair value of goodwill to the carrying value of a reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value
determined in the first step to the assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is
recognized for any excess in the carrying value of goodwill over the implied fair value of goodwill. The Group has determined to perform the annual impairment test on December 31 of each year. The Group did not incur any impairment loss on goodwill
for the years ended December 31, 2012, 2013 or 2014.
Allowance for Doubtful Accounts
We perform ongoing credit evaluations of our customers and generally do not require collateral on accounts receivable. We maintain an allowance
for doubtful accounts primarily based upon the aging analysis of the receivables and factors surrounding the credit risk of specific customers.
Consolidation of Variable Interest Entity
Historically, we had conducted substantially all of our business through our operating subsidiary, Super TV, and our variable interest entity,
N-S Digital TV, which was wholly owned by PRC citizens until the end of June 2014.
Since the establishment of N-S Digital TV, we had
designed the structure such that Super TV was the primary beneficiary of N-S Digital TV:
(a) the nominee shareholders of N-S Digital TV
lacked direct or indirect ability to make decisions regarding the activities of N-S Digital TV that could have a significant impact on the economic performance of N-S Digital TV. All of the voting rights of N-S Digital TVs nominee shareholders
had been transferred to Super TV such that Super TV had effective control over N-S Digital TV; and
(b) the nominee shareholders of N-S
Digital TV did not have the right to receive the expected residual returns of N-S Digital TV, while such right had been transferred to Super TV such that Super TV was the primary beneficiary of N-S Digital TV.
In order to achieve such purpose, we had entered into a series of contractual agreements with N-S Digital TV and/or its nominee shareholders,
including technical support and related services agreement, technology license agreement, technology development agreement, products and software purchase agreement, Equity Transfer Option Agreement, Business Operating Agreement, loan agreements,
share pledge agreements and powers of attorney. Through those contractual arrangements, Super TV had the right to: (i) exercise 100% of the voting rights of N-S Digital TVs shareholders and (ii) nominate the members of N-S Digital
TVs board of directors and senior management. As a result, Super TV had the power to direct the activities of N-S Digital TV that most significantly impact N-S Digital TVs economic performance, including the power, pursuant to the
articles of association of N-S Digital TV, to: (i) approve the operating strategy and investment plan of N-S Digital TV; (ii) elect the members of N-S Digital TVs board of directors and approve their compensation; and
(iii) review and approve N-S Digital TVs annual budget and earnings distribution plan. In addition, Super TV had an exclusive and irrevocable option to purchase all of N-S Digital TVs shareholders equity interests in N-S
Digital TV at any time. We believe we had substantive kick-out rights pursuant to the terms of the Equity Transfer Option Agreement, and that the terms of the Equity Transfer Option Agreement were exercisable and legally enforceable under existing
PRC laws, rules and regulations. As a result, we believe the rights of the shareholders of N-S Digital TV effectively accrued to us. Furthermore, the fees we received from N-S Digital TV under these contractual arrangements were determined by Super
TV and may be adjusted by Super TV. For a description of these contractual arrangements, see Item 7. Major Shareholders and Related Party TransactionsB. Related Party Transactions.
We had evaluated the VIE structure and concluded that through these contractual arrangements, we had the ability to effectively control N-S
Digital TV and its subsidiaries as well as to receive substantially all the economic benefits of those entities. As a result, we were considered the primary beneficiary of N-S Digital TV, and N-S Digital TV and its subsidiaries were our variable
interest entities under U.S. GAAP and we consolidated their financial results and assets and liabilities in our consolidated financial statements. As a result of a restructuring in June 2014, these contractual arrangements were terminated and N-S
Digital TV became an indirectly wholly-owned subsidiary of ours.
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Income Taxes
Deferred income taxes are provided using the asset and liability method. Under this method, deferred income taxes are recognized based on net
operating losses available for carry-forwards and significant temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis using enacted tax rates in effect for the years in
which the differences are expected to reverse. Deferred tax assets and liabilities are classified as current or non-current based upon the classification of the related asset or liability in the financial statements or the expected timing of their
reversal if they do not relate to a specific asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all of, the deferred tax assets will not
be realized.
Income taxes are provided for in accordance with the laws, rules and regulations applicable to the relevant companies as
enacted by the relevant tax authorities. The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit of the relevant tax authority. An
uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
Inventories
Inventories are stated at the lower of cost or market value. Cost is determined using the weighted average method. Inventories are written
down for provisions for obsolescence to net realizable value based upon estimates of future demand, technology developments, and market conditions.
Recently Issued Accounting Pronouncements Not Yet Adopted
See Note 2(dd) to our consolidated financial statements included elsewhere in this annual report for recently issued accounting standards that
we believe may have implications on our consolidated financial statements for future periods.
Taxes and Incentives
Cayman Islands, British Virgin Islands and Hong Kong
Our company, as an exempted company incorporated in the Cayman Islands, and CDTV BVI, our wholly-owned subsidiary incorporated in BVI, are not
subject to any income or capital gains tax under the current laws of the Cayman Islands and BVI. Golden Benefit and CSM Holdings, our indirectly wholly-owned subsidiaries incorporated in Hong Kong, were subject to 16.5% Hong Kong profits tax in
2012, 2013 and 2014 on their activities conducted in Hong Kong.
PRC
Our subsidiaries, our variable interest entity and the subsidiaries of our variable interest entity operating in the PRC are subject to PRC
taxes as described below:
Enterprise Income Tax. Prior to January 1, 2008, the effective date of the 2008 EIT Law,
both domestic and foreign-invested enterprises were generally subject to an enterprise income tax rate of 33% in the PRC under the relevant tax laws then effective. Effective from January 1, 2008, the 2008 EIT Law imposes a tax rate of 25% on
all enterprises, including foreign-invested enterprises, and terminates many of the tax exemptions, reductions and preferential treatments available under previous tax laws and regulations. However, under the 2008 EIT Law, enterprises that were
established before March 16, 2007 and already enjoy preferential tax treatments will continue to enjoy them (1) in the case of certain preferential tax rates that are specified by tax legislation, for a transition period of five years from
January 1, 2008 or (2) in the case of tax exemption or reduction for a specified term, until the expiration of such term.
74
Each of N-S Digital TV and Super TV was entitled to income tax exemption during the three years
from 2004 through 2006, and a 50% reduction of income tax during the subsequent three years from 2007 through 2009. In addition, under the 2008 EIT Law, high-and-new technology enterprises strongly supported by the State are entitled to
a preferential tax rate of 15%. In December 2008, N-S Digital TV and Super TV successfully obtained their respective high-and-new technology enterprise certificates under the 2008 EIT Law and were therefore recognized as high-and-new
technology enterprises strongly supported by the State and qualified for a preferential tax rate of 15% in each of 2008, 2009 and 2010. In October 2011, N-S Digital TV and Super TV successfully renewed their respective high-and-new technology
enterprise certificates and qualified for a preferential tax rate of 15% for another three years from 2011 to 2013. In 2010, Super TV was designated as a key software enterprise by the relevant PRC government authorities and, as a
result, qualified for a preferential tax rate of 10% for that year. In March 2013, Super TVs re-application for the key software enterprise designation for the year of 2011 and 2012 was approved by the relevant PRC government
authorities. As a result, Super TV would qualify for the 10% preferential tax rate for 2011 and 2012 retroactively. In December 2013, Super TV continued to be designated as a key software enterprise and enjoyed the preferential tax rate
of 10% in 2013 and 2014. In October 2014, N-S Digital TV and Super TV successfully renewed their respective high-and-new technology enterprise certificates and qualified for a preferential tax rate of 15% for another three years from 2014 to 2016.
In October 2014, Cyber Cloud also obtained its high-and-new technology enterprise certificate and qualified for a preferential tax rate of 15% for three years from 2014 to 2016.
Each of N-S Media Investment, N-S Information Technology, Guangdong R&D, Joysee, Super Movie, Shibo Movie and Xinsi Yijia was subject to
an enterprise income tax rate of 25% in each of 2012, 2013 and 2014. Dingyuan has been subject to the statutory tax rate of 25% since its establishment in 2013.
In addition, under the 2008 EIT Law, an enterprise established under the laws of a foreign country or region whose de facto management
body is located within the PRC territory is considered a resident enterprise and will generally be subject to the enterprise income tax at the rate of 25% on its global income as well as PRC enterprise income tax reporting obligations.
According to the Implementation Rules, de facto management body refers to a managing body that exercises, in substance, overall management and control over the production and business, personnel, accounting and assets of an enterprise.
SAT Notice 82 provides for certain specific criteria for determining whether the de facto management body of a Chinese-controlled offshore enterprise is located in the PRC. In addition, SAT Bulletin 45, which became effective on
September 1, 2011, provides guidance on the implementation of SAT Notice 82. SAT Bulletin 45 clarifies certain issues relating to: (i) the determination procedures of PRC resident enterprise status and (ii) tax registration and other
related procedures for PRC resident enterprises. SAT Bulletin 45 also provides that if an offshore PRC resident enterprise presents a copy of the Chinese tax resident determination certificate issued by the competent tax authorities to a payer of
PRC-sourced dividends, interest, royalties and other income, such payer shall not withhold income tax on these payments to the offshore PRC resident enterprise. We believe that we are not a PRC resident enterprise with reference to the criteria set
forth in SAT Notice 82. However, if we were to be considered as a PRC resident enterprise, we would be subject to the enterprise income tax at the rate of 25% on our global income as well as PRC enterprise income tax reporting obligations. See
Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaWe may be subject to PRC income tax on our global income, or dividends we receive from our PRC subsidiary may be subject to PRC
withholding tax, depending on whether we are recognized as a resident enterprise in the PRC. In addition, the 2008 EIT Law and the Implementation Rules provide that a withholding tax of 10% (which may be reduced by the relevant tax treaties
between the PRC and other jurisdictions) will generally be applicable to dividends payable to non-resident enterprises, and, unlike the prior tax law, does not specifically exempt corporations that pay dividends from withholding all or part of such
income tax when they pay dividends to their non-resident investors. To the extent we are not considered as a PRC resident enterprise or dividends paid from our PRC operating subsidiary are not deemed as dividends among qualified PRC resident
enterprises, the dividends our PRC subsidiary pays to us will be subject to this withholding tax. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaWe may be subject to PRC
income tax on our global income, or dividends we receive from our PRC subsidiary may be subject to PRC withholding tax, depending on whether we are recognized as a resident enterprise in the PRC. In addition, this withholding tax may also
apply to dividends we pay to our non-PRC individual shareholders if we were to be considered as a PRC resident enterprise. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of
ChinaDividends payable by us to our non-PRC shareholders and ADS holders, and gains on the sales of our ordinary shares or ADSs, may be subject to withholding taxes under PRC tax laws, which may materially reduce the value of your
investment.
75
Value-Added Tax and Business Tax. We are subject to value-added tax, or VAT, at the
rate of 17% on the sales of our products. Pursuant to a PRC tax policy intended to encourage the development of software and integrated circuit industries and a notice jointly issued by the PRC Ministry of Finance and the SAT in October 2011, each
of N-S Digital TV and Super TV is entitled to a refund of VAT paid at a rate of 14% (i.e., the excess of the effective VAT rate over 3%) of the sale value of some of our software products. The amount of VAT refund included in our total revenues was
US$7.4 million, US$6.6 million and US$5.4 million in 2012, 2013 and 2014, respectively, accounting for 8.2%, 7.5% and 6.6%, respectively, of our total revenues in the corresponding periods. We include such refunds in the total revenues in our
consolidated statements of comprehensive income included elsewhere in this annual report. The VAT refund benefits have been renewed for N-S Digital TV and Super TV from January 1, 2011.
On November 16, 2011, the Ministry of Finance and the SAT issued a pilot tax program under which business tax will be replaced with VAT
for certain pilot industries, including, among others, transportation services, research and development and technical services, information technology services and cultural and creative services. The pilot VAT program initially applied only to the
pilot industries in Shanghai and has been subsequently expanded to eight additional regions, including, among others, Beijing and Guangdong province. Since August 1, 2013, the pilot VAT program has been further expanded nationwide. N-S Digital
TV, Super TV and each of Super TVs and N-S Digital TVs subsidiaries have been recognized as VAT taxpayers since September 1, 2012 or November 1, 2012, respectively. Prior to the implementation of such pilot VAT program, each of
Super TVs subsidiaries, N-S Digital TV and N-S Digital TVs subsidiaries was subject to business tax at a rate of 5% on certain service-type revenues, including those from our head-end integration services, head-end system development
services, licensing income and royalty income. Super TV was exempted from business tax at a rate of 5% on the revenues generated from the technical support, technical training and personnel services it then provided. From September 1, 2012 or
November 1, 2012 onwards, as the case may be, each of Super TVs subsidiaries, N-S Digital TV and N-S Digital TVs subsidiaries are required to pay VAT at a rate of 6% for research and development services, technical services and
other services deemed by the relevant PRC tax authorities to be within the pilot industries, and is no longer subject to business tax.
Tax Arrangement between the PRC and Hong Kong
The Hong Kong government and the PRC government entered into the Arrangement for Avoidance of Double Taxation on Income and Prevention of
Tax Evasion on August 21, 2006, which took effect on January 1, 2007 and April 1, 2007 in the PRC and Hong Kong, respectively. This arrangement provides certain tax incentives to use a Hong Kong company as an intermediate holding
company for holding investments in the PRC. The withholding tax rate applicable to dividends received by a Hong Kong resident enterprise from its investments in the PRC is 5% compared to the 10% withholding tax rate applicable to dividends received
by a company incorporated in a jurisdiction where there is no similar tax treaty or arrangement with the PRC, provided, among that the Hong Kong resident enterprise owns at least 25% of the shareholding of the PRC company at all times within the
12-month period immediately preceding the distribution of dividends. In addition, a full tax exemption in the PRC is available on a capital gain derived by a Hong Kong resident enterprise from the disposal of its shares in a PRC company, provided
that the Hong Kong resident enterprise owns less than 25% of the shareholding of the PRC company at all times within the 12-month period immediately preceding the distribution of dividends and the assets of the PRC company do not consist mainly of
real property situated in the PRC.
The SAT issued SAT Notice 601 and SAT Announcement 30 on October 27, 2009 and June 29, 2012,
respectively, both of which are applicable to the tax arrangements between the PRC and Hong Kong. Specifically, SAT Notice 601 provides that only the enterprises with active operations can be recognized as beneficial owners under
relevant tax treaties which are entitled to enjoy the corresponding tax benefits. It further provides that those enterprises that are established solely for the purposes of benefiting from favorable tax treatment under the relevant tax treaties
should not be recognized as beneficial owners and therefore cannot enjoy favorable tax treatment. Furthermore, SAT Announcement 30 provides that a comprehensive analysis should be made when determining the beneficial owner
status based on all the factors set out in SAT Notice 601. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaWe may be subject to PRC income tax on our global income, or
dividends we receive from our PRC subsidiary may be subject to PRC withholding tax, depending on whether we are recognized as a resident enterprise in the PRC.
76
Recent Acquisitions
See Item 4. Information on the CompanyA. History and Development of the CompanyOur Investments and Acquisitions.
Results of Operations
The following
table sets forth our condensed consolidated statements of operations by amount and as a percentage of our net revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
Amount |
|
|
% of Net Revenues |
|
|
Amount |
|
|
% of Net Revenues |
|
|
Amount |
|
|
% of Net Revenues |
|
|
|
(In thousands of U.S. dollars, except percentages) |
|
Revenues: |
|
|
|
|
|
|
|
|
Products |
|
US$ |
85,319 |
|
|
|
96.1 |
% |
|
US$ |
82,926 |
|
|
|
95.1 |
% |
|
US$ |
73,520 |
|
|
|
90.2 |
% |
Services |
|
|
4,925 |
|
|
|
5.6 |
|
|
|
5,521 |
|
|
|
6.4 |
|
|
|
9,423 |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
90,244 |
|
|
|
101.7 |
|
|
|
88,447 |
|
|
|
101.5 |
|
|
|
82,943 |
|
|
|
101.7 |
|
Business and related taxes |
|
|
(1,501 |
) |
|
|
(1.7 |
) |
|
|
(1,283 |
) |
|
|
(1.5 |
) |
|
|
(1,410 |
) |
|
|
(1.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
88,743 |
|
|
|
100.0 |
|
|
|
87,164 |
|
|
|
100.0 |
|
|
|
81,533 |
|
|
|
100.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues:(1) |
|
|
|
|
|
|
|
|
Products |
|
|
16,880 |
|
|
|
19.0 |
|
|
|
17,009 |
|
|
|
19.5 |
|
|
|
13,845 |
|
|
|
17.0 |
|
Services |
|
|
3,952 |
|
|
|
4.5 |
|
|
|
4,652 |
|
|
|
5.4 |
|
|
|
4,384 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
20,832 |
|
|
|
23.5 |
|
|
|
21,661 |
|
|
|
24.9 |
|
|
|
18,229 |
|
|
|
22.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
67,911 |
|
|
|
76.5 |
|
|
|
65,503 |
|
|
|
75.1 |
|
|
|
63,304 |
|
|
|
77.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
Research and development expenses(1) |
|
|
17,402 |
|
|
|
19.6 |
|
|
|
19,251 |
|
|
|
22.1 |
|
|
|
17,276 |
|
|
|
21.2 |
|
Selling and marketing expenses(1) |
|
|
13,606 |
|
|
|
15.3 |
|
|
|
14,957 |
|
|
|
17.1 |
|
|
|
13,877 |
|
|
|
17.0 |
|
General and administrative expenses(1) |
|
|
9,444 |
|
|
|
10.7 |
|
|
|
9,959 |
|
|
|
11.4 |
|
|
|
10,935 |
|
|
|
13.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
40,452 |
|
|
|
45.6 |
|
|
|
44,167 |
|
|
|
50.6 |
|
|
|
42,088 |
|
|
|
51.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
27,459 |
|
|
|
30.9 |
|
|
|
21,336 |
|
|
|
24.5 |
|
|
|
21,216 |
|
|
|
26.0 |
|
Non-operating income/(expenses) |
|
|
|
|
|
|
|
|
Interest income |
|
|
6,318 |
|
|
|
7.1 |
|
|
|
1,901 |
|
|
|
2.2 |
|
|
|
1,312 |
|
|
|
1.6 |
|
Interest expense |
|
|
(739 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from forward contracts |
|
|
(690 |
) |
|
|
(0.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment loss on long-term investments |
|
|
(4,487 |
) |
|
|
(5.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
549 |
|
|
|
0.6 |
|
|
|
534 |
|
|
|
0.6 |
|
|
|
3,069 |
|
|
|
3.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
28,410 |
|
|
|
32.0 |
|
|
|
23,771 |
|
|
|
27.3 |
|
|
|
25,597 |
|
|
|
31.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
|
22,232 |
|
|
|
25.0 |
|
|
|
727 |
|
|
|
0.9 |
|
|
|
6,373 |
|
|
|
7.8 |
|
Net income before income/(loss) from equity method investments |
|
|
6,178 |
|
|
|
7.0 |
|
|
|
23,044 |
|
|
|
26.4 |
|
|
|
19,224 |
|
|
|
23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from equity method investments, net of income taxes |
|
|
(640 |
) |
|
|
(0.8 |
) |
|
|
(468 |
) |
|
|
(0.5 |
) |
|
|
(59 |
) |
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
5,538 |
|
|
|
6.2 |
|
|
|
22,576 |
|
|
|
25.9 |
|
|
|
19,165 |
|
|
|
23.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest |
|
|
1,389 |
|
|
|
1.6 |
|
|
|
1,832 |
|
|
|
2.1 |
|
|
|
1,725 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to holders of ordinary shares |
|
US$ |
6,927 |
|
|
|
7.8 |
% |
|
US$ |
24,408 |
|
|
|
28.0 |
% |
|
US$ |
20,890 |
|
|
|
25.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Share-based compensation charges incurred during the period related to: |
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
Amount |
|
|
% of Net Revenues |
|
|
Amount |
|
|
% of Net Revenues |
|
|
Amount |
|
|
% of Net Revenues |
|
|
|
(In thousands of U.S. dollars, except percentages) |
|
Cost of revenues |
|
US$ |
5 |
|
|
|
0.0 |
% |
|
US$ |
41 |
|
|
|
0.0 |
% |
|
US$ |
12 |
|
|
|
0.0 |
% |
Research and development expenses |
|
|
552 |
|
|
|
0.6 |
|
|
|
380 |
|
|
|
0.4 |
|
|
|
98 |
|
|
|
0.1 |
|
Selling and marketing expenses |
|
|
356 |
|
|
|
0.4 |
|
|
|
492 |
|
|
|
0.6 |
|
|
|
130 |
|
|
|
0.2 |
|
General and administrative expenses |
|
US$ |
1,701 |
|
|
|
1.9 |
% |
|
US$ |
1,358 |
|
|
|
1.5 |
% |
|
US$ |
1,459 |
|
|
|
1.8 |
% |
Comparison of Years Ended December 31, 2014 and December 31, 2013
Revenues. The following table sets forth revenues by sources and the percentage of our total revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
Amount |
|
|
% of Total Revenues |
|
|
Amount |
|
|
% of Total Revenues |
|
|
|
(In thousands of U.S. dollars, except percentages) |
|
Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Smart cards |
|
US$ |
78,256 |
|
|
|
88.5 |
% |
|
US$ |
67,108 |
|
|
|
80.9 |
% |
Other products |
|
|
4,670 |
|
|
|
5.3 |
|
|
|
6,412 |
|
|
|
7.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
82,926 |
|
|
|
93.8 |
|
|
|
73,520 |
|
|
|
88.6 |
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
Head-end system integration |
|
|
2,731 |
|
|
|
3.1 |
|
|
|
4,591 |
|
|
|
5.6 |
|
Head-end system development |
|
|
1,103 |
|
|
|
1.2 |
|
|
|
1,566 |
|
|
|
1.9 |
|
Licensing income |
|
|
1,098 |
|
|
|
1.2 |
|
|
|
2,516 |
|
|
|
3.0 |
|
Royalty income |
|
|
512 |
|
|
|
0.6 |
|
|
|
585 |
|
|
|
0.7 |
|
Other services |
|
|
77 |
|
|
|
0.1 |
|
|
|
165 |
|
|
|
0.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
5,521 |
|
|
|
6.2 |
|
|
|
9,423 |
|
|
|
11.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
US$ |
88,447 |
|
|
|
100.0 |
% |
|
US$ |
82,943 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78
Our total revenues decreased by 6.2% from US$88.4 million in 2013 to US$82.9 million in 2014,
reflecting a decrease in the revenue from the sale of our products, partially offset by an increase in the revenue from the sale of our services.
Revenues from the sales of our products decreased by 11.3% from US$82.9 million in 2013 to US$73.5 million in 2014, mainly due to a decline in
revenues from sales of smart cards as a result of decreases in both sales volume and ASP in 2014 compared to 2013, which was partially offset by an increase in revenue from other products.
Revenues from the sales of our services increased by 70.7% from US$5.5 million in 2013 to US$9.4 million in 2014, primarily due to an increase
in head-end system integration and licensing income.
Net Revenues. Our net revenues decreased by 6.5% from US$87.2 million
in 2013 to US$81.5 million in 2014.
Cost of Revenues. The following table sets forth cost of revenues by sources of
revenues by amount and as a percentage of net revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
Amount |
|
|
% of Net Revenues |
|
|
Amount |
|
|
% of Net Revenues |
|
|
|
(In thousands of U.S. dollars, except percentages) |
|
Products |
|
US$ |
17,009 |
|
|
|
19.5 |
% |
|
US$ |
13,845 |
|
|
|
17.0 |
% |
Services |
|
|
4,652 |
|
|
|
5.4 |
|
|
|
4,384 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
US$ |
21,661 |
|
|
|
24.9 |
% |
|
US$ |
18,229 |
|
|
|
22.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues decreased by 15.8% to US$18.2 million in 2014 from US$21.7 million in 2013, reflecting a
decrease in cost of revenues relating to both our products and services. Cost of revenues relating to our products decreased by 18.6% to US$13.8 million in 2014 from US$17.0 million in 2013, reflecting higher inventory write-downs with respect to
surface mounted chips and other products in 2013. Cost of revenues relating to our services decreased by 5.8% to US$4.4 million in 2014 from US$4.7 million in 2013, reflecting higher inventory write-downs with respect to video-on-demand in 2013.
Gross Profit and Gross Margin. Gross profit decreased by 3.4% from US$65.5 million in 2013 to US$63.3 million in
2014. Our gross margin increased from 75.1% in 2013 to 77.6% in 2014, primarily due to a decrease in cost of revenues, reflecting higher inventory write-downs with respect to surface mounted chips, video-on-demand and other products in 2013.
Operating Expenses. Our operating expenses decreased by 4.7% to US$42.1 million in 2014 from US$44.2 million in 2013.
This decrease reflected decreases in research and development expenses and sales and marketing expenses, partially offset by an increase in general and administrative expenses. Operating expenses, as a percentage of net revenues, increased to 51.6%
in 2014 from 50.6% in 2013.
79
Research and Development Expenses. Our research and development expenses
decreased by 10.3% to US$17.3 million in 2014 from US$19.3 million in 2013. This decrease was mainly due to a decrease in project development expenses, office rent expenses, and personnel related expenses resulting from lower research and
development headcount, as well as a decrease in share-based compensation. Our research and development expenses, as a percentage of net revenues, decreased to 21.2% in 2014 from 22.1% in 2013.
Selling and Marketing Expenses. Our selling and marketing expenses decreased by 7.2% to US$13.9 million in 2014 from
US$15.0 million in 2013. This decrease was primarily due to a decrease in share-based compensation and marketing expenditures. Our selling and marketing expenses, as a percentage of net revenues, decreased to 17.0% in 2014 from 17.1% in 2013.
General and Administrative Expenses. Our general and administrative expenses increased by 9.8% to US$10.9 million in 2014
from US$10.0 million in 2013, primarily due to an increase in consulting expenses.
Income from
Operations. As a result of the foregoing, our income from operations decreased by 0.6% to US$21.2 million in 2014 from US$21.3 million in 2013.
Non-Operating Income (Expenses). We had non-operating income of US$4.4 million in 2014 compared to US$2.4 million in
2013. Our non-operating income in 2014 primarily consisted of interest income of US$1.3 million and other income of US$3.1 million. Our interest income decreased by 31.0% from US$1.9 million in 2013 to US$1.3 million in 2014, primarily due to a
decrease in the average balance of our bank deposits. Our other income increased significantly from US$0.5 million in 2013 to US$3.1 million in 2014, primarily due to an increase in government subsidy income.
Income Tax Expenses. Our income tax expenses increased from US$0.7 million in 2013 to US$6.4 million in 2014. The
increase in our income tax expenses was primarily due to the retroactive adjustment of income tax expenses in 2011 and 2012 from the income tax rate of 15% to 10% as a result of the completion of the renewal for the designation of key software
enterprise for Super TV with respect to 2011 and 2012, which decreased the tax expenses significantly in 2013.
Loss from
Equity Method Investments, Net of Income Taxes. Our loss from equity method investments decreased from US$0.5 million in 2013 to US$0.1 million in 2014. Our loss from equity method investments in 2014 was mainly attributable to the
loss from our equity investment in Guangzhou Rujia and Qingda Yongxin.
Net Loss Attributable to Noncontrolling
Interest. Net loss attributable to noncontrolling interest decreased from US$1.8 million in 2013 to US$1.7 million in 2014. Net loss attributable to noncontrolling interest represents the proportional share of net loss of our
consolidated, but not wholly-owned, subsidiaries that are attributable to the other shareholders of such subsidiaries. The change was primarily due to the loss of our majority-owned subsidiaries, in particular, Joysee and Cyber Cloud.
Net Income Attributable to Holders of Ordinary Shares. As a result of the foregoing, net income
attributable to holders of ordinary shares decreased by 14.4% from US$24.4 million in 2013 to US$20.9 million in 2014. Our basic and diluted earnings per ordinary share in 2014 were US$0.35 and US$0.34, respectively.
80
Comparison of Years Ended December 31, 2013 and December 31, 2012
Revenues. The following table sets forth revenues by sources and the percentage of our total revenues for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
|
Amount |
|
|
% of Total Revenues |
|
|
Amount |
|
|
% of Total Revenues |
|
|
|
(In thousands of U.S. dollars, except percentages) |
|
Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Smart cards |
|
US$ |
75,185 |
|
|
|
83.3 |
% |
|
US$ |
78,256 |
|
|
|
88.5 |
% |
Other products |
|
|
10,134 |
|
|
|
11.2 |
|
|
|
4,670 |
|
|
|
5.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
85,319 |
|
|
|
94.5 |
|
|
|
82,926 |
|
|
|
93.8 |
|
Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Head-end system integration |
|
|
2,175 |
|
|
|
2.5 |
|
|
|
2,731 |
|
|
|
3.1 |
|
Head-end system development |
|
|
987 |
|
|
|
1.1 |
|
|
|
1,103 |
|
|
|
1.2 |
|
Licensing income |
|
|
1,246 |
|
|
|
1.4 |
|
|
|
1,098 |
|
|
|
1.2 |
|
Royalty income |
|
|
382 |
|
|
|
0.4 |
|
|
|
512 |
|
|
|
0.6 |
|
Other services |
|
|
135 |
|
|
|
0.1 |
|
|
|
77 |
|
|
|
0.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
4,925 |
|
|
|
5.5 |
|
|
|
5,521 |
|
|
|
6.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
US$ |
90,244 |
|
|
|
100.0 |
% |
|
US$ |
88,447 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total revenues decreased by 2.0% from US$90.2 million in 2012 to US$88.4 million in 2013, reflecting a
decrease in the revenue from the sales of our products.
Revenues from the sales of our products decreased by 2.8% from US$85.3 million in
2012 to US$82.9 million in 2013, primarily due to a decrease in revenues from other products, such as surface mounted chips, which was partially offset by increases in revenues from smart card sales.
Revenues from the sales of our services increased by 12.1% from US$4.9 million in 2012 to US$5.5 million in 2013, primarily due to an increase
in head-end system integration.
Net Revenues. Our net revenues decreased by 1.8% from US$88.7 million in 2012
to US$87.2 million in 2013.
Cost of Revenues. The following table sets forth cost of revenues by sources of revenues
by amount and as a percentage of net revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
|
Amount |
|
|
% of Net Revenues |
|
|
Amount |
|
|
% of Net Revenues |
|
|
|
(In thousands of U.S. dollars, except percentages) |
|
Products |
|
US$ |
16,880 |
|
|
|
19.0 |
% |
|
US$ |
17,009 |
|
|
|
19.5 |
% |
Services |
|
|
3,952 |
|
|
|
4.5 |
|
|
|
4,652 |
|
|
|
5.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
US$ |
20,832 |
|
|
|
23.5 |
% |
|
US$ |
21,661 |
|
|
|
24.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues increased by 4.0% to US$21.7 million in 2013 from US$20.8 million in 2012, primarily
reflecting an increase in costs of revenues relating to our services, and, to a lesser extent, an increase in costs relating to our products. Cost of revenues relating to our products increased by 0.8% to US$17.0 million in 2013 from
US$16.9 million in 2012, principally due to an increase in inventory write-downs for surface mounted chips and other products. Cost of revenues relating to our services increased by 17.7% to US$4.7 million in 2013 from US$4.0 million in 2012,
mainly due to an increase in inventory write-downs for video-on-demand services.
81
Gross Profit and Gross Margin. Gross profit decreased by 3.5% from US$67.9
million in 2012 to US$65.5 million in 2013. Our gross margin decreased from 76.5% in 2012 to 75.1% in 2013, primarily due to an increase in cost of revenues, attributable to inventory write-downs with respect to surface mounted chips and
video-on-demand.
Operating Expenses. Our operating expenses increased by 9.2% to US$44.2 million in
2013 from US$40.5 million in 2012. This increase reflected increases in research and development expenses, sales and marketing expenses, and general and administrative expenses. Operating expenses, as a percentage of net revenues, increased to 50.6%
in 2013 from 45.6% in 2012.
Research and Development Expenses. Our research and development expenses increased by
10.6% to US$19.3 million in 2013 from US$17.4 million in 2012. This increase was mainly due to an increase in personnel related expenses, as well as increases in project development expenses. Our research and development expenses, as a
percentage of net revenues, increased to 22.1% in 2013 from 19.6% in 2012.
Selling and Marketing Expenses. Our
selling and marketing expenses increased by 9.9% to US$15.0 million in 2013 from US$13.6 million in 2012. This increase was primarily due to an increase in marketing expenditures. Our selling and marketing expenses, as a percentage of net revenues,
increased to 17.1% in 2013 from 15.3% in 2012.
General and Administrative Expenses. Our general and administrative
expenses increased by 5.5% to US$10.0 million in 2013 from US$9.4 million in 2012, primarily due to increases in allowance for doubtful accounts and personnel related expenses, which were partially offset by decreases in consulting expenses and
share-based compensation expenses.
Income from Operations. As a result of the foregoing, our income from operations
decreased by 22.3% from US$27.5 million in 2012 to US$21.3 million in 2013.
Non-Operating Income (Expenses). We
had non-operating income of US$2.4 million in 2013 compared to US$1.0 million in 2012. Our non-operating income in 2013 primarily consisted of interest income of US$1.9 million and other income of US$0.5 million. Our interest income decreased by
69.9% from US$6.3 million in 2012 to US$1.9 million in 2013, primarily due to a decrease in the average balance of our bank deposits. In 2012, we fully accrued an impairment charge of US$4.5 million related to our investment in 3DiJoy based on the
fair value of 3DiJoy we estimated with the assistance of a third party valuation firm, as we had doubts regarding 3DiJoys ability to operate as a going concern given that it had been experiencing financial difficulties and had failed to obtain
new capital funding from its shareholders or otherwise. We entered into foreign currency forward contracts in April and May 2011, which met the definition of derivatives and were measured at fair value. The change in the forward rate for U.S. dollar
against the Renminbi from the last date of each year to the expiration dates of the foreign currency forward contracts was recognized as gain or loss from foreign currency forward contracts. We also incurred interest expenses of US$0.7 million in
2012, as we borrowed short-term loans in connection with the above-mentioned foreign currency forward contracts. We did not incur interest expenses in 2013.
Income Tax Expenses. Our income tax expenses decreased from US$22.2 million in 2012 to US$0.7 million in 2013. The
decrease in our income tax expenses was primarily due to (i) the retroactive adjustment of income tax expense in 2011 and 2012 from the income tax rate of 15% to 10% as a result of the completion of the renewal for the designation of key
software enterprise for Super TV with respect to 2011 and 2012 and (ii) the preferential tax rate of 10% enjoyed by Super TV in 2013 as a key software enterprise.
Loss from Equity Method Investments, Net of Income Taxes. Our loss from equity method investments decreased from US$0.6
million in 2012 to US$0.5 million in 2013. Our loss from equity method investments in 2013 was mainly attributable to the loss from our equity method investments in Xinghe Union and Shibo Movie.
82
Net Loss Attributable to Noncontrolling Interest. Net loss attributable to
noncontrolling interest increased from US$1.4 million in 2012 to US$1.8 million in 2013. Net loss attributable to noncontrolling interest represents the proportional share of net loss of our consolidated, but not wholly-owned, subsidiaries that are
attributable to the other shareholders of such subsidiaries. The change was primarily due to the loss of our majority-owned subsidiaries, in particular, Joysee and Cyber Cloud.
Net Income Attributable to Holders of Ordinary Shares. As a result of the foregoing, net income attributable to holders
of ordinary shares increased by 252.4% from US$6.9 million in 2012 to US$24.4 million in 2013. Our basic and diluted earnings per ordinary share in 2013 were US$0.41 and US$0.41, respectively.
B. |
Liquidity and Capital Resources |
Liquidity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
(In thousands) |
|
Cash and cash equivalents |
|
US$ |
130,697 |
|
|
US$ |
79,085 |
|
|
US$ |
62,042 |
|
Net cash provided by operating activities |
|
|
20,897 |
|
|
|
24,504 |
|
|
|
12,210 |
|
Net cash provided by/(used in) investing activities |
|
|
55,025 |
|
|
|
(870 |
) |
|
|
284 |
|
Net cash used in financing activities |
|
US$ |
(147,214 |
) |
|
US$ |
(76,884 |
) |
|
US$ |
(26,712 |
) |
Operating Activities. Net cash provided by operating activities was US$12.2 million in
2014, which was primarily derived from our net income of US$19.2 million, adjusted to reflect the adding back of US$0.8 million increase in allowance for doubtful accounts, US$1.3 million increase in provision for inventory, US$0.9 million
depreciation and amortization and US$1.7 million share-based compensation charges. Cash provided by operating activities in 2014 was partially offset by a decrease in cash from working capital items of US$11.7 million.
Net cash provided by operating activities was US$24.5 million in 2013, which was primarily derived from our net income of US$22.6 million,
adjusted to reflect the adding back of US$2.8 million increase in provision for inventory, US$2.6 million increase in allowance for doubtful accounts, US$2.3 million share-based compensation charges and US$1.0 million depreciation and amortization.
Cash provided by operating activities in 2013 was partially offset by a decrease in cash from working capital items of US$7.2 million.
Net cash provided by operating activities was US$20.9 million in 2012, which was primarily derived from our net income of US$5.5 million,
adjusted to reflect the adding back of US$4.5 million in impairment loss on long-term investments, US$2.6 million share-based compensation charges, US$1.4 million increase in allowance for doubtful accounts, US$1.2 million depreciation and
amortization, and US$4.9 million increase in cash from working capital items.
Investing Activities. Net cash
provided by investing activities was US$0.3 million in 2014, primarily consisting of US$2.2 million cash in acquired entities as a result of our acquisition of Shibo Movie and Xinsi Yijia in 2014 and US$0.8 million decrease in bank deposits pledged
as security for accounts payable to suppliers, which was partially offset by US$2.8 million purchase of property and equipment.
Net cash
used in investing activities was US$0.9 million in 2013, primarily consisting of US$0.9 million increase in bank deposits pledged as security for accounts payable to suppliers and US$0.3 million purchase of property and equipment, which was
partially offset by US$0.4 million proceeds from disposal of equity method investment.
83
Net cash provided by investing activities was US$55.0 million in 2012, primarily consisting of
the release of US$55.5 million bank deposits pledged as security for the short-term loans we borrowed in 2011 in connection with the foreign currency forward contracts, which was partially offset by an aggregate of US$1.6 million in connection with
our investments in Shibo Movie and Xinghe Union in 2012.
Financing Activities. Net cash used in financing activities
was US$26.7 million in 2014, primarily consisting of the US$29.7 million special cash dividend paid to our shareholders, which was partially offset by an advance payment of US$2.3 million received in relation to an investment in Cyber Cloud.
Net cash used in financing activities was US$76.9 million in 2013, which primarily reflected a special cash dividend paid to our shareholders.
Net cash used in financing activities was US$147.2 million in 2012, primarily reflecting a US$92.1 million special cash dividend paid to
our shareholders and the repayment of short-term loans in an aggregate principal amount of US$55.2 million that we borrowed in 2011 in connection with the foreign currency forward contracts.
According to the amended PRC Company Law, which took effect on March 1, 2014, and its predecessor law, our subsidiaries and
variable interest entities in the PRC are required to make appropriations to the statutory surplus reserve which are still required to be made at the rate of 10% of profits after tax as determined under PRC GAAP until the balance of such reserve
fund reaches 50% of the entities registered capital.
Our subsidiaries and our variable interest entities in the PRC may, upon a
resolution passed by their respective shareholders, convert the statutory surplus reserve into capital. The statutory reserve represents appropriations of retained earnings determined according to PRC law and may not be distributed. There were no
appropriations to reserves other than to those of our subsidiaries and our variable interest entity in the PRC during any of the periods presented. However, as a result of these laws, US$17.9 million and US$18.0 million of our retained earnings were
not available for distribution as of December 31, 2013 and December 31, 2014, respectively.
As a holding company, our ability
to pay dividends and other cash distributions to our shareholders depends in part upon dividends and other distributions paid to us by our PRC subsidiaries. As of December 31, 2014, the amount of cash held by our PRC subsidiaries was RMB356.7
million (or US$57.5 million), and the amount of cash held by entities outside the PRC was US$4.5 million. There is a risk that any existing or future restrictions under the applicable PRC laws, rules or regulations on currency exchange may limit our
ability to utilize the cash held by entities inside the PRC. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaRestrictions on currency exchange may limit our ability to
effectively utilize our revenues as well as the ability of our PRC subsidiaries to obtain debt or equity financing from financial institutions or investors outside the PRC, including us for more information.
Capital Expenditures
In 2012, 2013 and
2014, our capital expenditures totaled US$2.4 million, US$0.3 million and US$2.8 million, respectively. Our capital expenditures in 2014 were attributable to the purchase of computers and other electronic equipment.
We believe that our current levels of cash and cash equivalents, and cash flows from operations in the near future, will be sufficient to meet
our anticipated capital expenditure and other cash needs for at least the next 12 months. However, we may need additional cash resources in the future if we experience changed business conditions or other developments. We also may need additional
cash resources in the future if we find and wish to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If we ever determine that our cash requirements exceed our amounts of cash and cash equivalents on
hand, we may seek to issue debt or equity securities or obtain a credit facility. Any issuance of equity securities could cause dilution for our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause us to
be subject to restrictive operating and finance covenants. It is possible that, when we need additional cash resources, financing will be available to us only in amounts or on terms that would not be acceptable to us or financing will not be
available at all.
84
C. |
Research and Development, Patents and Licenses, etc. |
See Item 4. Information
on the CompanyB. Business OverviewResearch and Development for information relating to our research and development.
See Item 4. Information on the CompanyB. Business OverviewIntellectual Property for information relating to our
intellectual property.
Other than as disclosed elsewhere in this annual report, we are not
aware of any trends, uncertainties, demands, commitments or events for the period from January 1, 2012 to December 31, 2014 that are reasonably likely to have a material adverse effect on our net revenues, income, profitability, liquidity
or capital resources, or that would cause the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. |
Off-Balance Sheet Arrangements |
We have not entered into any financial guarantees or
other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders equity or that are not reflected in our consolidated
financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.
F. |
Tabular Disclosure of Contractual Obligations |
The following table sets forth our
contractual obligations as of December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations |
|
|
|
Less than 1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
More than 5 Years |
|
|
Total |
|
|
|
(In thousands) |
|
Operating lease obligations(1) |
|
|
710 |
|
|
|
21 |
|
|
|
0 |
|
|
|
0 |
|
|
|
731 |
|
Purchase obligations |
|
|
1,585 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,295 |
|
|
|
21 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,316 |
|
|
|
|
|
|
|
|
|
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(1) |
Operating leases generally relate to the lease of our office premises. |
Item 6. |
Directors, Senior Management and Employees |
A. |
Directors and Senior Management |
Our board of directors consists of six directors,
including four independent directors. The following table sets forth certain information concerning our directors and executive officers as of April 28, 2015.
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Name |
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Age |
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Position |
Zengxiang LU |
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44 |
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Chairman and Chief Executive Officer |
Jianhua ZHU |
|
45 |
|
Director |
Jianyue PAN |
|
47 |
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Independent Director |
Eric Zhe XU |
|
40 |
|
Independent Director |
Michael ELYAKIM |
|
41 |
|
Independent Director |
Songzuo XIANG |
|
50 |
|
Independent Director |
Qian YUE |
|
42 |
|
Acting Chief Financial Officer |
Jian HAN |
|
41 |
|
Chief Technology Officer |
Huiqing CHEN |
|
42 |
|
Chief Administrative Officer |
85
Zengxiang LU, one of our founders, has been a board member since 2004 and chairman of our
board of directors and chief executive officer since June 2014. He was chairman of our board of directors and our chief strategy officer from December 2006 until November 2008 and chief executive officer from 2004 until December 2006. Dr. Lu
was the president of Guangdong R&D prior to April 2010 and was also a director from 2005 until 2007. Dr. Lu worked on the development of CA systems at Tsinghua Tongfang from 1999 to August 2001. He was deputy general manager of N-T
Information Engineering from August 2001 until 2004, and has served on the board of N-T Information Engineering since 1998. Dr. Lu holds a bachelors degree in automation and a doctorate degree in signal processing from Tsinghua
University.
Jianhua ZHU, one of our founders, has been a board member since 2004. He was the chairman of our board of directors
from 2004 to December 2006, and from November 2008 to June 2014, and chief executive officer of our company from December 2006 to June 2014. From 2001 until 2004, Mr. Zhu was general manager of N-T Information Engineering. From 1998 until
2001, he was deputy general manager of N-T Information Engineering. He has also been the supervisor of N-T Information Engineering since 2006. Mr. Zhu was the executive director of Guangdong R&D prior to April 2010. He worked at the
China Technology Import and Export Corp. from 1994 until 1997. Mr. Zhu holds a bachelors degree and a masters degree in precision instrumentation from Tsinghua University.
Jianyue PAN has been an independent director of our company since December 2010. Mr. Pan serves as the global vice president and
Asia Pacific president of Synopsys, Inc, a worldwide leading company in electronic design automation software and IP for semiconductor design. Since 1995, Mr. Pan has held different positions at Synopsys, including China chief representative
and director of China sales. Prior to Synopsys, Mr. Pan held sales and management roles in Mentor Graphics, a U.S.-based company. Prior to that, he held research and development roles in the Chinese Academy of Sciences. Prior to March 2011,
Mr. Pan was an independent director of Beijing Lanxum Technology Co. Ltd., a Chinese A-share listed company. Mr. Pan holds a masters degree and a bachelors degree in engineering from Tsinghua University in Beijing, and an
Executive Master of Business Administration degree from China-Europe International Business School.
Eric Zhe XU has been an
independent director of our company since December 2012. Mr. Xu is a Chartered Financial Analyst and currently serves as chairman of the board of directors of North Oakridge Capital Ltd. From December 2010 to February 2013, Mr. Xu served a
managing director for the China Aerospace Industry Investment Fund. From October 2005 to October 2010, Mr. Xu served as a principal at SAIF Partners and, prior to that, as a consultant at Boston Consulting Group and an associate at
A.T. Kearney Inc. Mr. Xu holds a Master of Business Administration degree from Harvard Business School and a bachelors degree in economics from Peking University.
Michael ELYAKIM has been an independent director of our company since January 2014. Michael serves as the managing director for
China investments at Aurec Capital Ltd., an Israel-based investment company, and is leading Aurec Capitals investments and operations in China. Since 2013, Michael has also served as a director of Shanghai Lezare International Trading, an
organic cosmetic retail chain in China. Prior to joining Aurec Capital Ltd., Michael co-founded and was the managing partner of CIG, an Israel-based investment fund, and also acted as the mergers and acquisitions officer and director of the
financial department for Scorpio BSG Ltd. Michael also held several senior positions in the investment banking sector in Israel and provided a variety of financial services. Michael holds a bachelors degree in law and a bachelors degree
in economics from Tel-Aviv University and is a licensed Israeli lawyer.
86
Songzuo XIANG has been an independent director of our company since September 2008.
Dr. Xiang is the editor-in-chief of the Global Business & Finance magazine, a Chinese business publication sponsored by the Development Research Center of the State Council. He has also been appointed as the chief economist of the
Agricultural Bank of China Limited since March 2012. Dr. Xiang is currently a director of AirMedia Group Inc., a company listed on the Nasdaq Global Market. Dr. Xiang was also a director of Hurray! Solutions Ltd. from 2000 to 2009 and its
chief executive officer from March to October 2009, respectively. From 1995 to 1998, Dr. Xiang was deputy director of the Fund Planning Department at the Shenzhen branch office of the Peoples Bank of China. Dr. Xiang holds a
masters degree in international affairs from Columbia University, a doctorate degree and a masters degree in economics from Renmin University of China and a bachelors degree in mechanical engineering from Huazhong University of
Science and Technology.
Qian YUE has served as our acting chief financial officer since January 2015, and vice president in charge
of external cooperation and investments and overseas business development since 2008. She also oversees the business of Cyber Cloud, a subsidiary of our company. Prior to joining us, from 2006 to 2008, Ms. Yue held the role of vice president
with responsibility for new energy and education investments at Wai Chun Investment Fund, a Hong Kong-based investment fund, where she was also executive director of the funds Hong Kong-listed subsidiary. Prior to that, she held the role of
vice president at Aerospace New World (China) Technology Co. Ltd and Beijing Asia Pacific East Communication Network Co. Ltd.
Jian
HAN has served as chief technology officer of our company since June 2014, and previously, from the companys establishment to September 2012. Dr. Han is also the general manager of Cyber Cloud, a subsidiary of our company. From 2001
until joining our company, Dr. Han was chief technology officer at N-T Information Engineering. From 2000 to 2001, he was the digital broadcasting center project manager working on the development of CA systems at the Tsinghua Novel-Tongfang
Research and Development Center. From 1999 to 2000, he was an associate researcher at the Microsoft China Research Institute. Dr. Han holds a Ph.D. in engineering and dual bachelors degrees in automation and mechanical engineering from
Tsinghua University.
Huiqing CHEN has served as the chief administrative officer of our company since our establishment in 2004,
and is responsible for administrative affairs and human resources management. From 1998 until 2004, she was manager of the general managers office at N-T Information Engineering. Ms. Chen holds a masters degree in biochemical
engineering from Tsinghua University.
At our annual general meeting held on November 27, 2014, our shareholders approved the
re-election of directors Jianhua Zhu and Zengxiang Lu as Class I directors, each to serve on the board of directors for a further three-year term. Andrew Yan resigned as a director, effective April 29, 2014.
There is no family relationship among any of our directors or executive officers. There is no shareholding qualification for directors.
B. |
Compensation of Directors and Senior Officers |
Our executive officers receive
compensation in the form of salaries, annual bonuses and share options. Some of our current and former directors have received compensation in the form of share options. We do not provide any benefits to our non-executive directors upon retirement.
In 2014, the aggregate cash compensation to our directors and executive officers was US$1.0 million.
Share Options
Our Amended and Restated China Digital TV Holding Co., Ltd. 2005 Stock Incentive Plan, or the 2005 Stock Incentive Plan, China Digital TV
Holding Co., Ltd. 2008 Stock Incentive Plan, or the 2008 Stock Incentive Plan, China Digital TV Holding Co., Ltd. 2010 Stock Incentive Plan, or the 2010 Stock Incentive Plan, and China Digital TV Holding Co., Ltd. 2012 Stock Incentive Plan, or the
2012 Stock Incentive Plan, are intended to provide incentives to our directors, officers and employees as well as consultants and advisors of our company and its present or future parent company or subsidiaries, or related corporations.
87
The 2005 Stock Incentive Plan
The 2005 Stock Incentive Plan was adopted by the board of directors of CDTV BVI on February 3, 2005 and the Amended and Restated 2005
Stock Incentive Plan was adopted by our board of directors and approved by our shareholders on September 13, 2007 to amend and restate the 2005 Stock Incentive Plan. In 2005, CDTV BVI was the ultimate holding company of our business. As a
result of our restructuring in May 2007, CDTV BVI became our wholly-owned subsidiary and the options already granted under the 2005 Stock Incentive Plan were converted to options for the ordinary shares of our company. Pursuant to the 2005 Stock
Incentive Plan, we may issue share options, stock appreciation rights, share bonuses, restricted shares, performance shares, share units, phantom shares, dividend equivalents or similar rights to purchase or acquire shares.
We reserved a total of 4,444,440 ordinary shares for issuance under the 2005 Stock Incentive Plan, subject to any adjustments as contemplated
by the plan. We granted share options to purchase 3,067,498, 47,918, 543,674, 620,212 and 53,280 ordinary shares pursuant to the 2005 Stock Incentive Plan on February 3, 2005, April 13, 2006, September 22, 2006,
December 5, 2006 and October 5, 2008, respectively. On November 19, 2010, the number of ordinary shares reserved for issuance under the 2005 Stock Incentive Plan was cancelled to the extent the corresponding options had not been
awarded as of that date. Options to purchase 211 ordinary shares remained outstanding as of March 31, 2015 under the 2005 Stock Incentive Plan.
With respect to the share options that we granted on February 3, 2005, two vesting schedules apply. The first vesting schedule is as
follows: 50% vest at the end of the six-month period after the award date, and the remaining 50% vest in 42 equal monthly installments, beginning from the end of the six-month period after the award date. The second vesting schedule is as follows:
25% vest on the first anniversary of the award date and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the month following the month in which the first anniversary of the award date occurs. The
original exercise price for all share options granted on this date was US$0.543 per share.
With respect to the share options that we
granted on April 13, 2006, the vesting schedule is as follows: 50% vest at the end of the six-month period after the award date, and the remaining 50% vest in 42 equal monthly installments, beginning from the end of the six-month period after
the award date. The original exercise price for all share options granted on this date was US$0.543 per share.
With respect to the share
options that we granted on September 22, 2006, the vesting schedule is as follows: 25% vest on the first anniversary of the award date and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the
month following the month in which the first anniversary of the award date occurs. The original exercise price was US$1.771 per share.
With respect to the share options that we granted on December 5, 2006, with the exception of share options that we granted to one of our
executive officers, the vesting schedule is as follows: 25% vest on the first anniversary of the award date, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the month following the month in
which the first anniversary of the award date occurs. The executive officers share options vest according to the following schedule: 25% of 320,000 options vest upon the closing of our initial public offering; 75% of 320,000 options vest in 36
substantially equal monthly installments, with the first installment vesting on the last day of the month following the month in which the executive officer took office; and 32,000 options vest upon the achievement of certain financial targets. In
July 2010, these 32,000 shares were forfeited as the financial targets were not met. The original exercise price for all share options granted on this date was US$4.172 per share.
With respect to the share options that we granted on October 5, 2008, the vesting schedule is as follows: 25% vest on the first
anniversary of the award date and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the month following the month in which the first anniversary of the award date occurs. The original exercise price
was US$0.543 per share.
88
2008 Stock Incentive Plan
The 2008 Stock Incentive Plan was adopted by our board of directors and approved by our shareholders on September 13, 2007. Pursuant to
the 2008 Stock Incentive Plan, we may issue share options, share appreciation rights, share bonuses, restricted shares and restricted share units, performance shares, share units, phantom shares, dividend equivalents or similar rights to purchase or
acquire shares.
We reserved a total of 1,200,000 ordinary shares for issuance under the 2008 Stock Incentive Plan, subject to any
adjustments as contemplated by the plan. The plan also provides for an annual increase, beginning in 2009, in the number of ordinary shares that may be delivered pursuant to awards under the plan, totaling 2% of our issued and outstanding shares as
of the first business day of the relevant calendar year. The maximum number of shares subject to awards that may be granted during any single calendar year is such number as equals 2% of our issued and outstanding shares as of the first business day
of that calendar year. We granted share options to purchase 406,776, 357,548, 42,880 and 50,000 ordinary shares on October 5, 2008, June 2, 2009, February 10, 2010 and November 15, 2010, respectively. On
November 19, 2010, the number of ordinary shares that had been reserved for issuance under the 2008 Stock Incentive Plan was cancelled to the extent the corresponding options had not been awarded as of that date. Options to purchase 538,653
ordinary shares remained outstanding as of March 31, 2015 under the 2008 Stock Incentive Plan.
With respect to the share options
that we granted on October 5, 2008, the vesting schedule is as follows: 25% vest on the first anniversary of the award date, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the month
following the month in which the first anniversary of the award date occurs. The original exercise price was US$7.89 per share. On February 10, 2010, we accelerated the vesting schedule of a total of 29,480 share options to purchase 29,480
ordinary shares so that all these share options were vested on February 20, 2010.
With respect to the share options that we granted
on June 2, 2009, the vesting schedule is as follows: 25% vest on the first anniversary of the award date, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the month following the month in
which the first anniversary of the award date occurs. The original exercise price was US$9.09 per share.
With respect to the share
options that we granted on February 10, 2010, all these share options were vested on the grant date. The original exercise price was US$0.543 per share.
With respect to the share options that we granted on November 15, 2010, the vesting of these options is conditional upon the fulfillment
of certain performance targets by the optionee in the four years following the grant date. The original exercise price was US$6.96 per share.
2010 Stock Incentive Plan
The 2010 Stock Incentive Plan was adopted by our board of directors on November 19, 2010. Pursuant to the 2010 Stock Incentive Plan, we
may issue share options, share appreciation rights, share bonuses, restricted shares, performance shares, share units, phantom shares, dividend equivalents or similar rights to purchase or acquire shares.
We reserved a total of 3,600,000 ordinary shares for issuance under the 2010 Stock Incentive Plan, subject to adjustments as contemplated by
the plan. We granted share options to purchase 1,000,000, 1,600,000, 700,000 and 300,000 ordinary shares on November 19, 2010, May 16, 2011, September 30, 2011 and November 19, 2011, respectively. Options to purchase
3,108,943 ordinary shares remained outstanding as of March 31, 2015 under the 2010 Stock Incentive Plan.
89
With respect to the share options that we granted on November 19, 2010, the vesting schedule
is as follows: 25% vest on the first anniversary of the award date, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on the last day of the month following the month in which the first anniversary of the award
date occurs. The original exercise price was US$6.90 per share.
With respect to the share options that we granted on May 16, 2011,
two vesting schedules apply. The first vesting schedule is as follows: 25% vest on November 19, 2011, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on December 31, 2011 and then on the last day of the
month following thereafter. The second vesting schedule is as follows: the vesting of the options is conditioned upon the fulfillment of certain performance targets by the optionees on April 1, 2012. The original exercise price was US$4.90 per
share.
With respect to the share options that we granted on September 30, 2011, the vesting schedule is as follows: 25% vest on
November 19, 2011, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on December 31, 2011 and then on the last day of the month following thereafter. The original exercise price is US$4.34 per share.
With respect to the share options that we granted on November 19, 2011, the vesting schedule is as follows: 25% vest on November 19,
2011, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on December 31, 2011 and then on the last day of the month following thereafter. The original exercise price is US$4.34 per share.
2012 Stock Incentive Plan
The 2012 Stock Incentive Plan was adopted by our board of directors on May 1, 2012. Pursuant to the 2012 Stock Incentive Plan, we may
issue share options, share appreciation rights, share bonuses, restricted shares, performance shares, share units, phantom shares, dividend equivalents or similar rights to purchase or acquire shares.
We reserved a total of 1,200,000 ordinary shares for issuance under the 2012 Stock Incentive Plan, subject to adjustments as contemplated by
the plan. We granted share options to purchase 1,200,000 ordinary shares on January 8, 2013. Options to purchase 823,624 ordinary shares remained outstanding as of March 31, 2015 under the 2012 Stock Incentive Plan.
With respect to the share options that we granted on January 8, 2013, the vesting schedule is as follows: 25% vest on January 8,
2013, and the remaining 75% vest in 36 substantially equal monthly installments, beginning on February 28, 2013 and then on the last day of the month following thereafter. The original exercise price is US$1.18 per share.
The 2005, 2008, 2010 and 2012 Stock Incentive Plans
Our board of directors administers the 2005 and 2008 Stock Incentive Plans and Jianhua Zhu administers the 2010 and 2012 Stock Incentive Plans.
The administrator of each plan has wide discretion in determining who will receive awards, the type and timing of awards, the vesting schedule and other terms and conditions of the awards, including the exercise price of share option grants.
Generally, if an outstanding share option grant made under the plans has not vested by the date of termination of the recipients employment with us, no further installments of the recipients grant will become exercisable following the
date of termination of employment, and the recipient will have 30 days from such date to exercise any share options that had already vested but not yet been exercised. If any ordinary shares subject to a restricted share award remain subject to
restrictions by the date of termination of employment, no additional ordinary shares will vest following the date of termination of employment.
The 2005 Stock Incentive Plan terminated on February 2, 2015. Our board of directors may amend or terminate the 2008, 2010 and 2012 Stock
Incentive Plans at any time; provided, however, that our board of directors must seek the recipients approval with respect to any amendment or termination that would adversely affect the rights of such recipients under any award already made.
Without further action by our board of directors, the 2008, 2010 and 2012 Stock Incentive Plans will terminate on September 12, 2017, November 18, 2020 and April 30, 2022, respectively.
90
In addition to the options granted pursuant to the 2005, 2008, 2010 and 2012 Stock Incentive
Plans, on May 15, 2007, we granted options to purchase 40,000 ordinary shares to Louis T. Hsieh, who became an independent director of our company upon the completion of our initial public offering, at an exercise price of US$4.172 per share.
Mr. Hsieh retired from our board of directors in December 2009, following which 33,889 of his options were exercised with the remainder being forfeited.
On November 19, 2010, our board of directors approved an adjustment to the exercise price of all options granted prior to, but remained
outstanding as of, December 23, 2010 under the 2005 Stock Incentive Plan, the 2008 Stock Incentive Plan and the 2010 Stock Incentive Plan, or the Adjusted Options. The per share exercise price of all Adjusted Options with a per share exercise
price higher than US$2.00 was reduced by US$2.00 on December 23, 2010, and the per share exercise price of all Adjusted Options with a per share exercise price no more than US$2.00 was reduced to US$0.01. Our board of directors also resolved
that if any future dividend is declared, the per share exercise price of all options granted prior to and outstanding as of the date of record of such dividend shall be reduced by an amount equal to the dividend payable on each ordinary share,
provided that the per share exercise price after adjustment shall not be less than US$0.01. Due to special cash dividends of US$0.56, US$2.30 and US$0.50 per ordinary share declared in May 2011, November 2012 and April 2014, respectively, the
per share exercise prices of all of the options granted prior to and remaining outstanding as of June 20, 2011, November 26, 2012 and April 14, 2014, each a record date, were reduced by US$0.56, US$2.30 and US$0.50 pursuant to
such resolution of our board of directors referenced above, respectively, provided that the per share exercise prices after adjustment shall not be less than US$0.01.
The following table sets forth information on share options that have been granted and were outstanding as of March 31, 2015 pursuant to
the 2005, 2008, 2010 and 2012 Stock Incentive Plans:
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Number of Ordinary Shares Underlying Outstanding Options |
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Exercise Price per Ordinary Share** |
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Date of Grant |
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Date of Expiration |
Directors and Executive Officers |
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Zengxiang LU |
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1,150,000 |
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US$ |
1.54 |
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May 16, 2011 |
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May 15, 2021 |
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US$ |
0.68 |
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January 8, 2013 |
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January 7, 2023 |
Jianhua ZHU |
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1,150,000 |
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US$ |
1.54 |
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November 19, 2010 |
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November 18, 2020 |
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|
|
|
|
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US$ |
0.68 |
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January 8, 2013 |
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January 7, 2023 |
Huiqing CHEN |
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US$ |
2.53 |
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October 5, 2008 |
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October 4, 2018 |
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* |
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US$ |
3.73 |
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June 2, 2009 |
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June 1, 2019 |
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|
|
|
|
|
US$ |
1.54 |
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September 30, 2011 |
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September 29, 2021 |
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US$ |
0.68 |
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January 8, 2013 |
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January 7, 2023 |
Qian YUE |
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|
|
* |
|
US$ |
1.54 |
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May 16, 2011 |
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May 15, 2021 |
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|
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|
|
US$ |
0.68 |
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January 8, 2013 |
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January 7, 2023 |
Jian HAN |
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|
|
* |
|
US$ |
2.53 |
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October 5, 2008 |
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October 4, 2018 |
|
|
|
|
|
|
US$ |
3.73 |
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|
June 2, 2009 |
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June 1, 2019 |
|
|
|
|
|
|
US$ |
1.54 |
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November 19, 2011 |
|
November 18, 2021 |
Other Grantees |
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Other grantees as a group (comprising 108 individuals) |
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1,788,442 |
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* |
The number of ordinary shares underlying the outstanding options held by each of the officers represents less than 1% of our ordinary shares. |
** |
The exercise price per Ordinary Share has reflected the impact of the exercise price modifications in December 2010, June 2011, November 2012 and April 2014, respectively. |
91
General
The functions and powers of our board of directors include, among others:
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convening shareholders annual general meetings and reporting its work to shareholders at such meetings; |
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implementing shareholders resolutions; |
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determining our business plans and investment proposals; |
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declaring dividends and distributions; |
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exercising the borrowing powers of our company and mortgaging the property of our company; |
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approving the transfer of shares of our company, including the registering of such shares in our share register; and |
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exercising any other powers conferred by the shareholders meetings or under our Second Amended and Restated Memorandum and Articles of Association. |
Terms of Directors
Our Second Amended
and Restated Memorandum and Articles of Association provide for three classes of directors, each with three-year terms. The term of the Class I directors, who are Dr. Zengxiang Lu and Jianhua Zhu, will expire upon the annual general
meeting of shareholders to be held in 2017; the term of the Class II director, who is Michael Elyakim, will expire upon the annual general meeting of shareholders to be held in 2015; and the term of the Class III directors, who are Jianyue
Pan, Songzuo Xiang and Eric Zhe Xu, will expire upon the annual general meeting of shareholders to be held in 2016.
Employment Agreements
We have entered into service contracts with our directors. The service contracts do not provide any benefits to our directors upon termination
of service.
We have entered into an employment agreement with each of our executive officers. Under these agreements, we may terminate an
executive officers employment for cause at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to material acts of fraud, material violations of our terms of employment, material
dereliction of duty or engaging in graft to the material harm of the company. An executive officer may terminate employment if a government regulatory agency determines that working conditions are extremely deficient and injurious to health, if the
executive has been subject to violence, threats or illegal constraints upon his liberty, or if we have failed to pay compensation on time. We and each executive officer may also decide to terminate such executive officers employment for other
reasons or no reason after providing written notice at least 30 days in advance and after we have made arrangements for a successor. Our employment agreements do not provide any benefits to any of our executive officers upon termination.
Each executive officer who has executed an employment agreement with us has agreed to hold in confidence and not to use, both during and after
such executive officers term of employment, any of our confidential information, including but not limited to information relating to important company policies, technological secrets, commercial secrets, company processes and any intellectual
property discovered, invented or created by such executive officer during his or her term of employment. In addition, each of our executive officers has agreed to give us full rights to any work-related patents, inventions or achievements.
92
Each executive officer has also agreed that for one year after terminating employment with us,
such executive officer will not, without our consent, accept employment by any of our competitors or engage in any activities that, directly or indirectly, compete with us. In addition, each executive officer has agreed that he or she will not,
without our consent, induce any of our employees to terminate employment with us.
Board Committees
To enhance our corporate governance, our board of directors has established two board committees: an audit committee and a corporate governance
and nominations committee. The charters of each of our audit committee and corporate governance and nominations committee are publicly available on our website at http://ir.chinadtv.cn. In addition, Songzuo Xiang, one of our independent directors,
assists the board in reviewing and approving our compensation structure, including all forms of compensation relating to our directors and executive officers, and administering our stock incentive plans.
Audit Committee
Our audit committee is responsible for, among other things:
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recommending to our shareholders, if appropriate, the annual reappointment of our independent auditors and pre-approving all audit and non-audit services permitted to be performed by our independent auditors;
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annually reviewing with our independent auditors any audit problems or difficulties and managements response; |
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reviewing and approving all proposed related-party transactions, as defined in Item 404 of Regulation S-K promulgated by the SEC; |
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discussing the annual audited financial statements with management and our independent auditors; |
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discussing with management and the independent auditors major issues regarding accounting principles and financial statement presentations; |
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reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
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discussing policies with respect to risk assessment and risk management; |
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timely reviewing reports from the independent auditors regarding all critical accounting policies and practices to be used by our company, all alternative treatments of financial information within U.S. GAAP that have
been discussed with management and all other material written communications between the independent auditors and management; |
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establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters, and for the confidential, anonymous submission by our
employees of concerns regarding questionable accounting or auditing matters; |
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annually reviewing and reassessing the adequacy of our audit committee charter; |
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meeting separately and periodically with management and our internal and independent auditors; and |
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reporting regularly to our board of directors. |
Our audit committee currently consists of
Songzuo Xiang and Jianyue Pan, and has a formal written charter that sets forth its duties and powers. Our board has determined that each of Songzuo Xiang and Jianyue Pan qualifies as an independent director under the rules of the SEC
and the NYSE. Our board also has determined that Songzuo Xiang qualifies as an audit committee financial expert within the meaning of the rules of the SEC. Our audit committee meets at least once each quarter.
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We currently only have two members on our audit committee and we no longer comply with
Section 303A.07 of the NYSE Listed Company Manuel, which, among other things, requires a listed company to have an audit committee that has a minimum of three members. As a foreign private issuer, we are permitted to follow home country
practice in lieu of such requirements pursuant to Section 303A.00 of the NYSE Listed Company Manual. The corporate governance practice in our home country, the Cayman Islands, does not require companies to have a minimum number of members on
the audit committee.
Corporate Governance and Nominations Committee
Our corporate governance and nominations committee consists of Songzuo Xiang and Jianyue Pan, and has a formal written charter that sets forth
its duties and powers. Our corporate governance and nominations committee is responsible for identifying individuals qualified to become members of our board of directors and recommending them to our board of directors for nomination. Our corporate
governance and nominations committee is also responsible for implementing our Code of Business Conduct and Ethics.
We currently do not
have a compensation committee and we no longer comply with Section 303A.05 of the NYSE Listed Company Manual, which, among other things, requires a listed company to have a compensation committee composed entirely of independent directors.
However, Songzuo Xiang, one of our independent directors, currently assists the board in reviewing and approving our compensation structure, including all forms of compensation relating to our directors and executive officers, and administering our
stock incentive plans. As a foreign private issuer, we are permitted to follow home country practice in lieu of such requirements pursuant to Section 303A.00 of the NYSE Listed Company Manual. The corporate governance practice in our home
country, the Cayman Islands, does not require companies to have a compensation committee.
Corporate Governance Guidelines
Our board of directors has adopted a set of corporate governance guidelines. These guidelines reflect certain guiding principles with respect
to the composition, selection and performance evaluation of our board of directors, the board committees, management succession and executive compensation. They are publicly available on our website at http://ir.chinadtv.cn.
See Item 4. Information on the CompanyB. Business
OverviewEmployees.
Under the Exchange Act Rule 13d-3, a person is deemed to be a
beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or
to direct the disposition of such security. A person is also deemed to be the beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be
deemed a beneficial owner of securities as to which such person has no economic interest.
94
The following table sets forth certain information with respect to the directors, officers and
each of the persons known to us who own beneficially 5% or more of our ordinary shares as of March 31, 2015 unless otherwise indicated. The number of ordinary shares outstanding in calculating the percentages for each listed person includes the
ordinary shares underlying share options held by such person. The percentage of beneficial ownership of each listed person is based on 59,770,311 ordinary shares outstanding (excluding the 752,781 ordinary shares that were issued and held for the
Companys account in preparation for exercise of share options by option holders under our employee stock incentive plans), as well as the ordinary shares underlying share options exercisable by such person within 60 days of March 31,
2015.
|
|
|
|
|
|
|
|
|
|
|
Shares beneficially owned |
|
|
|
Number |
|
|
Percent |
|
Directors and Executive Officers |
|
|
|
|
|
|
|
|
Zengxiang LU(1) |
|
|
10,676,102 |
|
|
|
17.53 |
% |
Jianhua ZHU(2) |
|
|
10,476,102 |
|
|
|
17.20 |
% |
Jianyue PAN |
|
|
|
* |
|
|
|
* |
Eric Zhe XU |
|
|
|
|
|
|
|
|
Michael ELYAKIM |
|
|
|
* |
|
|
|
* |
Songzuo XIANG |
|
|
|
|
|
|
|
|
Qian YUE(3) |
|
|
|
** |
|
|
|
** |
Jian HAN(4) |
|
|
|
** |
|
|
|
** |
Huiqing CHEN(5) |
|
|
|
** |
|
|
|
** |
|
|
|
Directors and executive officers as a group(6) |
|
|
22,340,501 |
|
|
|
36.72 |
% |
|
|
|
Principal Shareholders |
|
|
|
|
|
|
|
|
Glories Global(7) |
|
|
4,300,000 |
|
|
|
7.19 |
% |
Parker International(8) |
|
|
3,956,797 |
|
|
|
6.62 |
% |
* |
Beneficially owns less than 1% of our ordinary shares. |
** |
Upon exercise of all share options exercisable within 60 days of March 31, 2015, would beneficially own less than 1% of our ordinary shares. |
(1) |
Represents: (i) the 9,273,393 ordinary shares and 200,000 ADSs held by Polar Light Group Limited, which is wholly owned by Dr. Zengxiang Lu; (ii) the 155,418 ordinary shares held by China Cast; and
(iii) the 1,125,000 ordinary shares issuable upon exercise of options held by Dr. Lu that are exercisable within 60 days of March 31, 2015. Dr. Lu, together with Jianhua Zhu, exercises investment and voting powers over the shares
held by China Cast. Dr. Lu owns 50% of the equity interest of China Cast and disclaims beneficial ownership of those shares held by China Cast except to the extent of his pecuniary interest therein. |
(2) |
Represents: (i) the 9,273,393 ordinary shares held by Smart Live Group Limited, which is wholly owned by Jianhua Zhu; (ii) the 155,418 ordinary shares held by China Cast Investment Holdings Limited, or China
Cast; and (iii) the 1,125,000 ordinary shares issuable upon exercise of options held by Mr. Zhu that are exercisable within 60 days of March 31, 2015. Mr. Zhu, together with Dr. Zengxiang Lu, exercises investment and voting
powers over the shares held by China Cast. Mr. Zhu owns 50% of the equity interest of China Cast and disclaims beneficial ownership of those shares held by China Cast except to the extent of his pecuniary interest therein. |
(3) |
Represents the sum of ADSs owned by Ms. Yue and ordinary shares issuable upon exercise of options held by Ms. Yue. |
(4) |
Represents the sum of ordinary shares owned by Mr. Han and ordinary shares issuable upon exercise of options held by Mr. Han. |
(5) |
Represents the sum of ordinary shares owned by Ms. Chen and ordinary shares issuable upon exercise of options held by Ms. Chen. |
(6) |
Represents 100% of the 155,418 ordinary shares held by China Cast (Dr. Zengxiang Lu and Jianhua Zhu jointly exercise investment and voting powers over the shares held by China Cast), ordinary shares and ADSs held
by Dr. Lu (other than those ordinary shares held through China Cast), Mr. Zhu (other than those ordinary shares held through China Cast), Ms. Yue, Mr. Han, Ms. Chen, Mr. Pan and Mr. Elyakim and ordinary shares
issuable upon exercise of options held by Dr. Lu, Mr. Zhu, Ms .Yue, Mr. Han and Ms. Chen. |
(7) |
Represents the sum of ADSs owned by Glories Global Limited, which is owned by Yan Juan Weng, a PRC citizen. |
(8) |
Represents the sum of ADSs owned by Parker International Limited, which is owned by Shmuel Meitar. |
95
Item 7. |
Major Shareholders and Related Party Transactions |
Please refer to Item 6. Directors, Senior Management and
EmployeesE. Share Ownership in this annual report.
None of our major shareholders has voting rights different from those of
our other shareholders. To the best of our knowledge, we are not directly or indirectly controlled by another corporation, by any foreign government or by any other natural or legal person severally or jointly.
We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
For information regarding our shares held or beneficially owned by persons in the United States, see Item 9. The Offer and
ListingA. Offering and Listing DetailsMarket and Share Price Information in this annual report.
B. |
Related Party Transactions |
Super TV and N-S Digital TV Arrangements
We operated our business in the PRC through N-S Digital TV, a PRC company that was previously owned by PRC citizens and became a wholly-owned
subsidiary of our company in June 2014. We did not own any equity interest in N-S Digital TV before it became our subsidiary in June 2014. Through Super TV, our indirectly wholly-owned subsidiary in the PRC, we had entered into a series of
contractual arrangements with N-S Digital TV and its shareholders, including contracts relating to transfer of assets, supply of smart cards and related software products, provision of equipment and technical support and related services, technology
development and licenses, and certain shareholder rights and corporate governance matters. These contractual agreements were terminated with effect from June 20, 2014.
The following is a summary of the material provisions of certain of these agreements. For more complete information you should read these
agreements in their entirety.
Technical Support, Smart Cards and Software, Licenses and Equipment
|
|
|
Technical Support and Related Services Agreement, dated June 7, 2004 and amended on February 9, 2012, between N-S Digital TV and Super TV. Super TV exclusively provides N-S Digital TV
and/or its customers with technical support, technical training, personnel services relating to N-S Digital TVs marketing activities and services relating to the maintenance and optimization for the products and software of N-S Digital
TVs customers at N-S Digital TVs request. The fees for such technical support and services are determined at Super TVs discretion and payable within five days after the delivery of the support and services or at any other time
agreed to by the parties. In 2014, N-S Digital TV did not make any payment to Super TV under this agreement. The term of this agreement is 15 years, which may not be terminated prior to its termination date without Super TVs written consent.
The term of this agreement will be automatically renewed for an additional 15 years upon its termination date, unless written notice has been given by Super TV. |
|
|
|
Technology License Agreement, dated June 7, 2004 and amended on February 9, 2012, between N-S Digital TV and Super TV. N-S Digital TV granted Super TV, free of charge, an exclusive license
to use certain software copyrights, patents, unpatentable technology and technical secrets relating to the digital television business that was transferred from N-T Information Engineering to N-S Digital TV. The term of the license is ten
years. This agreement may not be terminated or amended without the written consent of Super TV prior to its termination date and will be automatically renewed for an additional ten years upon its termination date, unless written notice has been
given by Super TV. |
96
|
|
|
Technology Development Agreement, dated June 7, 2004 and amended on February 9, 2012, between N-S Digital TV and Super TV. N-S Digital TV engaged Super TV to develop all technology
required by N-S Digital TV or its customers. The fees payable by N-S Digital TV to Super TV under the agreement will be calculated according to the following formula: |
The price at which N-S Digital TV sells the technology products developed by Super TV multiplied by a set percentage multiplied by the
quantity of the products sold.
The set percentage is determined by Super TV. In 2014, N-S Digital TV did not make any payment to
Super TV under this agreement. The term of the agreement is ten years, which may not be terminated prior to its termination date without Super TVs written consent. The term of this agreement will be automatically renewed for an additional ten
years upon its termination date, unless written notice has been given by Super TV.
|
|
|
Products and Software Purchase Agreement, dated June 7, 2004 and amended on February 9, 2012, between N-S Digital TV and Super TV. N-S Digital TV agreed to exclusively purchase from Super
TV all the smart cards and related software products required for its CA systems. The purchase price was RMB65 (US$9.5) for each smart card (including related software), which is determined by Super TV and may be adjusted annually by Super TV based
on fair market value. The term of the agreement is 15 years, which may not be terminated prior to its termination date without Super TVs written consent. The term of this agreement will be automatically renewed for another 15 years upon its
termination date, unless written notice has been given by Super TV. N-S Digital TV subsequently obtained Super TVs consent to produce by itself or purchase from a third party smart cards beginning March 2006. The aggregate value
of transactions between N-S Digital TV and Super TV under this agreement was RMB117.0 million (US$19.0 million) in 2014. |
|
|
|
Framework Agreement for Purchase of Computer Chips, dated December 12, 2008, between N-S Digital TV and Super TV. Pursuant to this agreement, N-S Digital TV will purchase computer chips from Super TV,
which, in turn, will source such computer chips from suppliers such as STM and Infineon. The term of this agreement is indefinite and is terminable by agreement between the parties. In 2014, N-S Digital TV did not make any payment to Super TV under
this agreement. |
|
|
|
Framework Agreement for Sale of Software Products, dated July 14, 2009, between N-S Digital TV and Super TV. Super TV granted N-S Digital TV the exclusive right to sell its software products relating
to advertisement editing and CA systems and other software products as agreed by the parties. The amount, price and related fees will be specified by each order provided by N-S Digital TV to Super TV. The agreement has a term of five years and is
terminable by Super TV at any time. In 2011, Digital Rights Management, a content protection system for IPTV, was sold under the framework agreement. The aggregate value of transactions between N-S Digital TV and Super TV under this agreement was
RMB0.8 million (US$0.1 million) in 2014. |
Shareholder Rights and Corporate Governance
Equity Transfer Option Agreement
An equity transfer option agreement was entered into among Super TV, N-T Information Engineering and Li Yang
on June 7, 2004, as amended by a supplemental agreement, dated September 1, 2005, among Super TV, N-T Information Engineering, Li Yang and N-S Digital TV, and further amended by a second supplemental agreement,
dated August 18, 2007, among Super TV, N-T Information Engineering, Li Yang, N-S Digital TV and Wei Gao, a third supplemental agreement, dated June 20, 2008, among Super TV, N-S Digital TV, N-T Information Engineering, Wei Gao and
Junming Wu, a fourth supplemental agreement, dated November 24, 2008, among Super TV, N-S Digital TV, N-T Information Engineering, Junming Wu, Lei Zhang and Shizhou Shen, a fifth supplemental agreement, dated July 11, 2011, among Super TV,
N-S Digital TV, Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang, and a supplemental agreement, dated February 9, 2012, among Super TV, N-S Digital TV, Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen, referred to
collectively as the Equity Transfer Option Agreement. Pursuant to the Equity Transfer Option Agreement, Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen, being all the shareholders of N-S Digital TV, jointly grant Super TV an
exclusive and irrevocable option to purchase all of their equity interests in N-S Digital TV at any time that Super TV deems fit. Super TV may purchase such equity interests by itself or designate another party to purchase such equity interests. The
total consideration for the granting of the option was RMB10 (US$1.6). The exercise price of the option will be determined by Super TV or its designated third party at the time of the exercise, subject to the requirements of the PRC law or approval
of relevant authorities with respect to the minimum purchase price and the basis for the determination of the purchase price. Following any exercise of the option, the parties will enter into a definitive equity interest transfer agreement within
two days, or any period agreed to among the parties, after a written notice of exercise is delivered. The Equity Transfer Option Agreement does not have a specified term and will remain in effect unless terminated with the written consent of
Super TV.
97
Pursuant to the Equity Transfer Option Agreement, at all times before Super TV acquires 100% of
the equity interests in N-S Digital TV, without Super TVs consent, N-S Digital TV may not (i) amend its organizational documents, increase or reduce its registered capital or otherwise change its capital structure; (ii) sell,
transfer, pledge or otherwise dispose of any legal or beneficial interest in any of its assets, business or revenues, or allow the creation of any encumbrance thereon; (iii) engage in any activities that may negatively impact its operations or
the value of its assets; or (iv) incur, assume or guarantee any debts except in the ordinary course of business, extend any loan or credit to any person, enter into any material contracts, or engage in any merger or combination with,
acquisition of, or make investment in, any other person.
Under the Equity Transfer Option Agreement, Wenjun Wang, Tianxing Wang,
Lei Zhang and Shizhou Shen undertake not to do any of the following without Super TVs consent, at all times before Super TV acquires 100% of the equity interests in N-S Digital TV: (i) transfer or pledge to any third party their
equity interests in N-S Digital TV; (ii) cause N-S Digital TV to issue new shares or engage in any transactions that will result in changes to their existing shareholding structures or transfer to any third party
N-S Digital TVs equity interests in their respective associated companies; (iii) receive any dividends, loan interest or other benefits from N-S Digital TV; or (iv) make any material adjustment
or change to N-S Digital TVs business and operations.
Business Operating Agreement
A business operating agreement, dated September 1, 2005, was entered into among Super TV, N-T Information Engineering, Li Yang and
N-S Digital TV, as amended by a supplemental agreement, dated August 18, 2007, among Super TV, N-S Information Engineering, Li Yang, N-S Digital TV and Wei Gao, and further amended by a second
supplemental agreement, dated June 20, 2008, among Super TV, N-S Digital TV, N-T Information Engineering, Wei Gao and Junming Wu, a third supplemental agreement, dated November 24, 2008, among Super TV, N-S Digital TV, N-T Information
Engineering, Junming Wu, Lei Zhang and Shizhou Shen, a fourth supplemental agreement, dated July 11, 2011, among Super TV, N-S Digital TV, Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang, and a supplemental agreement, dated
February 9, 2012, among Super TV, N-S Digital TV, Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen, referred to collectively as the Business Operating Agreement. Pursuant to the Business Operating Agreement, N-S Digital TV and its
shareholders agreed to (i) accept the policies and guidelines furnished by Super TV from time to time with respect to the hiring and dismissal of employees, operational management and financial system of N-S Digital TV; (ii) appoint the
candidates recommended by Super TV as directors of N-S Digital TV and appoint the senior management personnel of Super TV as the general manager, chief financial officer and other senior officers of N-S Digital TV based on Super TVs
recommendations; (iii) replace or remove any director or senior management personnel of N-S Digital TV at Super TVs request; and (iv) seek a guarantee from Super TV first when any guarantee is required to secure performance by N-S
Digital TV of any contract or working capital loans borrowed by N-S Digital TV and pledge its assets and receivables to Super TV as a counter-guarantee. To date, N-S Digital TV has not sought any such guarantee from Super TV. In addition, Super TV
has agreed with N-S Digital TV to serve as a guarantor of N-S Digital TV with respect to contracts or transactions entered into between N-S Digital TV and third parties in respect of N-S Digital TVs business operations. However, N-S Digital TV
has not asked Super TV to provide, and Super TV has not provided, any such guarantee in favor of a third party. The Business Operating Agreement has a term of ten years and may be renewed at the option of Super TV by giving written notice for a term
to be determined by Super TV. Super TV may terminate this agreement at any time by giving 30 days advance written notice to the other parties to this agreement.
98
Powers of Attorney
Each of Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen executed an irrevocable power of attorney, dated January 16, 2012, to
appoint Super TV or a third party designated by Super TV as an attorney-in-fact to exercise all his voting rights as a shareholder of N-S Digital TV. The term of the powers of attorney is ten years, subject to earlier termination in the event of the
termination of the relevant share pledge agreement. The powers of attorney will be automatically renewed upon the extension of the term of the relevant share pledge agreement.
Share Pledge Agreements
N-T Information Engineering and Super TV entered into a share pledge agreement, dated September 1, 2005, pursuant to which N-T Information
Engineering had pledged all of its equity interests in N-S Digital TV to Super TV to secure the payment obligations of N-S Digital TV under certain contractual arrangements between N-S Digital TV and Super TV. This agreement was terminated on
November 24, 2008, following the transfer by N-T Information Engineering of all of its equity interests in N-S Digital TV to Lei Zhang and Shizhou Shen. On November 24, 2008, Mr. Zhang and Mr. Shen each entered into a share
pledge agreement with Super TV, pursuant to which Mr. Zhang and Mr. Shen have pledged all of their respective equity interests in N-S Digital TV to Super TV to secure their respective payment obligations under their respective loan
agreements with Super TV, each dated November 24, 2008.
Pursuant to the share pledge agreement, dated September 1, 2005,
between Super TV and Li Yang, as amended by a supplemental agreement, dated August 18, 2007, between Super TV, Li Yang and Wei Gao, and further amended by a second supplemental agreement, dated June 20, 2008, among Super TV, Wei Gao and
Junming Wu, Mr. Wu has pledged all of his equity interests in N-S Digital TV to Super TV to secure the payment obligations of N-S Digital TV under certain contractual arrangements between N-S Digital TV and Super TV. This agreement was
terminated on July 11, 2011, following the transfer by Mr. Wu of all of his equity interests in N-S Digital TV to Tianxing Wang.
Each of Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen entered into a share pledge agreement with Super TV on July 11, 2011,
which was superseded by another share pledge agreement with Super TV on January 16, 2012. Pursuant to the share pledge agreements, each of Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen pledged all his equity interests in N-S Digital TV
to Super TV to secure his and N-S Digital TVs performance of their respective obligations under the VIE contractual arrangements between N-S Digital TV or its shareholders and Super TV. Under such share pledge agreements, each of Wenjun Wang,
Tianxing Wang, Lei Zhang and Shizhou Shen agreed not to transfer his equity interests in N-S Digital TV or create, or allow the creation of, any pledge on their respective equity interests in N-S Digital TV that may affect Super TVs interests
without Super TVs consent. Pursuant to such agreements, Super TV is entitled to receive the dividends on the pledged equity interests during the term of the pledge. The duration of each of the share pledge agreements is equivalent to the
maximum duration of the VIE contractual arrangements between N-S Digital TV and/or its shareholders and Super TV. The share pledge agreements may only be terminated: (i) by Super TV in writing; or (ii) upon the fulfillment of N-S Digital
TVs and its shareholders respective obligations under the VIE contractual arrangements between N-S Digital TV and/or its shareholders and Super TV, which is subject to Super TVs written confirmation. The share pledge agreements
were registered with the Beijing Administration of Industry and Commerce on February 1, 2012.
99
Loan Agreements
Pursuant to two loan agreements, each dated November 24, 2008, between Super TV and each of Lei Zhang and Shizhou Shen, respectively, as
amended by a supplemental agreement to the loan agreements, dated January 16, 2012, among Super TV, Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen, Super TV provided a loan in the principal amount of RMB6.2 million
(US$0.9 million) to each of Mr. Zhang and Mr. Shen. The term of each loan is ten years, which is automatically renewable for another ten years upon its termination date, unless a written notice has been provided by Super TV one month
prior to such termination date. Mr. Zhang and Mr. Shen may not repay the loan prior to the termination date of the relevant loan agreement, unless so requested by Super TV, and may only repay the loan by (i) transferring all his
equity interests in N-S Digital TV to Super TV or any third party designated by Super TV and (ii) paying Super TV with the entire proceeds obtained by himself from such transfer. The interest rate of each loan is nil. Super TV provided such
loans to Mr. Zhang and Mr. Shen to fund their acquisitions of N-T Information Engineerings equity interests in N-S Digital TV.
Pursuant to three loan agreements, each dated July 11, 2011, between Super TV and each of Wenjun Wang, Tianxing Wang and Lei Zhang,
respectively, as amended by a supplemental agreement to the loan agreements, dated January 16, 2012, among Super TV, Wenjun Wang, Tianxing Wang, Lei Zhang and Shizhou Shen, and as further amended by a second supplemental agreement, dated
April 12, 2013, between Super TV and Tianxing Wang, Super TV provided a loan in the principal amount of RMB43.3 million (US$6.7 million), RMB38.6 million (US$6.0 million) and RMB35.1 million (US$5.5 million) to each of Wenjun Wang, Tianxing
Wang and Lei Zhang, respectively. The term of each loan is ten years, which is automatically renewable for another ten years upon its termination date, unless a written notice has been provided by Super TV one month prior to such termination date.
Wenjun Wang, Tianxing Wang and Lei Zhang may not repay the loan prior to the termination date of the relevant loan agreement, unless so requested by Super TV, and may only repay the loan by (i) transferring all his equity interests in N-S
Digital TV to Super TV or any third party designated by Super TV and (ii) paying Super TV with the entire proceeds obtained by himself from such transfer. The interest rate of each loan is nil. Super TV provided such loans to Wenjun Wang,
Tianxing Wang and Lei Zhang in July 2011 to fund their additional contribution to N-S Digital TVs registered capital.
In June 2014,
Super TV, N-S Digital TV and the nominee shareholders of N-S Digital TV, namely Tianxing Wang, Lei Zhang, Shizhou Shen and Wenjun Wang, entered into a termination agreement that terminated the series of contractual agreements underlying the VIE
structure between the nominee shareholders of N-S Digital TV and Super TV. Pursuant to the termination agreement, the termination is conditioned upon the nominee shareholders transferring 100% of their equity interest in N-S Digital TV to
Super TV, with the consideration of such transfer equaling and offset by the amount of loans owed to Super TV by the nominee shareholders under the loan agreements entered into between each of the nominee shareholders and Super TV.
On the same date, Super TV and the nominee shareholders of N-S Digital TV, namely Tianxing Wang, Lei Zhang, Shizhou Shen and Wenjun Wang,
entered into a share transfer agreement, pursuant to which the nominee shareholders of N-S Digital TV transferred the 100% equity interest in N-S Digital TV to Super TV for a consideration of RMB150 million. Pursuant to the share transfer agreement,
the nominee shareholders shall promptly de-register the share pledge agreements entered into between each of Tianxing Wang, Lei Zhang, Shizhou Shen and Wenjun Wang with Super TV, and facilitate the transfer of equity interest in N-S Digital TV. As a
result, N-S Digital TV became a wholly-owned subsidiary of Super TV.
Other Related Party Transactions
Shareholders Agreement
Pursuant to the First Amended and Restated Shareholders Agreement of China Digital TV Holding Co., Ltd., or the Shareholders Agreement, dated
September 13, 2007, among N-T Information Engineering, N-S Digital TV, CDTV BVI, China Capital, China Cast, SAIF, Capital Funds and certain other shareholders, as amended by an agreement, dated June 14, 2011, among us, N-S Digital TV,
China Cast, SAIF, Capital Funds and certain other shareholders, at any time beginning six months after the closing of our initial public offering, each of SAIF, Capital Funds and China Capital may, on three occasions only, require us to effect the
registration on a form other than Form F-3 of all or part of the registrable securities then outstanding. In addition, any holder of registrable securities may require us to effect a registration statement on Form F-3 (or any successor
form or any comparable form for a registration in a jurisdiction other than the United States) for a public offering of registrable securities so long as we are entitled to use Form F-3 (or a comparable form) for such offering. Demand for a
registration on Form F-3 may be made on unlimited occasions, although we are not obligated to effect more than one such registration per shareholder in any six-month period.
100
Registrable securities are ordinary shares not previously sold to the public and issued or
issuable or sold to SAIF, Capital Funds and China Capital, including: (a) ordinary shares issuable upon conversion or exercise of either (i) any of the Series A preferred shares, or (ii) any options or warrants to purchase
ordinary shares or the Series A preferred shares of our company; (b) ordinary shares held by Capital Funds and China Capital; (c) ordinary shares issued pursuant to share splits, share dividends, and similar distributions to SAIF,
Capital Funds and China Capital; and (d) any other securities of our company granted with registration rights pursuant to the Shareholders Agreement.
Holders of registrable securities also have piggyback registration rights, which may require us to register all or any part of the
registrable securities then held by such holders when we register any of our ordinary shares.
We are generally required to bear all of
the registration expenses incurred in connection with three demand registrations on a form other than Form F-3 for each of SAIF, Capital Funds and China Capital, unlimited Form F-3 and piggyback registrations, except underwriting discounts
and selling commissions, but including reasonable expenses of one counsel for the party exercising the registration right. The registration rights under the Shareholders Agreement shall terminate on June 14, 2015.
Interest Payment Agreement
Pursuant to an agreement, dated November 30, 2006, between Super TV and N-S Digital TV, N-S Digital TV agreed to pay interest at a rate
equal to commercial banks lending rate for one-year loans on the payments payable by N-S Digital TV to Super TV for the purchases of products from Super TV. Interest payable will start to accrue from the first day of the month following the
confirmation of the corresponding sales until the actual payment. No interest was accrued as of December 31, 2014 under this agreement.
Share Transfer Agreements (Xinsi Yijia and Cyber Cloud)
Pursuant to a series of share transfer agreements, dated April 30, 2014, among Super TV, CSM Holdings, Yuewu Yuntian, Holch Capital, Cyber
Cloud and Xinsi Yijia, Cyber Cloud acquired the equity interest in Xinsi Yijia hold by Yuewu Yuntian, and in exchange, Yuewu Yuntian obtained certain equity interests in Cyber Cloud.
Share Transfer Agreement (Shibo Movie)
Pursuant to a share transfer agreement, dated June 18, 2014, between N-S Digital TV and N-S Information Technology, N-S Digital TV transferred its 100% equity interest in Shibo Movie to N-S Information Technology, for a consideration of RMB5.2 million (US$0.8 million).
Share Transfer Agreement (N-S Media Investment)
Pursuant to a share transfer agreement, dated June 18, 2014, between N-S Digital TV and N-S Information Technology, N-S Digital TV transferred its 100% equity interest in N-S Media Investment to N-S Information Technology, for a consideration of RMB17.2 million (US$2.8 million).
C. |
Interests of Experts and Counsel |
Not Applicable.
Item 8. |
Financial Information |
A. |
Consolidated Statements and Other Financial Information |
Consolidated Statements
See Item 18. Financial Statements.
101
Legal Proceedings
We are not currently a party to any material legal proceeding and, to our knowledge, there are no material legal proceedings threatened against
us. From time to time, we may be subject to various claims and legal actions arising in the ordinary course of business.
Dividend Policy
In December 2008, in the belief that a special dividend is an efficient use of our cash to maximize shareholder value, our board of directors
determined to declare and pay a special cash dividend of US$1.00 per ordinary share of the company. This special dividend in the amount of US$57.3 million was fully paid by the end of February 2009.
In November 2010, our board of directors declared a special cash dividend of US$2.00 per ordinary share to be paid in two installments of
US$1.00 each. The special cash dividend was fully paid on May 31, 2011.
In May 2011, our board of directors declared a special cash
dividend of US$0.56 per ordinary share. US$32,937,000 was paid in 2012 and the remaining US$79,000 was paid in 2013.
In November 2012,
our board of directors declared a special cash dividend of US$2.30 per ordinary share to be paid in two installments of US$1.00 and US$1.30, respectively. Cash dividend totaling US$59,013,000 was paid in 2012, US$76,863,000 was paid in 2013, and the
remaining US$57,000 was paid in 2014.
We declared a special cash dividend of US$0.50 per ordinary share on April 2, 2014. The
dividend was paid in May 2014.
Our board of directors has the discretion to determine the payment of any dividends. As a matter of
company policy, our board of directors will consider declaring and paying dividends for a given period, subject to the board of directors determination that (i) we have sufficient profit attributable to shareholders for such period and
(ii) our funding requirements can be fully satisfied if a proposed dividend is declared and paid. Our board of directors will review and decide whether to revise our dividend policy, from time to time, in light of our future operations and
earnings, capital requirements and surplus, financial condition, contractual restrictions, general business conditions and other factors as the board of directors may deem relevant.
We may rely on our operating subsidiary, Super TV, for our cash needs, including the funds necessary to pay dividends to our shareholders. The
payment of dividends by Super TV is subject to limitations. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaWe may rely on dividends and other distributions on equity
paid by our operating subsidiary to fund cash and financing requirements, and limitations on the ability of our operating subsidiary to pay dividends to us could materially restrict our ability to conduct our business.
Holders of ADSs will be entitled to receive dividends, subject to the terms of the deposit agreement, less the fees and expenses payable under
the deposit agreement. Cash dividends will be paid by the depositary to holders of ADSs in U.S. dollars. Other distributions, if any, will be paid by the depositary to holders of our ADSs by any means it deems legal, fair and practical.
There have been no significant changes since December 31,
2014, the date of the annual financial statements in this annual report.
102
Item 9. |
The Offer and Listing |
A. |
Offering and Listing Details |
Market and Share Price Information
Our ADSs, each representing one ordinary share, have been listed on the NYSE since October 5, 2007. Our ADSs trade under the symbol
STV. The NYSE is the principal trading market for our ADSs, which are not listed on any other exchanges in or outside of the United States.
The high and low closing prices of our ADSs on the NYSE since listing are as follows:
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Price per ADS (US$) |
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High |
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Low |
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Yearly: |
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2008 |
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27.55 |
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4.25 |
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2009 |
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11.31 |
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5.83 |
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2010 |
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9.21 |
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5.30 |
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2011 |
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7.42 |
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3.17 |
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2012 |
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4.35 |
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1.68 |
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2013 |
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2.27 |
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1.36 |
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2014 |
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4.94 |
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1.81 |
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Quarterly: |
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First Quarter, 2013 |
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2.27 |
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1.70 |
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Second Quarter, 2013 |
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1.84 |
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1.45 |
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Third Quarter, 2013 |
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1.72 |
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1.36 |
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Fourth Quarter, 2013 |
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2.14 |
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1.58 |
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First Quarter, 2014 |
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3.69 |
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1.81 |
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Second Quarter, 2014 |
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4.79 |
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2.61 |
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Third Quarter, 2014 |
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4.94 |
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3.24 |
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Fourth Quarter, 2014 |
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4.66 |
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3.00 |
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First Quarter, 2015 |
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3.87 |
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2.90 |
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Monthly: |
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October 2014 |
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4.66 |
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3.86 |
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November 2014 |
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3.97 |
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3.50 |
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December 2014 |
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3.72 |
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3.00 |
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January 2015 |
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3.15 |
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2.90 |
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February 2015 |
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3.87 |
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2.91 |
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March 2015 |
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3.75 |
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3.41 |
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April 2015 (through April 27) |
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4.34 |
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3.74 |
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As of March 31, 2015, a total of 39,277,950 ADSs were outstanding, excluding the 752,781 ADSs that were
held for our account in preparation for exercise of share options by option holders under our employee stock incentive plans. As of March 31, 2015, 39,277,950 ordinary shares were registered in the name of Deutsche Bank Trust Company Americas,
the depositary under the deposit agreement, excluding 752,781 ordinary shares that were issued and held for our account in preparation for exercise of share options by option holders under our employee stock incentive plans.
Not Applicable.
103
Our ADSs, each representing one ordinary share, have been listed on the NYSE
since October 5, 2007 under the symbol STV.
Not Applicable.
Not Applicable.
Not Applicable.
Item 10. |
Additional Information |
Not Applicable.
B. |
Memorandum and Articles of Association |
We incorporate by reference into this annual
report the description of our Second Amended and Restated Memorandum and Articles of Association contained in our registration statement on Form F-1 (File No. 333-146072) filed with the SEC on September 14, 2007. Our shareholders
adopted our Second Amended and Restated Memorandum and Articles of Association on September 13, 2007.
Other than the contracts described elsewhere in this annual report,
we and our operating companies have not entered into any material contracts that are not in the ordinary course of business within the two years preceding the date of this annual report.
The Cayman Islands currently have no exchange control restrictions.
See also Item 4. Information on the CompanyB. Business OverviewRegulationForeign Currency Exchange and Item 4. Information on the CompanyB. Business OverviewRegulationRegulation of Foreign
Exchange in Certain Onshore and Offshore Transactions for information on foreign currency exchange in the PRC.
The following discussion of the material Cayman Islands and United States
federal income tax consequences of an investment in the ADSs is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This summary does not deal with all possible tax
consequences relating to an investment in the ADSs, such as the tax consequences under state, local and other tax laws.
104
Cayman Islands Taxation
To the extent the following discussion relates to Cayman Islands law with respect to the income tax consequence of an investment in our ADSs,
it represents the opinion of Conyers Dill & Pearman.
The Cayman Islands currently levies no taxes on individuals or corporations
based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty or withholding tax applicable to us or to any holder of ADSs or ordinary shares. There are no other taxes likely to be
material to us levied by the Government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of, the Cayman Islands. No stamp duty is payable in the
Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands. The Cayman Islands is a party to a double tax treaty entered into with the United Kingdom in 2010 but is otherwise not
party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Pursuant to
Section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, we have obtained an undertaking from the Governor-in-Cabinet:
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that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to the Company or its operations; and |
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that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on the shares, debentures or other obligations of the Company. |
The undertaking for us is for a period of 20 years from May 1, 2007.
United States Federal Income Taxation
This section describes the material United States federal income tax consequences of owning ADSs. It applies to you only if you are a U.S.
holder, as defined below, and you hold your ADSs as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:
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a dealer in securities; |
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a trader in securities that elects to use a mark-to-market method of accounting for securities holdings; |
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a tax-exempt organization; |
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a life insurance company; |
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a person liable for alternative minimum tax; |
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a person that actually or constructively owns 10% or more of our voting stock; |
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a person that holds ADSs as part of a straddle or a hedging or conversion transaction; |
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a person that purchases or sells ADSs as part of a wash sale for tax purposes; or |
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a person whose functional currency is not the U.S. dollar. |
U.S. holders are urged to
consult their tax advisors about the application of the United States federal tax rules to their particular circumstances as well as the state, local and foreign tax consequences to them of the purchase, ownership and disposition of our ADSs or
ordinary shares.
This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and
proposed Treasury regulations, published rulings and court decisions, all as currently in effect. These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of the
depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.
105
If a partnership holds the ADSs, the United States federal income tax treatment of a partner will
generally depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding the ADSs should consult its tax advisor with respect to the United States federal income tax treatment of an investment in the
ADSs.
You are a U.S. holder if you are a beneficial owner of ADSs and you are:
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a citizen or resident of the United States; |
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a corporation (or other entity taxable as a corporation for United States federal income tax purposes) organized under the laws of the United States, any State or the District of Columbia; |
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an estate whose income is subject to United States federal income tax regardless of its source; or |
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a trust if a United States court can exercise primary supervision over the trusts administration and one or more United States persons are authorized to control all substantial decisions of the trust.
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In general, and taking into account the earlier assumptions, for United States federal income tax purposes, if you hold
ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States federal income tax. The tax treatment of holding shares
is identical to that of holding ADSs.
Taxation of Dividends
Under the United States federal income tax laws, and subject to the PFIC rules discussed below, the gross amount of any dividend we pay out of
our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a non-corporate U.S. holder, including an individual, dividends that
constitute qualified dividend income will be taxable to you at the preferential rates applicable to long-term capital gains provided that you hold the ADSs for more than 60 days during the 121-day period beginning 60 days before the
ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the ADSs generally will be qualified dividend income provided that, in the year that you receive the dividend, the ADSs are readily tradable on an
established securities market in the United States. The NYSE should qualify as an established securities market in the United States.
You
must include any foreign tax withheld from the dividend payment in this gross amount even though you do not in fact receive it. The dividend is taxable to you when the depositary receives the dividend, actually or constructively. The dividend will
not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations. Distributions in excess of current and accumulated earnings and profits, as
determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the ADSs and thereafter as capital gain.
Subject to certain limitations, in the event that PRC tax is withheld and paid over to the PRC with regard to the dividend payments, the PRC
tax will generally be creditable or deductible against your United States federal income tax liability. See Item 3. Key InformationD. Risk FactorsRisks Relating to the Peoples Republic of ChinaDividends payable by
us to our non-PRC shareholders and ADS holders, and gains on the sales of our ordinary shares or ADSs, may be subject to withholding taxes under PRC tax laws, which may materially reduce the value of your investment. Special rules apply in
determining the foreign tax credit limitation with respect to dividends that are subject to the preferential tax rates. To the extent a refund of the tax withheld is available under PRC law, the amount of tax withheld that is refundable will not be
creditable against your United States federal income tax liability.
106
Dividends will generally be income from sources outside the United States, and, depending on your
circumstances, will be either passive or general category income for purposes of computing the foreign tax credit allowable to you.
Taxation of Capital Gains
Subject to the PFIC rules discussed below, if you sell or otherwise dispose of your ADSs, you will recognize capital gain or loss for United
States federal income tax purposes equal to the difference between the U.S. dollar value of the amount that you realize and your tax basis, determined in U.S. dollars, in your ADSs. Capital gain of a non-corporate U.S. holder, including an
individual, is generally taxed at preferential rates where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.
PFIC Rules
Based on analyses of our income and the value of our assets, we believe we were not a PFIC for the taxable year ended December 31, 2014.
However, we were a PFIC during the taxable years 2009 through 2013 for U.S. federal income tax purposes. This conclusion is a factual determination that is made annually and thus we may or may not be a PFIC for the taxable year ending
December 31, 2015 or subsequent taxable years. To the extent that we hold a significant amount of cash or other passive assets in the future, it is more likely that we would be treated as a PFIC in future taxable years. You will generally be
treated as holding stock of a PFIC in the first taxable year of your holding period in which we became a PFIC and subsequent taxable years even if we cease to satisfy the tests to be classified as a PFIC in subsequent taxable years, unless you make
certain elections.
In general, we will be a PFIC with respect to you if for any taxable year in which you held our ADSs:
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at least 75% of our gross income for the taxable year is passive income; or |
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at least 50% of the value, determined on the basis of a quarterly average, of our assets is attributable to assets that produce or are held for the production of passive income. |
Passive income generally includes dividends, interest, royalties, rents (other than certain rents and royalties derived in the active conduct
of a trade or business), annuities and gains from assets that produce passive income. If a foreign corporation owns at least 25% by value of the stock of another corporation, the foreign corporation is treated for purposes of the PFIC tests as
owning its proportionate share of the assets of the other corporation, and as receiving directly its proportionate share of the other corporations income.
Although we were not a PFIC for the taxable year ended December 31, 2014, because we were classified as a PFIC for prior years as
described above, you will generally be subject to the special PFIC tax rules if you held our ADSs while we were treated as a PFIC or, if you make or have made a timely mark-to-market election, the mark-to-market rules as described below.
Special PFIC Rules. If we are treated as a PFIC, and you are a U.S. holder that did not make a
mark-to-market election, you will be subject to special rules with respect to:
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any gain you realize on the sale or other disposition of your ADSs; and |
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any excess distribution that we make to you (generally, any distributions to you during a single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ADSs during
the three preceding taxable years or, if shorter, your holding period for the ADSs). |
Under these rules:
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the gain or excess distribution will be allocated ratably over your holding period for the ADSs; |
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the amount allocated to the taxable year in which you realized the gain or excess distribution will be taxed as ordinary income; |
107
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the amount allocated to each prior year, with certain exceptions, will be taxed at the highest tax rate in effect for that year; and |
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the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such year. |
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC.
Moreover, your ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your ADSs, even if we are
not currently a PFIC. For purposes of this rule, if you make a mark-to-market election with respect to your ADSs, you will be treated as having a new holding period in your ADSs beginning on the first day of the first taxable year beginning after
the last taxable year for which the mark-to-market election applies. In addition, notwithstanding any election you make with regard to the ADSs, dividends that you receive from us will not constitute qualified dividend income to you if we are a PFIC
either in the taxable year of the distribution or the preceding taxable year. Dividends that you receive that do not constitute qualified dividend income are not eligible for taxation at the preferential rates applicable to qualified dividend
income. Instead, you must include the gross amount of any such dividend paid by us out of our accumulated earnings and profits (as determined for United States federal income tax purposes) in your gross income, and it will be subject to tax at rates
applicable to ordinary income.
If we are or were a PFIC for any taxable year during which you hold or held our ADSs, unless you make
or have made a timely mark-to-market election (as described below), we will continue to be treated as a PFIC with respect to you for all subsequent years during which you hold the ADSs, unless we have ceased to be classified as a PFIC under the
tests described above and you make a deemed sale election. If you make a deemed sale election, you will be deemed to have sold your ADSs at their fair market value on the last day of the last taxable year in which we qualified as a PFIC
and any gain from such deemed sale would be subject to the excess distribution rules described above. After the deemed sale election, so long as we do not become a PFIC in a subsequent taxable year, your ADSs with respect to which a deemed sale
election was made will not be treated as equity interests in a PFIC. However, as discussed above, we may be treated as a PFIC in future taxable years, in which case you would be subject to the excess distribution rules discussed above with respect
to such future taxable years, unless a mark-to-market election, as discussed below, is made.
Mark-to-Market
Rules. If you own ADSs in a PFIC that are treated as marketable stock, you should generally be able to make a mark-to-market election. We believe that our ADSs are and will continue to be marketable
stock as long as they continue to be traded on the NYSE, other than in de minimis quantities, on at least 15 days during each calendar quarter. If you make this election, you will not be subject to the PFIC rules described above.
Instead, in general, you will include as ordinary income each year the excess, if any, of the fair market value of your ADSs at the end of the taxable year over your adjusted basis in your ADSs. These amounts of ordinary income will not be eligible
for the favorable tax rates applicable to qualified dividend income or long-term capital gains. You will also be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted basis of your ADSs over their fair market value at
the end of the taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). Your basis in the ADSs will be adjusted to reflect any such income or loss amounts.
If you have made a timely mark-to-market election, you will not be required to include in income mark-to-market gain or loss for a year in
which we are not treated as a PFIC. However, cessation of PFIC status does not terminate the mark-to-market election and such election will continue to apply in any future year in which we are again treated as a PFIC and you will be required to
include mark-to-market gain or loss in income, as discussed above.
108
If you own ADSs during any year that we are a PFIC with respect to you, you generally must file
Internal Revenue Service Form 8621.
You should consult your own tax advisor regarding the application of the PFIC rules to your
ownership and disposition of the ADSs or shares, the effect of our ceasing to be a PFIC for the taxable year ended December 31, 2014 and the availability, application and consequences of the elections discussed above.
Sale of Super TV
Because we have been classified as a PFIC, special rules may apply to U.S. holders in connection with the sale of Super TV and in connection
with distributions we may make in connection with the sale.
Sale of Super
TV. If we held an interest in a PFIC in a taxable year in which we are treated as a PFIC with respect to your ADSs, you would also be treated as subject to the PFIC rules with respect to your indirect
interest in such subsidiary PFIC. If Super TV was classified as a PFIC at any time during your holding period in your ADSs and we are classified as a PFIC with respect to your ADSs, our sale of Super TV could cause you to be subject to tax on
the indirect disposition of your interest in Super TV. Specifically, if that indirect disposition is treated as being made at a gain for U.S. federal income tax purposes, you would be subject to the excess distribution regime with
respect to that gain even if we make no distribution to you with respect to the sale of Super TV.
Under these rules:
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this gain would be allocated ratably over your holding period for the ADSs; |
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the amount allocated to the taxable year in which we sell Super TV and years before Super TV was classified as a PFIC with respect to you, if there are any such years, will be taxed as ordinary income;
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the amount allocated to each other prior year will be taxed at the highest tax rate in effect for that year; and |
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the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other prior year. |
Special rules apply for calculating the amount of the foreign tax credit with respect to excess distributions by a PFIC. Even if you made a
mark-to-market election with respect to your ADSs, this election generally would not apply to your indirect interest in Super TV.
Distributions in Connection With the Sale of Super TV. Under the PFIC rules, if we make
distributions in any single taxable year that are greater than 125% of the average annual distributions received by you in respect of the ADSs during the three preceding taxable years or, if shorter, your holding period for the ADSs, the excess
would generally be subject to the same tax rules described above (i.e., the amount would be allocated ratably over your holding period for the ADSs and subject to U.S. tax in the manner described above).
You should consult your own tax advisor about the application of the PFIC rules to the sale of Super TV, any distributions we make in
connection with such sale, the interaction of the excess distribution rules as they apply to indirect dispositions with their application to actual distributions and any special U.S. tax filing requirements that may arise under the PFIC rules or
otherwise as a result of these transactions.
F. |
Dividends and Paying Agents |
Not Applicable.
109
Not Applicable.
You can read and copy documents referred to in this annual report
that have been filed with the SEC at the SECs public reference room located at 100 F Street, NE, Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges. The
SEC also maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
I. |
Subsidiary Information |
Not Applicable.
Item 11. |
Quantitative and Qualitative Disclosures About Market Risks |
Interest Rate Risk
As of December 31, 2014, we had no short-term or long-term borrowings. Our exposure to market risk for changes in interest rates relates
primarily to the interest income generated by our cash deposits with the banks. We have not used any derivative financial instruments in our investment portfolio. Interest earning instruments carry a degree of interest rate risk. We have not been
exposed, nor do we anticipate being exposed, to material risks due to changes in interest rates. However, our future interest income may fall short of expectations due to changes in interest rates. In addition, we may borrow loans in the future and
changes in interest rates may affect our finance cost.
Foreign Currency Risk
Although the conversion of the Renminbi is highly regulated in the PRC, the value of the Renminbi against the value of the U.S. dollar (or any
other currency) nonetheless may fluctuate and be affected by, among other things, changes in the political and economic conditions in the PRC. Under the currency policy in effect in the PRC today, the Renminbi is permitted to fluctuate in value
within a narrow band against a basket of certain foreign currencies. The PRC is currently under significant international pressures to liberalize this government currency policy, and if such liberalization were to occur, the value of the Renminbi
could appreciate or depreciate against the U.S. dollar.
Fluctuations in exchange rates may affect our costs, profit margins and net
income. For example, in 2014, a significant portion of our revenues were denominated in Renminbi and approximately 28.5% of our cost of revenues was denominated in U.S. dollars. In 2014, fluctuations in the exchange rates between the Renminbi and
U.S. dollar and other foreign currencies resulted in an increase in our net income of approximately US$0.02 million.
Fluctuations in
exchange rates may also affect our balance sheet. For example, to the extent that we need to convert U.S. dollars received in our initial public offering into the Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar
would have an adverse effect on the Renminbi amount that we receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or ADSs or for other
business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. Considering the amount of our cash and cash equivalents as of December 31, 2014, a 1.0% appreciation
of the Renminbi against the U.S. dollar will result in an estimated increase of approximately US$0.6 million in our total amount of cash and cash equivalents, and a 1.0% appreciation of the U.S. dollar against the Renminbi will result in a decrease
of approximately US$0.6 million in our total cash and cash equivalents.
110
See also Item 3. Key InformationD. Risk FactorsRisks Relating to the
Peoples Public of ChinaFluctuations in exchange rates could result in foreign currency exchange losses.
In April and
May 2011, we entered into foreign currency forward contracts to facilitate the payment of a special cash dividend declared in November 2010, in an effort to reduce our exposure to foreign currency exchange risk. These foreign currency forward
contracts expired in the second quarter of 2012.
Inflation
In recent years, inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China,
the change in the Consumer Price Index in the PRC was 2.6%, 2.6% and 2.0% in 2012, 2013 and 2014, respectively. Although we have not been materially affected by inflation since our inception, we cannot assure you that we will not be affected in the
future by higher rates of inflation in the PRC.
Item 12. |
Description of Securities Other than Equity Securities |
Not Applicable.
Not Applicable.
Not Applicable.
D. |
American Depositary Shares |
Fees and Charges for Holders of American Depositary Receipts
Our American Depositary Receipt, or ADR, facility is maintained by Deutsche Bank Trust Company Americas, or DBTCA, pursuant to a deposit
agreement dated as of October 11, 2007, or the Deposit Agreement, by and among us, DBTCA, and holders and beneficial owners of ADSs evidenced by ADRs issued thereunder. We use the term holder in this discussion to refer to the
person in whose name an ADR is registered.
In accordance with the terms of the Deposit Agreement, DBTCA may charge holders of our ADSs,
either directly or indirectly, fees or charges up to the amounts described below.
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US$5.00 for each 100 ADSs, or any portion thereof, issued or surrendered, for: |
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each issuance of ADSs, including upon the deposit of shares or to any person to whom an ADS distribution is made pursuant to share dividends or other free distributions of shares, bonus distributions, share splits or
other distributions (except where converted to cash); and |
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each surrender of ADSs for cancellation and withdrawal of deposited securities, including cash distributions made pursuant to a cancellation or withdrawal; |
|
|
|
US$2.00 per 100 ADSs for distribution of cash proceeds pursuant to a cash distribution (so long as the charging of such fee is not prohibited by any exchange upon which the ADSs are listed), sale of rights and other
entitlements, not made pursuant to a cancellation or withdrawal; |
111
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|
|
US$5.00 per 100 ADSs, or any portion thereof, issued upon the exercise of rights; |
|
|
|
an annual fee of US$0.02 per ADS for the operation and maintenance costs in administering the facility; and |
|
|
|
in connection with inspections of the relevant share register maintained by the local registrar, if applicable, undertaken by DBTCA, its custodian or their respective agents: an annual fee of US$0.01 per ADS (such fee
to be assessed against holders of record as of the date or dates set by DBTCA as it sees fit and collected at the sole discretion of DBTCA by billing such holders for such fee or by deducting such fee from one or more cash dividends or other cash
distributions). |
In addition, holders or beneficial owners of our ADSs, persons depositing shares for deposit and persons
surrendering ADSs for cancellation and withdrawal of deposited securities may be required to pay DBTCA the following charges:
|
|
|
taxes, including applicable interest and penalties, and other governmental charges; |
|
|
|
transfer or registration fees for the registration of transfer of deposited securities on any applicable register in connection with the deposit or withdrawal of deposited securities, including those of a central
depository for securities (where applicable); |
|
|
|
certain cable, telex, facsimile and electronic transmission and delivery expenses; |
|
|
|
expenses incurred by DBTCA in connection with the conversion of foreign currency into U.S. dollars; |
|
|
|
fees and expenses incurred by DBTCA in connection with compliance with exchange control regulations and other regulatory requirements applicable to the shares, deposited securities and ADSs; and |
|
|
|
any additional fees, charges, costs or expenses that may be incurred by DBTCA from time to time. |
The fees charged upon issuance of ADSs are imposed on the person to whom ADSs are issued, and in the case of withdrawals and cancellations, on
the person surrendering the ADSs. In the case of cash distributions, service fees are generally deducted from the cash being distributed. In the case of distributions other than cash, such as stock dividends and rights, the depositary charges the
applicable ADS record date holder concurrent with the distribution. Annual fees may be collected from holders of ADSs in a manner determined by DBTCA. In the case of ADSs registered in the name of the investor (whether certificated or in book-entry
form), DBTCA sends invoices to holders of our ADSs as of the applicable record date. In the case of ADSs being held in brokerage and custodian accounts (via The Depositary Trust and Clearing Corporation, or DTCC), DBTCA may, if permitted by the
settlement systems provided by DTCC, collect the fees through such settlement systems (whose nominee is the registered holder of the ADSs held in DTCC) from the brokers and custodians holding the ADSs in their DTCC accounts. The brokers and
custodians who hold their clients ADSs in DTCC accounts in such case may, in turn, charge their clients accounts the amount of the service fees paid to DBTCA.
The ADS holders are responsible for any taxes or other governmental charges payable on their ADSs or on the deposited securities underlying
their ADSs. The custodian of DBTCA may refuse to deposit shares and DBTCA may refuse to issue ADSs, deliver ADRs, register the transfer, split up or combination of ADRs, or allow the relevant ADS holder to withdraw the deposited securities
underlying the ADSs until such taxes or other charges, including any applicable interest and penalty, are paid. DBTCA may apply payments owed to the relevant ADS holder or sell deposited securities underlying the ADSs to pay any taxes, including
interest and penalty owed, and the relevant ADS holder will remain liable for any deficiency. If DBTCA sells deposited securities, it will, if appropriate, reduce the number of ADSs to reflect the sale and pay to the relevant ADS holder any
proceeds, or send to the relevant ADS holder any property remaining after it has paid the taxes.
112
Payment Made by DBTCA to Our Company
For the year ended December 31, 2014, DBTCA reimbursed us US$0.2 million for contributions towards our investor relations activities and
other miscellaneous expenses related to the listing of our ADSs on the NYSE. In addition, DBTCA paid an aggregate of US$24,623 on our behalf for organizing our annual general shareholders meeting for the year 2014.
PART II
Item 13. |
Defaults, Dividend Arrearages and Delinquencies |
None.
Item 14. |
Material Modifications to the Rights of Security Holders and Use of Proceeds |
Material Modifications
to the Rights of Security Holders
See Item 10. Additional Information for a description of the rights of securities
holders, which remain unchanged.
Use of Proceeds
Not Applicable.
Item 15. |
Controls and Procedures |
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has evaluated the effectiveness of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this annual report. Based on this evaluation, our chief executive officer and chief financial officer have
concluded that, as of the end of the fiscal year covered by this annual report, our disclosure controls and procedures were not effective due to the material weakness described in the Managements Report on Internal Control Over Financial
Reporting below. See Item 3. Key InformationD. Risk FactorsRisks Relating to Our Business and IndustryWe have identified a material weakness in our internal controls over financial reporting which could, if not
remedied, result in material misstatements in our financial statements.
Managements Annual Report on Internal Control over Financial
Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for our company. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of consolidated financial statements in accordance with generally accepted accounting principles, and includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of a companys assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted
accounting principles, and that a companys receipts and expenditures are being made only in accordance with authorizations of a companys management and directors, and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of a companys assets that could have a material effect on the consolidated financial statements.
113
Due to its inherent limitations, a system of internal control over financial reporting can
provide only reasonable assurance with respect to consolidated financial statement preparation and presentation, and may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
As required by Section 404 of the Sarbanes-Oxley Act and related rules as promulgated by the SEC, our management, with the participation of
our chief executive officer and chief financial officer, assessed the effectiveness of the internal control over financial reporting as of December 31, 2014 using criteria established in Internal ControlIntegrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Managements assessment identified the following control deficiencies that constitute a material weakness: Material weakness related
to inadequate design and operating ineffectiveness of controls over a complex transaction. Specifically, the risk assessment, accounting analysis and maintenance of proper documentation by management of a certain transaction involving the proposed
transfers of businesses and equity interests in consolidated subsidiaries were not sufficient to ensure the proposed transaction is properly accounted for and disclosed in conformity with generally accepted accounting principles in the United States
of America.
We have taken and/or plan to take measures to address the material weakness identified above. We are still in the process of
enhancing our relevant controls over planned sale of Super TV and we will design and implement more robust financial reporting and management controls for complex and extraordinary transactions going forward.
Based on our assessment, and because of the material weakness described above, we have concluded that our internal control over financial
reporting was not effective as at December 31, 2014.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of China Digital TV Holding Co., Ltd.
We have audited the internal control over financial reporting of China Digital TV Holding Co. Ltd. (the Company), its subsidiaries
and its variable interest entity (the VIE) (collectively, the Group) as of December 31, 2014, based on criteria established in Internal ControlIntegrated Framework (2013) issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Groups management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting
included in the accompanying Managements Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Groups internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on that risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over
financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors,
management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys
assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
114
A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of the companys annual or interim financial statements will not be prevented or detected on a timely basis. The following material weakness has been
identified and included in managements assessment: Material weakness related to inadequate design and operating ineffectiveness of controls over a complex transaction. Specifically, the risk assessment, accounting analysis and maintenance of
proper documentation by management of a certain transaction involving the proposed transfers of businesses and equity interests in consolidated subsidiaries were not sufficient to ensure the proposed transaction is properly accounted for and
disclosed in conformity with generally accepted accounting principles in the United States of America.
This material weakness was
considered in determining the nature, timing, and extent of audit tests applied in our audit of the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Group and this report does
not affect our report on such financial statements and financial statement schedule.
In our opinion, because of the effect of the
material weakness identified above on the achievement of the objectives of the control criteria, the Group has not maintained effective internal control over financial reporting as of December 31, 2014, based on the criteria established in Internal
Control Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2014 of the Group and our
report dated April 28, 2015 expressed an unqualified opinion on those financial statements and financial statement schedule.
Deloitte Touche Tohmatsu
Certified Public Accountants LLP
Beijing, the Peoples Republic of China
April 28, 2015
Changes in Internal Control Over Financial
Reporting
Other than the ongoing remediation efforts described above, there were no significant changes in our internal control over
financial reporting identified in connection with the evaluation required by paragraph (d) of 17 CFR 240.13a-15 or 240.15d-15 that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 16.
Item 16A. Audit Committee Financial Expert
Our board has determined that Mr. Songzuo Xiang, who is one of our independent directors under the applicable rules of the SEC and the
NYSE, is an audit committee financial expert within the meaning of the rules of the SEC. Our board appointed Mr. Songzuo Xiang as an audit committee member, effective from December 30, 2009. See Item 6. Directors, Senior
Management and Employees.
Item 16B. Code of Ethics
We have adopted a Code of Business Conduct and Ethics that applies to all our directors, officers and employees, including our chief executive
officer, chief financial officer and financial controller. We have filed the Code of Business Conduct and Ethics as an exhibit to our registration statement on Form F-1 (No. 333-146072) and have posted the text of such codes on our Internet website
at http://ir.chinadtv.cn.
Item 16C. Principal Accountant Fees and Services
Deloitte Touche Tohmatsu Certified Public Accountants LLP has served as our independent registered public accounting firm for each of the
fiscal years ended on December 31, 2013 and 2014, for which audited financial statements appear in this annual report on Form 20-F. The auditor is appointed by our board of directors and will hold office until our board of directors
appoints another auditor.
115
Audit Fees
The aggregate fees billed in each of 2013 and 2014 for professional services rendered by our principal accountant for the audit of our annual
financial statements or services that are normally provided by the accountant in connection with statutory or regulatory filings or engagements were US$0.9 million and US$1.2 million, respectively.
Audit-Related Fees
The aggregate fees
billed in each of 2013 and 2014 for assurance and related services rendered by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under the caption
Audit Fees above were US$0.01 million and nil, respectively.
Tax Fees
The aggregate fees billed in each of 2013 and 2014 for professional services relating to tax compliance, tax advice and tax planning rendered
by our principal accountant were US$0.01 million and US$0.03 million, respectively.
All Other Fees
The aggregate fees billed in each of 2013 and 2014 for products and services provided by our principal accountant, other than the services
reported above under the captions Audit Fees, Audit-Related Fees and Tax Fees, were nil and US$0.02 million, respectively.
Audit Committees Pre-approval Policies and Procedures
The audit committee of our board of directors is directly responsible for the appointment, compensation, retention and oversight of the work of
the independent auditors. Pursuant to the audit committee charter adopted by the board of directors on September 13, 2007, the committee has the authority and responsibility to appoint, retain and terminate our independent auditors (subject, if
applicable, to shareholder approval), and has sole authority to approve all audit engagement fees and terms. The audit committee has the power to pre-approve, or to adopt appropriate procedures to pre-approve, all audit and non-audit services to be
provided by the independent auditors, and to consider whether the outside auditors provision of non-audit services to us is compatible with maintaining the independence of the outside auditors. The audit committee may, in its discretion,
delegate to one or more of its members the authority to pre-approve any audit or non-audit services to be performed by the independent auditors, provided that such approvals are presented to the audit committee at its next scheduled meeting.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 16F. Change in Registrants Certifying Accountant
There has been no change in our certifying accountant during our two most recent fiscal years or any subsequent interim period.
116
Item 16G. Corporate Governance
As our ADSs are registered with the SEC and are listed on the NYSE, we are subject to corporate governance requirements imposed by both the SEC
and the NYSE.
We are incorporated in the Cayman Islands. Under Section 303A of the NYSE Listed Company Manual, NYSE-listed non-U.S.
companies may, in general, follow their home country corporate governance practices in lieu of some of the NYSE corporate governance requirements. A NYSE-listed non-U.S. company is required to provide a general summary of the significant differences
to its U.S. investors either on the company website or its annual report distributed to its U.S. investors.
We have elected to follow our
home country practice in lieu of the NYSE corporate governance requirements that a listed company have an audit committee that has a minimum of three members as well as a compensation committee. We currently only have two members on our audit
committee. We also currently do not have a compensation committee but have Songzuo Xiang, one of our independent directors, assists the board in reviewing the compensation related matters of our Company. For a description of the significant ways in
which our corporate governance practices differ from those required by Section 303A of the NYSE Listed Company Manual, please refer to Item 6. Directors, Senior Management and EmployeesC. Board Practices.
Item 16H. Mine Safety Disclosure
Not Applicable.
PART III
Item 17. |
Financial Statements |
We have elected to provide financial statements and related
information specified in Item 18.
Item 18. |
Financial Statements |
See Index to Consolidated Financial Statements for a
list of all financial statements filed as part of this annual report.
|
|
|
Number |
|
Description of Exhibit |
|
|
1.1(1) |
|
Second Amended and Restated Memorandum and Articles of Association of China Digital TV Holding Co., Ltd. |
|
|
2.1(1) |
|
Specimen of Share Certificate. |
|
|
2.2(1) |
|
Form of Deposit Agreement, including form of American Depositary Receipts. |
|
|
2.3(1) |
|
First Amended and Restated Shareholders Agreement of China Digital TV Holding Co., Ltd., dated September 13, 2007, among Novel-Tongfang Information Engineering Co., Ltd., Beijing Novel-Tongfang Digital TV Technology Co., Ltd.,
China Digital TV Technology Co., Ltd., China Capital Investment Holdings Limited, China Cast Investment Holdings Limited, SB Asia Infrastructure Fund L.P., Capital International Private Equity Fund IV, L.P., CGPE IV, L.P. and certain other
shareholders. |
|
|
4.1(1) |
|
Asset Transfer Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. |
117
|
|
|
|
|
4.2(1) |
|
Equity Transfer Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. and related (i) Equity Entrustment Agreement, dated
September 10, 2004, and (ii) Equity Purchase Entrustment Agreement, dated April 1, 2004, both between the same parties. |
|
|
4.3(1) |
|
Asset Purchase Agreement, dated June 8, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.4(1) |
|
Equity Transfer Agreement, dated August 4, 2006, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and related Equity Transfer Agreement, dated March 15, 2007, among
Novel-Tongfang Information Engineering Co., Ltd., Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Panasonic Corporation of China. |
|
|
4.5(1) |
|
Asset Transfer Agreement, dated August 5, 2006, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and the Supplemental Agreement thereto, dated April 6,
2007. |
|
|
4.6(1) |
|
Trademark Licensing Agreement entered into in March 2007 between Beijing Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. |
|
|
4.7(1) |
|
Equipment Leasing Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.8(1) |
|
Technical Support and Related Service Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.9(1) |
|
Technology License Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.10(1) |
|
Technology Development Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.11(1) |
|
Products and Software Purchase Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.12(3) |
|
Letter of Consent, dated April 30, 2009, issued by Beijing Super TV Co., Ltd. to Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.13(3) |
|
Equity Transfer Agreement, dated June 20, 2008 between Wei Gao and Junming Wu for Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.14(3) |
|
Equity Transfer Agreement, dated November 24, 2008, between Novel-Tongfang Information Engineering Co., Ltd. and Shizhou Shen for Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.15(3) |
|
Equity Transfer Agreement, dated November 24, 2008, between Novel-Tongfang Information Engineering Co., Ltd. and Lei Zhang for Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.16 |
|
Equity Transfer Option Agreement, dated June 7, 2004, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd. and Li Yang(1); the Supplemental
Agreement thereto, dated September 1, 2005, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang and Beijing Novel-Tongfang Digital TV Technology Co., Ltd.(1); the No. 2 Supplemental Agreement thereto, dated August 18, 2007, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang, Beijing Novel-Tongfang Digital TV
Technology Co., Ltd. and Wei Gao(1); the No. 3 Supplemental Agreement thereto, dated June 20, 2008, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Wei Gao and Junming Wu(3); the No. 4 Supplemental Agreement thereto, dated November 24, 2008, among Beijing
Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Junming Wu, Lei Zhang and Shizhou Shen(3); and the No. 5 Supplemental
Agreement thereto, dated July 11, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing
Wang(6). |
118
|
|
|
|
|
4.17(1) |
|
Share Pledge Agreement, dated September 1, 2005, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.18(3) |
|
Termination Agreement of Share Pledge, dated November 24, 2008, between Beijing Super TV Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. |
|
|
4.19 |
|
Share Pledge Agreement, dated September 1, 2005, between Li Yang and Beijing Super TV Co., Ltd.(1); the Supplemental Agreement thereto, dated August 18, 2007, among Li
Yang, Beijing Super TV Co., Ltd. and Wei Gao(1); the No. 2 Supplemental Agreement thereto, dated June 20, 2008, among Beijing Super TV Co., Ltd., Wei Gao and Junming Wu(3); and the Share Pledge Termination Agreement, dated July 11, 2011 between Beijing Super TV Co., Ltd. and Junming Wu(6). |
|
|
4.20(3) |
|
Share Pledge Agreement, dated November 24, 2008, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.21(3) |
|
Share Pledge Agreement, dated November 24, 2008, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.22 |
|
Business Operating Agreement, dated September 1, 2005, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang and Beijing Novel-Tongfang Digital TV Technology Co., Ltd.(1); the Supplemental Agreement thereto, dated August 18, 2007, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang, Beijing Novel-Tongfang Digital TV
Technology Co., Ltd. and Wei Gao(1); the No. 2 Supplemental Agreement thereto, dated June 20, 2008, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd.,
Novel-Tongfang Information Engineering Co., Ltd., Wei Gao and Junming Wu(3); the No. 3 Supplemental Agreement thereto, dated November 24, 2008, among Beijing Super TV Co., Ltd., Beijing
Novel-Super Digital TV Technology Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Junming Wu, Lei Zhang and Shizhou Shen(3); and the No. 4 Supplemental Agreement thereto, dated July
11, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang(6). |
|
|
4.23(1) |
|
Power of Attorney, dated September 1, 2005, of Novel-Tongfang Information Engineering Co., Ltd. |
|
|
4.24(1) |
|
Power of Attorney, dated August 18, 2007, of Wei Gao. |
|
|
4.25(3) |
|
Power of Attorney, dated June 20, 2008, of Junming Wu. |
|
|
4.26(3) |
|
Power of Attorney, dated November 24, 2008, of Shizhou Shen. |
|
|
4.27(3) |
|
Power of Attorney, dated November 24, 2008, of Lei Zhang. |
|
|
4.28(1) |
|
Entrusted Loan Agreement, dated August 23, 2004, among Beijing Super TV Co., Ltd., Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.29(1) |
|
Entrusted Loan Agreement, dated July 13, 2004, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.30(1) |
|
Entrusted Loan Agreement, dated August 25, 2005, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.31(1) |
|
Loan Agreement, dated April 4, 2007, between Beijing Super TV Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. and the related Entrusted Loan Agreement, dated April 12, 2007, among Beijing Super TV Co., Ltd.,
Novel-Tongfang Information Engineering Co., Ltd. and Bank of Beijing, Shangdi Branch. |
119
|
|
|
|
|
4.32(3) |
|
Loan Agreement, dated November 24, 2008, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.33(3) |
|
Loan Agreement, dated November 24, 2008, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.34(1) |
|
Service Agreement, dated April 2, 2007, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. |
|
|
4.35(1) |
|
Interest Payment Agreement, dated November 30, 2006, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.36(1) |
|
Form of Property Lease Agreement. |
|
|
4.37(1) |
|
Fixed Assets Transfer Agreement, dated March 28, 2007, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.38(1) |
|
Form of Employment Agreement and related Form of Agreement on Confidentiality and Intellectual Property. |
|
|
4.39(1) |
|
Form of Non-Disclosure, Non-Competition, Commitment and Proprietary Information Agreement. |
|
|
4.40(1) |
|
Form of Indemnification Agreement for Directors. |
|
|
4.41(1) |
|
Amended and Restated 2005 Stock Incentive Plan of China Digital TV Holding Co., Ltd. and form of share option agreement. |
|
|
4.42(1) |
|
Cooperation Agreement, dated January 5, 2007, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Jiangsu Qingda Science and Technology Industries Co., Ltd. |
|
|
4.43(1) |
|
Cooperation Agreement, dated July 18, 2007, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and China Electronics Smart Card Co., Ltd. |
|
|
4.44(1) |
|
2008 Stock Incentive Plan of China Digital TV Holding Co., Ltd. |
|
|
4.45(2) |
|
Agreement for Equity Transfer of Beijing Novel-Super Digital TV Technology Co., Ltd., dated December 2007, between China Digital TV Technology Co., Ltd. and Golden Benefit Technology Co., Ltd. |
|
|
4.46(3) |
|
Intellectual Property Transfer Agreement, dated August 13, 2008, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.47(3) |
|
Equity Transfer Agreement, dated October 5, 2008, between Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.48(3) |
|
Framework Agreement for Purchase of Computer Chips, dated December 12, 2008, between Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.49(4) |
|
Framework Agreement for Sale of Software Products, dated July 14, 2009, between Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.50(4) |
|
Equity Transfer Agreement, dated February 26, 2010, between Beijing Novel-Super Digital TV Technology Co., Ltd. and Beijing Shi Xun Hu Lian Technology Co., Ltd. |
|
|
4.51(5) |
|
Shareholders Agreement, dated December 1, 2010, between Beijing Super TV Co., Ltd. and Beijing Yuewu Yuntian Software Technology Ltd. |
|
|
4.52(5) |
|
Shareholders Agreement, dated April 29, 2011, between Beijing Super TV Co., Ltd. and Beijing Ying Zhi Cheng Technology Co., Ltd. |
|
|
4.53(5) |
|
2010 Stock Incentive Plan of China Digital TV Holding Co., Ltd. |
120
|
|
|
|
|
4.54(6) |
|
Loan Agreement, dated July 11, 2011, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.55(6) |
|
Loan Agreement, dated July 11, 2011, between Tianxing Wang and Beijing Super TV Co., Ltd. |
|
|
4.56(6) |
|
Loan Agreement, dated July 11, 2011, between Wenjun Wang and Beijing Super TV Co., Ltd. |
|
|
4.57(6) |
|
Capital Increase and Equity Transfer Agreement, dated July 11, 2011, between Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang, Tianxing Wang and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.58(6) |
|
Power of Attorney, dated July 11, 2011, of Lei Zhang. |
|
|
4.59(6) |
|
Power of Attorney, dated July 11, 2011, of Shizhou Shen. |
|
|
4.60(6) |
|
Power of Attorney, dated July 11, 2011, of Tianxing Wang. |
|
|
4.61(6) |
|
Power of Attorney, dated July 11, 2011, of Wenjun Wang. |
|
|
4.62(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.63(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.64(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Tianxing Wang and Beijing Super TV Co., Ltd. |
|
|
4.65(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Wenjun Wang and Beijing Super TV Co., Ltd. |
|
|
4.66(6) |
|
Written Undertaking, dated November 22, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang. |
|
|
4.67(6) |
|
Power of Attorney, dated January 16, 2012, of Lei Zhang. |
|
|
4.68(6) |
|
Power of Attorney, dated January 16, 2012, of Shizhou Shen. |
|
|
4.69(6) |
|
Power of Attorney, dated January 16, 2012, of Tianxing Wang. |
|
|
4.70(6) |
|
Power of Attorney, dated January 16, 2012, of Wenjun Wang. |
|
|
4.71(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.72(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.73(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Tianxing Wang and Beijing Super TV Co., Ltd. |
|
|
4.74(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Wenjun Wang and Beijing Super TV Co., Ltd. |
|
|
4.75(6) |
|
Supplemental Agreement to Loan Agreements, dated January 16, 2012, among Beijing Super TV Co., Ltd., Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang. |
|
|
4.76(6) |
|
Supplemental Agreement, dated February 9, 2012, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang. |
|
|
4.77(6) |
|
Cooperation Termination Agreement, dated November 9, 2011, between Dongguan SuperTV Video Info Co., Ltd. and the Dongguan branch of the Guangdong Broadcasting TV Network Co., Ltd. |
|
|
4.78(6) |
|
Capital Increase Agreement, dated May 24, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Ying Zhi Cheng Technology Co., Ltd. and Beijing Joysee Technology Co.,
Ltd. |
121
|
|
|
|
|
4.79(6) |
|
First Amendment to First Amended and Restated Shareholders Agreement of China Digital TV Holding Co., Ltd., dated June 14, 2011, among China Digital TV Technology Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., China
Cast Investment Holdings Limited, SB Asia Infrastructure Fund L.P., Capital International Private Equity Fund IV, L.P., CGPE IV, L.P. and certain other shareholders. |
|
|
4.80(7) |
|
China Digital TV Holding Co., Ltd. 2012 Stock Incentive Plan. |
|
|
4.81(7) |
|
Second Supplemental Agreement to Loan Agreement, dated April 12, 2013, between Beijing Super TV Co., Ltd. and Tianxing Wang. |
|
|
4.82 |
|
Share Transfer Agreement, dated April 30, 2014, among Beijing Yuewu Yuntian Software Technology Ltd., Beijing Holch Capital Investment Center, Beijing Cyber Cloud Co., Ltd. and Beijing Xinsi Yijia Technology Co., Ltd. |
|
|
4.83 |
|
Share Transfer Agreement, dated April 30, 2014, among Beijing Super TV Co., Ltd., China Super Media Holdings Limited, Beijing Yuewu Yuntian Software Technology Ltd., Beijing Holch Capital Investment Center and Beijing Cyber Cloud
Co., Ltd. |
|
|
4.84 |
|
Termination Agreement of Existing Contractual Agreements, dated June 20, 2014, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Lei Zhang, Tianxing Wang, Wenjun Wang and Shizhou Shen. |
|
|
4.85 |
|
Termination Agreement of Existing Contractual Agreements, dated April 14, 2015, among Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.86 |
|
Share Transfer Agreement, dated June 20, 2014, among Lei Zhang, Tianxing Wang, Wenjun Wang, Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.87(8) |
|
Framework Agreement, dated June 13, 2014, among China Digital TV Holding Co., Ltd., Golden Benefit Technology Limited and Cinda Investment Co., Ltd. |
|
|
4.88(8) |
|
Framework Agreement Amendment, dated October 9, 2014, among China Digital TV Holding Co., Ltd., Golden Benefit Technology Limited and Cinda Investment Co., Ltd. |
|
|
4.89(8) |
|
Share Transfer Agreement, dated October 9, 2014, among China Digital TV Holding Co., Ltd., China Digital TV Technology Co., Ltd., Golden Benefit Technology Limited, Cinda Investment Co., Ltd. and Shanghai Tongda Venture Capital Co.,
Ltd. |
|
|
4.90 |
|
Supplementary Share Transfer Agreement, dated October 27, 2014, among China Digital TV Holding Co., Ltd., China Digital TV Technology Co., Ltd., Golden Benefit Technology Limited, Cinda Investment Co., Ltd. and Shanghai Tongda
Venture Capital Co., Ltd. |
|
|
4.91(8) |
|
Profit Compensation Agreement, dated October 9, 2014, among Shanghai Tongda Venture Capital Co., Ltd., Golden Benefit Technology Limited, and China Digital TV Holding Co., Ltd. |
|
|
4.92(8) |
|
Supplementary Profit Compensation Agreement, dated October 27, 2014, among Shanghai Tongda Venture Capital Co., Ltd., Golden Benefit Technology Limited, and China Digital TV Holding Co., Ltd. |
|
|
4.93(8) |
|
Share Subscription Agreement, dated October 9, 2014, between Shanghai Tongda Venture Capital Co., Ltd. and Golden Benefit Technology Limited. |
|
|
8.1 |
|
List of Subsidiaries of China Digital TV Holding Co., Ltd. |
|
|
11.1(1) |
|
Code of Business Conduct and Ethics of China Digital TV Holding Co., Ltd. |
|
|
12.1 |
|
CEO Certification pursuant to Rule 13a - 14(a). |
122
|
|
|
|
|
12.2 |
|
CFO Certification pursuant to Rule 13a - 14(a). |
|
|
13.1 |
|
CEO Certification pursuant to Rule 13a - 14(b). |
|
|
13.2 |
|
CFO Certification pursuant to Rule 13a - 14(b). |
|
|
23.1 |
|
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP. |
|
|
23.2 |
|
Consent of Han Kun, PRC Lawyers. |
|
|
101.INS |
|
XBRL Instance Document |
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
Portions of the agreement have been omitted pursuant to a confidential treatment request and have been filed with the SEC separately with a confidential treatment request. |
(1) |
Previously filed as an exhibit to the Registration Statement on Form F-1 (File No. 333-146072) of China Digital TV Holding Co., Ltd. and incorporated herein by reference thereto. |
(2) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on June 18, 2008 and incorporated herein by reference thereto.
|
(3) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on May 20, 2009 and incorporated herein by reference thereto.
|
(4) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on April 30, 2010 and incorporated herein by reference thereto.
|
(5) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on May 12, 2011 and incorporated herein by reference thereto.
|
(6) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on April 17, 2012 and incorporated herein by reference thereto.
|
(7) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on April 16, 2013 and incorporated herein by reference thereto.
|
(8) |
Previously filed as an exhibit to the report on Form 6-K (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on November 10, 2014 and incorporated herein by reference thereto.
|
123
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.
|
|
|
CHINA DIGITAL TV HOLDING CO., LTD. |
|
|
By: |
|
/s/ Zengxiang Lu |
Name: |
|
Zengxiang Lu |
Title: |
|
Chairman and Chief Executive Officer |
Date: April 28, 2015
124
CHINA DIGITAL TV HOLDING CO., LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CHINA DIGITAL TV HOLDING CO., LTD.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
CHINA DIGITAL
TV HOLDING CO., LTD.
We have audited the accompanying consolidated balance sheets of China Digital TV Holding Co., Ltd. (the Company),
its subsidiaries, and its variable interest entity (the VIE) and the VIEs subsidiary (collectively, the Group) as of December 31, 2013 and 2014, and the related consolidated statements of comprehensive income, changes
in equity, and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule included at Schedule I. These financial statements and financial statement schedule are the
responsibility of the Groups management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of
December 31, 2013 and 2014, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2014, in conformity with accounting principles generally accepted in the United States of America. Also, in
our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Groups internal control
over financial reporting as of December 31, 2014, based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 28, 2015
expressed an adverse opinion on the Groups internal control over financial reporting because of a material weakness.
Deloitte Touche Tohmatsu
Certified Public Accountants LLP
Beijing, the Peoples Republic of China
April 28, 2015
F-1
CHINA DIGITAL TV HOLDING CO., LTD.
CONSOLIDATED BALANCE SHEETS
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
79,085 |
|
|
$ |
62,042 |
|
Restricted cash |
|
|
919 |
|
|
|
78 |
|
Notes receivable |
|
|
4,484 |
|
|
|
5,417 |
|
Accounts receivable, net of allowance for doubtful accounts of $4,793 and $4,391 as of December 31, 2013 and 2014,
respectively |
|
|
45,905 |
|
|
|
47,977 |
|
Inventories |
|
|
5,027 |
|
|
|
4,966 |
|
Prepaid expenses and other current assets |
|
|
4,032 |
|
|
|
8,964 |
|
Deferred costs-current |
|
|
141 |
|
|
|
710 |
|
Deferred tax assets-current |
|
|
2,546 |
|
|
|
2,387 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
142,139 |
|
|
|
132,541 |
|
Long-term receivable |
|
|
224 |
|
|
|
45 |
|
Property and equipment, net |
|
|
1,170 |
|
|
|
880 |
|
Intangible assets, net |
|
|
6 |
|
|
|
440 |
|
Goodwill |
|
|
563 |
|
|
|
1,402 |
|
Equity method investments |
|
|
3,551 |
|
|
|
2,502 |
|
Deferred costs-non-current |
|
|
214 |
|
|
|
516 |
|
Deferred tax assets-non-current |
|
|
939 |
|
|
|
785 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
148,806 |
|
|
$ |
139,111 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable (of which $1,651 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and VIEs
subsidiary without recourse to the Company, respectively) |
|
|
2,207 |
|
|
|
2,298 |
|
Notes payable (of which $884 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and VIEs subsidiary
without recourse to the Company, respectively) |
|
|
884 |
|
|
|
86 |
|
Accrued expenses and other current liabilities (of which $6,067 and $83 as of December 31, 2013 and 2014 belonging to the
consolidated VIE and VIEs subsidiary without recourse to the Company, respectively) |
|
|
13,134 |
|
|
|
17,652 |
|
Deferred revenue-current (of which $4,956 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and
VIEs subsidiary without recourse to the Company, respectively) |
|
|
6,542 |
|
|
|
4,572 |
|
Dividend payable (of which nil and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and VIEs
subsidiary without recourse to the Company, respectively) |
|
|
57 |
|
|
|
|
|
Income tax payable (of which $794 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and VIEs
subsidiary without recourse to the Company, respectively) |
|
|
997 |
|
|
|
3,465 |
|
Deferred tax liabilities-current (of which nil and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and
VIEs subsidiary without recourse to the Company, respectively) |
|
|
8,222 |
|
|
|
3,727 |
|
Government subsidies-current (of which $297 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and
VIEs subsidiary without recourse to the Company, respectively) |
|
|
710 |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
32,753 |
|
|
|
31,967 |
|
Deferred revenue-non-current (of which $135 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and
VIEs subsidiary without recourse to the Company, respectively) |
|
|
135 |
|
|
|
617 |
|
Government subsidies-non-current (of which $2,782 and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and
VIEs subsidiary without recourse to the Company, respectively) |
|
|
4,946 |
|
|
|
4,390 |
|
Deferred tax liabilities-non-current (of which nil and nil as of December 31, 2013 and 2014 belonging to the consolidated VIE and
VIEs subsidiary without recourse to the Company, respectively) |
|
|
|
|
|
|
110 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
37,834 |
|
|
|
37,084 |
|
|
|
|
|
|
|
|
|
|
F-2
CHINA DIGITAL TV HOLDING CO., LTD.
CONSOLIDATED BALANCE SHEETS- continued
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
Commitments (Note 23) |
|
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
China Digital TV Holding Co., Ltd. shareholders equity: |
|
|
|
|
|
|
|
|
Ordinary shares ($0.0005 par value; 200,000,000 and 200,000,000 shares authorized, 59,149,153 and 59,705,570 shares issued and
outstanding as of December 31, 2013 and 2014, respectively) |
|
|
30 |
|
|
|
30 |
|
Additional paid-in capital |
|
|
32,037 |
|
|
|
35,639 |
|
Statutory reserve |
|
|
17,907 |
|
|
|
17,977 |
|
Retained earnings |
|
|
31,122 |
|
|
|
22,307 |
|
Accumulated other comprehensive income |
|
|
28,940 |
|
|
|
25,509 |
|
|
|
|
|
|
|
|
|
|
Total China Digital TV Holding Co., Ltd. shareholders equity |
|
|
110,036 |
|
|
|
101,462 |
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
|
936 |
|
|
|
565 |
|
|
|
|
|
|
|
|
|
|
Total equity |
|
|
110,972 |
|
|
|
102,027 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
148,806 |
|
|
$ |
139,111 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CHINA DIGITAL TV HOLDING CO., LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
$ |
85,319 |
|
|
$ |
82,926 |
|
|
$ |
73,520 |
|
Services |
|
|
4,925 |
|
|
|
5,521 |
|
|
|
9,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
90,244 |
|
|
|
88,447 |
|
|
|
82,943 |
|
Business and related taxes |
|
|
(1,501 |
) |
|
|
(1,283 |
) |
|
|
(1,410 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
|
|
88,743 |
|
|
|
87,164 |
|
|
|
81,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (including share-based compensation of $5, $41 and $12 for 2012, 2013 and 2014, respectively) |
|
|
|
|
|
|
|
|
|
|
|
|
Products |
|
|
16,880 |
|
|
|
17,009 |
|
|
|
13,845 |
|
Services |
|
|
3,952 |
|
|
|
4,652 |
|
|
|
4,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of revenues |
|
|
20,832 |
|
|
|
21,661 |
|
|
|
18,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
67,911 |
|
|
|
65,503 |
|
|
|
63,304 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Research and development (including share-based compensation of $552, $380 and $98 for 2012, 2013 and 2014, respectively) |
|
|
17,402 |
|
|
|
19,251 |
|
|
|
17,276 |
|
Selling and marketing (including share-based compensation of $356, $492 and $130 for 2012, 2013 and 2014, respectively) |
|
|
13,606 |
|
|
|
14,957 |
|
|
|
13,877 |
|
General and administrative (including share-based compensation of $1,701, $1,358 and $1,459 for 2012, 2013 and 2014,
respectively) |
|
|
9,444 |
|
|
|
9,959 |
|
|
|
10,935 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
40,452 |
|
|
|
44,167 |
|
|
|
42,088 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
27,459 |
|
|
|
21,336 |
|
|
|
21,216 |
|
Interest income |
|
|
6,318 |
|
|
|
1,901 |
|
|
|
1,312 |
|
Interest expense |
|
|
(739 |
) |
|
|
|
|
|
|
|
|
Loss from forward contract |
|
|
(690 |
) |
|
|
|
|
|
|
|
|
Impairment loss on long-term investments |
|
|
(4,487 |
) |
|
|
|
|
|
|
|
|
Other income, net |
|
|
549 |
|
|
|
534 |
|
|
|
3,069 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expenses |
|
|
28,410 |
|
|
|
23,771 |
|
|
|
25,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses/(benefits): |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax-current |
|
|
18,035 |
|
|
|
(1,587 |
) |
|
|
10,638 |
|
Income tax-deferred |
|
|
4,197 |
|
|
|
2,314 |
|
|
|
(4,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expenses |
|
|
22,232 |
|
|
|
727 |
|
|
|
6,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before loss from equity method investments |
|
|
6,178 |
|
|
|
23,044 |
|
|
|
19,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from equity method investments, net of income taxes |
|
|
(640 |
) |
|
|
(468 |
) |
|
|
(59 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
5,538 |
|
|
|
22,576 |
|
|
|
19,165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Net loss attributable to noncontrolling interest |
|
|
(1,389 |
) |
|
|
(1,832 |
) |
|
|
(1,725 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to China Digital TV Holding Co., Ltd. |
|
$ |
6,927 |
|
|
$ |
24,408 |
|
|
$ |
20,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share attributable to ordinary shareholders of China Digital TV Holding Co., Ltd. |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.12 |
|
|
$ |
0.41 |
|
|
$ |
0.35 |
|
Diluted |
|
$ |
0.12 |
|
|
$ |
0.41 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,538 |
|
|
$ |
22,576 |
|
|
$ |
19,165 |
|
Other comprehensive income/(loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
536 |
|
|
|
2,904 |
|
|
|
(3,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
6,074 |
|
|
|
25,480 |
|
|
|
15,724 |
|
Less: Comprehensive loss attributable to noncontrolling interest |
|
|
(1,201 |
) |
|
|
(1,785 |
) |
|
|
(1,735 |
) |
Comprehensive income attributable to ordinary shareholders of China Digital TV Holding Co., Ltd. |
|
$ |
7,275 |
|
|
$ |
27,265 |
|
|
$ |
17,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in calculating net income per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
59,011,396 |
|
|
|
59,111,594 |
|
|
|
59,369,708 |
|
Diluted |
|
|
59,092,804 |
|
|
|
59,176,457 |
|
|
|
61,716,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CHINA DIGITAL TV HOLDING CO., LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
China Digital TV Holding Co., Ltd. Shareholders |
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
Additional paid-in |
|
|
Accumulated other comprehensive |
|
|
Statutory |
|
|
Retained |
|
|
Total China Digital TV Holding Co., Ltd Shareholders |
|
|
Noncontrolling |
|
|
Total |
|
|
|
Shares |
|
|
Amount |
|
|
capital |
|
|
income |
|
|
reserve |
|
|
earnings |
|
|
equity |
|
|
Interest |
|
|
equity |
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012 |
|
|
58,981,890 |
|
|
$ |
29 |
|
|
$ |
126,583 |
|
|
$ |
25,735 |
|
|
$ |
17,694 |
|
|
$ |
36,401 |
|
|
$ |
206,442 |
|
|
$ |
3,880 |
|
|
$ |
210,322 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
2,588 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,588 |
|
|
|
26 |
|
|
|
2,614 |
|
Provision for statutory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162 |
|
|
|
(162 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock option |
|
|
118,864 |
|
|
|
1 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86 |
|
|
|
|
|
|
|
86 |
|
Special cash dividend to shareholders |
|
|
|
|
|
|
|
|
|
|
(99,532 |
) |
|
|
|
|
|
|
|
|
|
|
(36,401 |
) |
|
|
(135,933 |
) |
|
|
|
|
|
|
(135,933 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,927 |
|
|
|
6,927 |
|
|
|
(1,389 |
) |
|
|
5,538 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
348 |
|
|
|
188 |
|
|
|
536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
59,100,754 |
|
|
|
30 |
|
|
|
29,724 |
|
|
|
26,083 |
|
|
|
17,856 |
|
|
|
6,765 |
|
|
|
80,458 |
|
|
|
2,705 |
|
|
|
83,163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
2,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,255 |
|
|
|
16 |
|
|
|
2,271 |
|
Provision for statutory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
|
|
(51 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock option |
|
|
48,399 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
58 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,408 |
|
|
|
24,408 |
|
|
|
(1,832 |
) |
|
|
22,576 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,857 |
|
|
|
|
|
|
|
|
|
|
|
2,857 |
|
|
|
47 |
|
|
|
2,904 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
59,149,153 |
|
|
|
30 |
|
|
|
32,037 |
|
|
|
28,940 |
|
|
|
17,907 |
|
|
|
31,122 |
|
|
|
110,036 |
|
|
|
936 |
|
|
|
110,972 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
1,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,710 |
|
|
|
(11 |
) |
|
|
1,699 |
|
Provision for statutory reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
70 |
|
|
|
(70 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of stock option |
|
|
556,417 |
|
|
|
|
|
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
726 |
|
|
|
|
|
|
|
726 |
|
Special cash dividend to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,635 |
) |
|
|
(29,635 |
) |
|
|
|
|
|
|
(29,635 |
) |
Partial disposal of Joysees equity (Note 24(b)) |
|
|
|
|
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(215 |
) |
|
|
215 |
|
|
|
|
|
Transfer of noncontrolling interest-Cyber Cloud (Note 24(a)) |
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
1,160 |
|
|
|
2,541 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,890 |
|
|
|
20,890 |
|
|
|
(1,725 |
) |
|
|
19,165 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,431 |
) |
|
|
|
|
|
|
|
|
|
|
(3,431 |
) |
|
|
(10 |
) |
|
|
(3,441 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
|
59,705,570 |
|
|
$ |
30 |
|
|
$ |
35,639 |
|
|
$ |
25,509 |
|
|
$ |
17,977 |
|
|
$ |
22,307 |
|
|
$ |
101,462 |
|
|
$ |
565 |
|
|
$ |
102,027 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CHINA DIGITAL TV HOLDING CO., LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
5,538 |
|
|
$ |
22,576 |
|
|
$ |
19,165 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
1,174 |
|
|
|
1,028 |
|
|
|
944 |
|
Share-based compensation |
|
|
2,614 |
|
|
|
2,271 |
|
|
|
1,699 |
|
Gain on disposal of property and equipment |
|
|
|
|
|
|
|
|
|
|
(207 |
) |
Allowance for doubtful accounts |
|
|
1,378 |
|
|
|
2,570 |
|
|
|
827 |
|
Provision for inventory |
|
|
217 |
|
|
|
2,761 |
|
|
|
1,330 |
|
Warranty accrual |
|
|
69 |
|
|
|
72 |
|
|
|
62 |
|
Loss from equity method investments |
|
|
640 |
|
|
|
468 |
|
|
|
59 |
|
Impairment loss on long-term investments |
|
|
4,487 |
|
|
|
|
|
|
|
|
|
Gain from disposal of cost method investment |
|
|
(820 |
) |
|
|
|
|
|
|
|
|
Loss from forward contract |
|
|
690 |
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and notes receivable |
|
|
(3,105 |
) |
|
|
(9,361 |
) |
|
|
(4,868 |
) |
Inventories |
|
|
(1,967 |
) |
|
|
(1,889 |
) |
|
|
(1,384 |
) |
Prepaid expenses and other current assets |
|
|
(81 |
) |
|
|
1,303 |
|
|
|
(1,462 |
) |
Deferred cost |
|
|
309 |
|
|
|
258 |
|
|
|
(723 |
) |
Accounts payable |
|
|
(284 |
) |
|
|
1,823 |
|
|
|
(1,104 |
) |
Income tax payable |
|
|
1,535 |
|
|
|
(2,541 |
) |
|
|
2,511 |
|
Accrued expenses and other current liabilities |
|
|
2,770 |
|
|
|
432 |
|
|
|
2,051 |
|
Deferred revenue |
|
|
(483 |
) |
|
|
(1,232 |
) |
|
|
(1,376 |
) |
Government subsidies |
|
|
2,019 |
|
|
|
1,651 |
|
|
|
(1,049 |
) |
Deferred income taxes |
|
|
4,197 |
|
|
|
2,314 |
|
|
|
(4,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
20,897 |
|
|
|
24,504 |
|
|
|
12,210 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(783 |
) |
|
|
(333 |
) |
|
|
(2,750 |
) |
Restricted cash |
|
|
55,530 |
|
|
|
(892 |
) |
|
|
830 |
|
Acquisition of subsidiaries |
|
|
|
|
|
|
|
|
|
|
2,204 |
|
Proceeds from disposal of Dongguan Super TV |
|
|
1,046 |
|
|
|
|
|
|
|
|
|
Proceeds from disposal of cost method investment |
|
|
820 |
|
|
|
|
|
|
|
|
|
Proceeds from dissolution of equity method investment |
|
|
|
|
|
|
355 |
|
|
|
|
|
Purchase of equity method investment |
|
|
(1,588 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by /(used in) investing activities |
|
|
55,025 |
|
|
|
(870 |
) |
|
|
284 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock option exercise |
|
|
85 |
|
|
|
58 |
|
|
|
726 |
|
Short-term loan |
|
|
(55,193 |
) |
|
|
|
|
|
|
|
|
Special cash dividend paid to shareholders |
|
|
(92,106 |
) |
|
|
(76,942 |
) |
|
|
(29,692 |
) |
Advance payment received in relation to an investment in Cyber Cloud |
|
|
|
|
|
|
|
|
|
|
2,254 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(147,214 |
) |
|
|
(76,884 |
) |
|
|
(26,712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
432 |
|
|
|
1,638 |
|
|
|
(2,825 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(70,860 |
) |
|
|
(51,612 |
) |
|
|
(17,043 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR |
|
|
201,557 |
|
|
|
130,697 |
|
|
|
79,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF THE YEAR |
|
$ |
130,697 |
|
|
$ |
79,085 |
|
|
$ |
62,042 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONS |
|
|
|
|
|
|
|
|
|
|
|
|
Income tax paid |
|
|
6,934 |
|
|
|
690 |
|
|
|
1,758 |
|
Withholding tax paid |
|
|
9,554 |
|
|
|
204 |
|
|
|
6,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
16,488 |
|
|
$ |
894 |
|
|
$ |
7,954 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Dividend payable |
|
$ |
76,999 |
|
|
$ |
57 |
|
|
$ |
|
|
Exchange of equity interests in investment for acquisition of Shibo Movie (Note 5(b)) |
|
$ |
|
|
|
$ |
|
|
|
$ |
747 |
|
Transfer of noncontrolling interest in Cyber Cloud for acquisition of Xinsi Yijia (Note 5(a)) |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,541 |
|
Partial disposal of Joysees equity (Note 24(b)) |
|
$ |
|
|
|
$ |
|
|
|
$ |
963 |
|
Receivable on disposal of property and equipment |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompany notes are an integral part of these consolidated financial statements.
F-6
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES |
China Digital TV Technology Co., Ltd. (CDTV BVI) was incorporated in the British Virgin Islands
(BVI) as a limited liability company on March 9, 2004 by the shareholders of Novel-Tongfang Information Engineering Co., Ltd. (N-T Information Engineering) and SB Asia Infrastructure Fund L.P. (SAIF), a
third-party investor. The principal activities of CDTV BVI are to install and integrate conditional access systems (CA Systems), subscriber management systems and electronic program guidance systems to cable TV operators in the
Peoples Republic of China (PRC) and to sell digital TV intelligent cards (smart cards) to these operators.
In 2007, the shareholders of CDTV BVI established China Digital TV Holding Co., Ltd. (the Company or CDTV Holding), as
the holding Company of CDTV BVI and its subsidiary and VIE and the VIEs subsidiaries (collectively, the Group), CDTV Holding was incorporated in the Cayman Islands. The shareholders of CDTV BVI exchanged all of their shares of CDTV
BVI for shares of CDTV Holding in proportion to their percentage interests in CDTV BVI. As a result, CDTV BVI became a wholly owned subsidiary of CDTV Holding.
The development, production and sale of commercial encryption products in the PRC are regulated by the PRC National Encryption Administrative
Bureau (Encryption Bureau). Currently, foreign-invested enterprises incorporated in the PRC are not expressly prohibited from conducting encryption-related businesses; however, they may have difficulty in obtaining the licenses or
permits required for conducting such businesses from the Encryption Bureau due to the PRC Encryption Authoritys generally restrictive approach towards foreign participation in the PRC encryption industry. In addition, the PRC State
Administration of Radio, Film and Television (SARFT) has a policy to require any cable television network operator who uses non-PRC CA Systems to install parallel PRC CA Systems. Such policy does not expressly indicate whether the CA
Systems produced by a foreign-invested company incorporated in the PRC fall into the category of non-PRC CA Systems. In consideration of the PRC Encryption Authoritys preferences and the SARFTs policy, CDTV BVI conducts substantially all
of its operations through its subsidiary, Beijing Super TV Co., Ltd. (Super TV), and Novel-Tongfang Digital TV Technology Co., Ltd. (N-T Digital TV), a variable interest entity (VIE) which had been 100% owned by
PRC citizens through the end of June 2014 and has obtained the licenses to operate such business in the PRC.
N-T Digital TV was
established in the PRC on May 31, 2004 by N-T Information Engineering (who contributed 75% of the paid-in capital) and Ms. Li Yang, who is a PRC citizen representing SAIF (which contributed 25% of the paid-in capital). N-T Digital TV was
subsequently renamed to Beijing Novel-Super Digital TV Technology Co., Ltd. (N-S Digital TV) in December 2007. After a series of equity transfers and a round of capital contribution in cash using the loan proceeds from Super TV, the VIE
became owned by Mr. Shizhou Shen, Mr. Lei Zhang, Mr. Tianxing Wang and Mr. Wenjun Wang (the Shareholders), all of whom were PRC citizens employed by Super TV, with equity interest of 8.3%, 31.6%, 31.2% and 28.9%,
respectively, and CDTV BVI did not have direct equity interest in the VIE, but it had obtained control and enjoyed the economic benefits of the VIE through a series of contractual arrangements entered into among Super TV, the VIE and its equity
holders. According to these arrangements, the Company was considered the primary beneficiary of the VIE and had consolidated the VIEs financial results of operations, assets and liabilities in the Groups consolidated financial
statements.
F-7
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued |
On June 13, 2014, the Company announced its plan to inject its conditional access
(CA), screen cross multi-screen broadcasting systems (Screen Cross), formerly known as network broadcasting platform, and video on demand (VOD) businesses into Shanghai Tongda Venture Capital Co., Ltd.
(Tongda Venture) (Ticker: 600647), a China-listed company, in exchange for a controlling stake in, and RMB1.15 billion in cash from, Tongda Venture (the Restructuring). The Restructuring was further amended on October 9,
2014 for Tongda Venture to acquire 100% equity interest of Super TV (Note (3)). According to PRC securities regulations, the assets of a China-listed company are generally required to be held and owned by it or its subsidiaries in China, while
contractual arrangements such as those among Super TV, the VIE and its equity holders may not be accepted. As a result, in order to meet China Securities Regulatory Commission (CSRC) approval requirements with respect to the
Restructuring, those contractual arrangements were terminated, and the 100% equity interest of N-S Digital TV originally held by those nominee shareholders, namely, Mr. Shizhou Shen, Mr. Lei Zhang, Mr. Tianxing Wang and
Mr. Wenjun Wang, were transferred to Super TV pursuant to the agreements dated in June 2014, as a part of the Restructuring. As a result, N-S Digital TV became a wholly owned subsidiary of the Company and the Company continues to consolidate
the financial results of operations, assets and liabilities of N-S Digital TV in the Groups consolidated financial statements. Moreover, to facilitate the Restructuring, the Group conducted certain reorganizations in June 2014, including:
|
|
|
Super TV transferred its 75% equity interests in Beijing Cyber Cloud Co., Ltd (Cyber Cloud) and 100% equity interests in Beijing N-S Information Technology Co., Ltd (N-S Information Technology,
originally named as N-S Investment Holdings Co., Ltd.) to China Super Media Holdings Limited (CSM Holdings); |
|
|
|
Super TV transferred its 46.9% equity interests in Beijing Joysee Technology Co., Ltd (Joysee) to N-S Information Technology; |
|
|
|
N-S Digital TV transferred its 100% equity interests in N-S Media Investment Co., Ltd (N-S Media Investment) and Beijing Shibo Movie Technology Co., Ltd. (Shibo Movie) to N-S Information
Technology, respectively. |
Since all of these are transactions between entities under common control of the Company, there
were no effects on the Groups consolidated financial statements.
VIE contractual agreements
A majority of the Groups customers are provincial and municipal cable network operators in the PRC, which are primarily state-owned
enterprises (SOEs). Due to the aforementioned regulatory considerations, these SOEs tend to purchase CA Systems from PRC local companies, rather than from companies with foreign investment such as Super TV. In order to accommodate the
PRC regulations and participate in the smart card and CA Systems business (for the benefit of the Group), the Group arranged for Super TV to enter into the following agreements, which were terminated in June 2014 as aforementioned, with the VIE and
its equity holders:
|
|
|
Technical Support and Related Services Agreement: Super TV exclusively provided the VIE and/or its customers with technical support, technical training and personnel services relating to the VIEs marketing
activities and services relating to the maintenance and optimization for the products and software of the VIEs customers at the VIEs request. The fees for such technical support and services were determined at Super TVs discretion.
The term of this agreement was 15 years, which could not be terminated prior to its termination date without Super TVs written consent. The term of this agreement would have been automatically renewed for another 15 years upon its expiration
date unless written notice had been given by Super TV. |
F-8
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued |
VIE contractual agreements - continued
|
|
|
Technology License Agreement: The VIE granted Super TV, free of charge, an exclusive license to use certain software copyrights, patents, unpatentable technology and technical secrets relating to the digital
television business that was transferred from N-T Information Engineering to the VIE. The term of the license was ten years, which could not be terminated or amended without the written consent of Super TV prior to its termination date and would
have been automatically renewed for an additional ten years upon its termination date unless written notice had been given by Super TV. |
|
|
|
Technology Development Agreement: The VIE engaged Super TV to develop all technology required by the VIE or its customers. The fees payable by the VIE to Super TV under the agreement would have been based on the
price and quantity of the technology products, and a set percentage determined by Super TV. The term of the agreement was ten years, which could not be terminated prior to its termination date without Super TVs written consent. The term of
this agreement would have been automatically renewed for an additional ten years upon its termination date unless written notice had been given by Super TV. |
|
|
|
Products and Software Purchase Agreement: The VIE purchased from Super TV all the smart cards and related software products required for its CA Systems. The purchase price was determined by Super TV. The term of
the agreement was 15 years, which could not be terminated prior to its termination date without Super TVs written consent. The term of this agreement would have been automatically renewed for an additional 15 years upon its termination date
unless written notice had been given by Super TV. |
|
|
|
Business Operating Agreement: Each of the Shareholders agreed to (i) accept the policies and guidelines furnished by Super TV with respect to the hiring and dismissal of employees, operational management and
financial management systems of the VIE; (ii) appoint the candidates recommended by Super TV as directors of the VIE and appoint the senior management personnel of Super TV as the general manager, chief financial officer and other senior
officers of the VIE based on Super TVs recommendations; (iii) replace or remove any director or senior management personnel of the VIE upon Super TVs request; and (iv) seek a guarantee from Super TV first when any guarantee is
required to secure performance by the VIE of any contract or working capital loan borrowed by the VIE and pledge its assets and receivables to Super TV as a counter-guarantee. This agreement had a term of ten years and could be renewed at the option
of Super TV by giving written notice for a term to be determined by Super TV. Super TV could terminate this agreement at any time by giving 30 days advance written notice to the other parties to this agreement. |
F-9
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued |
VIE contractual agreements - continued
|
|
|
Loan agreements: Under loan agreements between Super TV and the registered shareholders of the VIE, Super TV extended loans to the registered shareholders of the VIE for contributing registered capital to the VIE
in order to hold 100% of the equity interest in the VIE. The term of each loan was ten years, which would have been automatically renewable for another ten years upon its termination date unless a written notice had been provided by Super TV one
month prior to such termination date. The registered shareholders of the VIE could not repay the loan prior to the termination date of the relevant loan agreement, unless so requested by Super TV, and could only repay the loan by
(i) transferring all his equity interests in the VIE to Super TV or any third party designated by Super TV and (ii) paying Super TV with the entire proceeds obtained by himself from such transfer. |
|
|
|
Share Pledge Agreements: Pursuant to the share pledge agreements, each of the Shareholders pledged all of their respective equity interests in the VIE to Super TV to secure the Shareholders and the
VIEs performance of their respective obligations under the VIE contractual arrangements between the VIE/the Shareholders and Super TV. In addition, each of the Shareholders agreed not to transfer their equity interests in the VIE or create, or
allow the creation of, any pledge over their respective equity interests in the VIE that may affect Super TVs interests without Super TVs consent. Super TV was entitled to receive the dividends on the pledged equity interests during the
term of the pledges. The duration of each of the share pledge agreements was equivalent to the maximum duration of the VIE contractual arrangements between the VIE/the Shareholders and Super TV. The agreements could only be terminated: (i) by
Super TV in writing; or (ii) upon the fulfillment of the shareholders and the VIEs respective obligations under the VIE contractual arrangements between the VIE/the Shareholders and Super TV, which was subject to Super TVs
written confirmation. |
|
|
|
Powers of Attorney: Each of the Shareholders had executed an irrevocable power of attorney appointing Super TV, or any person designated by Super TV, as the attorney-in-fact to vote on their respective behalves
on all matters of the VIE requiring shareholder approval under PRC laws, rules and regulations and the articles of association of the VIE. Each power of attorney had a term of ten years, subject to earlier termination in the event of the termination
of the relevant share pledge agreement. The powers of attorney would have been automatically renewed upon the extension of the term of the relevant share pledge agreement. |
F-10
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued |
VIE contractual agreements - continued
|
|
|
Equity Transfer Option Agreement: Under this agreement, the Shareholders jointly granted Super TV an exclusive and irrevocable option to purchase all of the equity interests held by them in the VIE at any time
that Super TV deems fit. Super TV might purchase these equity interests itself or designate another party to purchase the equity interests. The exercise price of the option would be determined by Super TV or its designated third party at the time of
the exercise, subject to the minimum purchase price requirements pursuant to applicable PRC law or otherwise permitted by the relevant PRC authorities. This agreement did not have a specified term and would remain in effect unless terminated with
the written consent of Super TV. |
As a result of these contractual arrangements, before the end of June 2014, Super TV
(1) had the power to direct the activities that most significantly affected the economic performance of the VIE, and (2) received the economic benefits of the VIE. In making the conclusion that the Company was the primary beneficiary of
the VIE, the Company believes the Companys rights under the terms of the equity transfer option agreement had provided it with a substantive kick out right. More specifically, the Company believes the terms of the equity transfer option
agreement were valid, binding and enforceable under PRC laws and regulations currently in effect. The Company also believes that the minimum amount of consideration permitted by the applicable PRC law to exercise the option has not represented a
financial barrier or disincentive for the Company to currently exercise its rights under the equity transfer option agreement. In addition, the articles of association of VIE provided that the shareholders of VIE had the power to, in a
shareholders meeting: (i) approve the operating strategy and investment plan; (ii) elect the members of board of directors and approve their compensation; and (iii) review and approve the annual budget and earnings distribution
plan. Consequently, the Companys rights under the powers of attorney have reinforced the Companys abilities to direct the activities most significantly impacting the VIEs economic performance. The Company also believes that this
ability to exercise control ensured that the VIE would continue to execute and renew service agreements and pay service fees to the Company. By charging service fees in whatever amounts the Company deemed fit, and by ensuring that service agreements
were executed and renewed indefinitely, the Company had the rights to receive substantially all of the economic benefits from the VIE.
As
of December 31, 2014, the Group has one VIE, Beijing Dingyuan Technology Co., Ltd. (Dingyuan), which was acquired during the Groups acquisition of Beijing Xinsi Yijia Technology Co., Ltd. (Xinsi Yijia) in June 2014
(Note 5(a)). The operations, assets and liabilities of Dingyuan were immaterial as of and for the year ended December 31, 2014.
F-11
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued |
The following financial statement amounts and balances of the VIE and VIEs subsidiaries
were included in the accompanying consolidated financial statements as of and for the years ended December 31:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Total current assets |
|
$ |
62,189 |
|
|
$ |
226 |
|
Total non-current assets |
|
|
2,469 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
64,658 |
|
|
$ |
230 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
$ |
14,649 |
|
|
$ |
83 |
|
Total non-current liabilities |
|
|
2,917 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
17,566 |
|
|
$ |
83 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Net revenues |
|
$ |
78,940 |
|
|
$ |
79,489 |
|
|
$ |
32,431 |
|
Net (loss)/income |
|
$ |
(837 |
) |
|
$ |
(1,369 |
) |
|
$ |
594 |
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Net cash provided by/(used in) operating activities |
|
$ |
4,464 |
|
|
$ |
(4,151 |
) |
|
$ |
2,897 |
|
Net cash (used in)/provided by investing activities |
|
$ |
(1,645 |
) |
|
$ |
(364 |
) |
|
$ |
1,538 |
|
Net cash provided by financing activities |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
The VIE and its subsidiaries contributed an aggregate of 89.0%, 91.2% and 39.8% of the consolidated net
revenues for the year ended December 31, 2012, 2013 and 2014, respectively. As of the fiscal years ended December 31, 2013 and 2014, the VIE and its subsidiary accounted for an aggregate of 43.5% and 0.2%, respectively, of the consolidated
total assets, and 46.4% and 0.2%, respectively, of the consolidated total liabilities.
F-12
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
1. |
ORGANIZATION AND PRINCIPAL ACTIVITIES - continued |
As of December 31, 2014, CDTV Holdings subsidiaries and VIE include the following
entities:
|
|
|
|
|
|
|
|
|
|
|
Subsidiaries |
|
Date of incorporation |
|
|
Place of incorporation /establishment |
|
Percentage of economic ownership |
|
|
|
|
|
CDTV BVI |
|
|
March 9, 2004 |
|
|
BVI |
|
|
100 |
% |
Super TV |
|
|
May 31, 2004 |
|
|
the PRC |
|
|
100 |
% |
Golden Benefit Technology Limited (Golden Benefit) |
|
|
December 6, 2007 |
|
|
Hong Kong |
|
|
100 |
% |
CSM Holdings |
|
|
February 25, 2008 |
|
|
Hong Kong |
|
|
100 |
% |
N-S Information Technology |
|
|
July 23, 2010 |
|
|
the PRC |
|
|
100 |
% |
Cyber Cloud |
|
|
January 19, 2011 |
|
|
the PRC |
|
|
75 |
% |
Joysee |
|
|
May 13, 2011 |
|
|
the PRC |
|
|
46.9 |
% |
Xinsi Yijia |
|
|
December 31, 2012 |
|
|
the PRC |
|
|
75 |
% |
Shibo Movie |
|
|
February 15, 2012 |
|
|
the PRC |
|
|
100 |
% |
N-S Digital TV |
|
|
May 31, 2004 |
|
|
the PRC |
|
|
100 |
% |
N-S Media Investment |
|
|
December 19, 2007 |
|
|
the PRC |
|
|
100 |
% |
|
|
|
|
VIE |
|
|
|
|
|
|
|
|
|
|
|
|
Dingyuan |
|
|
August 21, 2013 |
|
|
the PRC |
|
|
75 |
% |
F-13
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
|
(a) |
Basis of presentation |
The consolidated financial statements of the Group have
been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP).
|
(b) |
Basis of consolidation |
The consolidated financial statements of the Group
include the financial statements of CDTV Holding, its subsidiaries, VIE and VIEs subsidiaries. All inter-company transactions and balances have been eliminated upon consolidation.
The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and revenues, costs and expenses in the financial statements and accompanying notes. Significant accounting estimates reflected in
the Groups consolidated financial statements include allowance for doubtful accounts, allowance for obsolete inventories, valuation allowance for deferred tax assets, and impairment of goodwill.
|
(d) |
Cash and cash equivalents |
Cash and cash equivalents consist of cash on hand and
highly liquid investments which are unrestricted as to withdrawal or use, and which have maturities of three months or less when purchased.
|
(e) |
Accounts receivable and allowance for doubtful accounts |
Accounts receivable are
stated at the amount the Group expects to collect. The Group maintains allowances for doubtful accounts for estimated losses. Management considers the following factors when determining the collectability of specific accounts: historical experience,
credit worthiness of the clients, aging of the receivables and other specific circumstances related to the accounts. Allowance for doubtful accounts is made and recorded into general and administrative expenses based on aging of accounts receivable
and on any specifically identified accounts receivable that may become uncollectible.
From time to time, certain accounts receivable
balances are settled in the form of notes receivable. As of December 31, 2013 and 2014, notes receivable represents bank acceptance drafts that are non-interest bearing and due within six months.
F-14
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
Equity method investments
Investee companies over which the Group has the ability to exercise significant influence, but does not have a controlling interest are
accounted for using the equity method. Significant influence is generally considered to exist when the Group has an ownership interest in the voting stock of the investee between 20% and 50%, and other factors, such as representation on the
investees Board of Directors, voting rights and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate.
An impairment charge is recorded if the carrying amount of the investment exceeds its fair value and this condition is determined to be
other-than-temporary. The Group did not incur any impairment loss on equity method investments for the years ended December 31, 2013 and 2014. For the year ended December 31, 2012, the Group recorded an impairment loss of $4,487 on equity
method investments (Note 12 (b)).
Cost method investments
Investee companies over which the Group does not have significant influence or a controlling interest are carried at cost and recognized as
income for any dividend received from distribution of the investees earnings.
An impairment charge is recorded if the carrying
amount of the investment exceeds its fair value and determined to be other-than-temporary.
|
(g) |
Financial instruments |
Financial instruments of the Group primarily consist of
cash and cash equivalents, restricted cash, notes receivable, accounts receivable, notes payable and accounts payable. The carrying values of the Groups financial instruments approximate their fair values, principally because of the short-term
maturity of these instruments or their terms.
F-15
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(h) |
Concentration of credit risk |
Financial instruments that potentially expose the
Group to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, notes receivable and accounts receivable. The Group places their cash and cash equivalents and restricted cash in financial institutions with
high-credit ratings and quality.
Approximately 93.5% of the Groups deposits were placed with three commercial banks in the PRC as of
December 31, 2014. The Group takes into account a number of factors, including, among other things, the industry rankings, credit rating and reputation, in determining the creditworthiness and quality of the financial institutions in the PRC
with which it has placed its cash and cash equivalents and restricted cash. The following table sets forth information relating to the three largest proportions of the Groups total deposits held by a single bank as of December 31, 2013
and 2014, respectively.
Details of the banks accounting for 10% or more of total deposits are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
Bank |
|
2013 |
|
|
2014 |
|
|
|
% |
|
|
% |
|
|
|
|
Bank A |
|
|
29.0 |
|
|
|
32.3 |
|
Bank B |
|
|
61.7 |
|
|
|
31.7 |
|
Bank C |
|
|
|
* |
|
|
29.5 |
|
|
* |
The amount was less than 10%. |
The Group conducts credit worthiness evaluations of customers
and generally does not require collateral or other security from customers. The Group establishes an allowance for doubtful accounts primarily based upon the age of the receivables and factors relevant to determining the credit risk of specific
customers.
For the years ended December 31, 2012, 2013 or 2014, there are no revenues generated from customers that individually
represent greater than 10% of the total revenues.
As of December 31 2013 and 2014, there are no accounts receivable generated from
customers that individually represent greater than 10% of the total accounts receivables.
F-16
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(h) |
Concentration of credit risk - continued |
Customers accounting for 10% or more of notes receivable are as below:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
Customer |
|
2013 |
|
|
2014 |
|
|
|
% |
|
|
% |
|
|
|
|
Customer A |
|
|
41.6 |
|
|
|
52.1 |
|
Customer B |
|
|
28.3 |
|
|
|
21.3 |
|
Customer C |
|
|
|
* |
|
|
13.7 |
|
|
* |
The amount was less than 10%. |
Inventories are stated at the lower of cost or market value. Cost is
determined using the weighted average method. Inventories are written down for provisions for obsolescence to net realizable value based upon estimates of future demand, technology developments, and market conditions.
|
(j) |
Property and equipment, net |
Property and equipment are carried at cost less
accumulated depreciation and amortization. Depreciation and amortization are calculated on a straight-line basis over the following estimated useful lives:
|
|
|
|
|
Computer and electronic equipment |
|
|
3 years |
|
Furniture and fixture |
|
|
5 years |
|
Leasehold improvement |
|
|
Shorter of useful life of the asset or the lease term |
|
Motor vehicles |
|
|
5 years |
|
F-17
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(k) |
Intangible assets, net |
Intangible assets, other than goodwill, resulting from
the acquisitions of entities accounted for using the acquisition method of accounting are estimated by management with the assistance of a third party valuer based on the fair value of assets acquired.
Identifiable intangible assets are carried at cost less accumulated amortization. Amortization of finite-lived intangible assets is computed
using the straight-line method over the following estimated average useful lives, which are as follows:
|
|
|
|
|
Core technology |
|
|
3-7.5 years |
|
Complete technology |
|
|
2.5 years |
|
Contract backlogs |
|
|
1 year |
|
Customer relationship |
|
|
3.5-9.5 years |
|
Digital watermarking technology |
|
|
5 years |
|
Image tracing technology |
|
|
5 years |
|
|
(l) |
Impairment of long-lived assets |
Long-lived assets, such as property and
equipment and definite-lived intangible assets, are stated at cost less accumulated depreciation or amortization. Depreciation and amortization is computed principally by the straight-line method.
The Group evaluates the recoverability of long-lived assets, including identifiable intangible assets with determinable useful lives, whenever
events or changes in circumstances indicate that an intangible assets carrying amount may not be recoverable. The Group measures the carrying amount of long-lived asset against the estimated undiscounted future cash flows associated with it.
Impairment exists when the sum of the expected future net cash flows is less than the carrying value of the asset being evaluated. Impairment loss is calculated as the amount by which the carrying value of the asset exceeds its fair value. Fair
value is estimated based on various techniques, including the discounted value of estimated future cash flows. The evaluation of asset impairment requires the Group to make assumptions about future cash flows over the life of the asset being
evaluated. These assumptions require significant judgment and actual results may differ from assumed and estimated amounts.
The Group did
not incur any impairment loss on long-lived assets for the years ended December 31, 2012, 2013 or 2014.
F-18
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
The excess of the purchase price over the fair value of net assets
acquired is recorded on the consolidated balance sheet as goodwill. Goodwill is not amortized but is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired.
Goodwill is tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances
change that would more likely than not reduce the fair value of a reporting unit below its carrying value. These events or circumstances could include a significant change in the stock prices, business climate, legal factors, operating performance
indicators, competition, or sale or disposition of a significant portion of a reporting unit.
Application of the goodwill impairment test
requires judgment, including the identification of reporting units, assignment of assets and liabilities to reporting units, assignment of goodwill to reporting units, and determination of the fair value of each reporting unit. Estimating fair value
is performed by utilizing various valuation techniques, with a primary technique being a discounted cash flow which requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of
the long term rate of growth for the Companys business, estimation of the useful life over which cash flows will occur, and determination of the Companys weighted average cost of capital.
In the evaluation of the goodwill for impairment, the Group may first assess qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. If it is more likely than not that the fair value of a
reporting unit is less than its carrying amount, goodwill is then tested following a two-step process. The first step compares the fair value of each reporting unit to its carrying amount, including goodwill. If the fair value of each reporting unit
exceeds its carrying amount, goodwill is not considered to be impaired and the second step will not be required. If the carrying amount of a reporting unit exceeds its fair value, the second step compares the implied fair value of goodwill to the
carrying value of a reporting units goodwill. The implied fair value of goodwill is determined in a manner similar to accounting for a business combination with the allocation of the assessed fair value determined in the first step to the
assets and liabilities of the reporting unit. The excess of the fair value of the reporting unit over the amounts assigned to the assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized for any excess in the
carrying value of goodwill over the implied fair value of goodwill. The Group has determined to perform the annual impairment test on December 31 of each year. The Group did not incur any impairment loss on goodwill for the years ended
December 31, 2012, 2013 or 2014.
F-19
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
The Groups revenues are principally derived from sales
of products and services.
Specifically, sales of products include:
|
(1) |
Sales of smart cards; and |
|
(2) |
Sales of other products. |
Sales of services include the following four arrangements:
|
(1) |
Head-end software, hardware and related system integration service (SI service); |
|
(2) |
Head-end system development service (SD service); |
|
(3) |
Licensing income; and |
Sales of smart cards
Smart cards are manufactured by third-party manufacturers based on the Groups blueprints. When the Group receives these products from the
manufacturers, the Group programs each one with a unique security code so that it can communicate with the Groups CA Systems. Revenue is recognized after a sales agreement is signed, the price is fixed or determinable, products are delivered
to customers, and collection of the resulting receivables is assured. The Group also offers some of its customers a lower price or a certain amount of free cards when the cumulative volume of smart card purchases from the same customer is greater
than a set volume during a specific period. The Group accounts for sales volume based customer incentives as deferred revenue which is deducted against the initial revenue.
The Group generally guarantees the quality of smart cards for periods ranging from one to three years, and if any smart cards are found
defective during the warranty period, the Group is obligated to replace them at the Groups cost. Historically, the defect rate of smart cards has been low and the Group accrues warranty liabilities based on historical information.
Sales of others products
The Group also derives revenues from the sales of products other than smart cards, such as surface mounted device chipsets and other products.
Revenue is recognized after a sales agreement is signed, the price is fixed or determinable, products are delivered to customers, and collection of the resulting receivables is assured.
F-20
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(n) |
Revenue recognition - continued |
SI service
For the SI service, the Group signs contracts with cable network operators to install and integrate the Groups software with the hardware
and software purchased from third-party suppliers. The Groups software includes CA Systems software, subscriber management system software and head-end electronic program guide software.
CA Systems software consists of software that is installed at the premises of the television network operator, or the head end. CA Systems
enable television network operators to deliver secured contents and services to their subscribers.
Subscriber management system is
software used by television network operators to support their operation, archive subscriber and operational information, and to generate billings to subscribers.
Head-end electronic program guide software is software that enables television network operators to distribute Digital Video Broadcasting
standard program specific information and service information to the subscribers.
Deliverables of SI service include: software, hardware,
integration, installation, training and post-contract customer support (PCS). When the provision of services is substantially completed, i.e., when the Group delivers its software, purchases the hardware and software from third-party
suppliers, integrates them together, and provides installation and training to customers, customers sign the preliminary acceptance. Final acceptance is typically signed six months to one year after the issuance of the preliminary acceptance if no
major technical problems are discovered. Software is considered delivered to customers when preliminary acceptance is signed because only at that time customers are able to use the software in the integrated system. For majority of the contracts,
the Group offers one-year free PCS, including telephone support and bug-fixing beginning from preliminary acceptance. However, in some of the contracts, the Group offers free PCS for a period of more than one year beginning from preliminary
acceptance; while in some other contracts, the PCS does not have a specified definite period.
The SI service includes a significant
software portion. The software is not regarded as incidental to the provision of services as a whole because the marketing of such services focuses on the internally developed technologies included in the software. Revenue is recognized when the
last deliverable in the arrangement is delivered and when all of the following criteria have been met:
|
(1) |
Persuasive evidence of an arrangement exists; |
|
(2) |
Delivery has occurred; |
|
(3) |
The vendors fee is fixed or determinable; and |
|
(4) |
Collectability is probable. |
F-21
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(n) |
Revenue recognition - continued |
SI service - continued
The systems are installed and tested at the customers sites. Generally all the
technical issues are identified and resolved before the preliminary acceptance is signed by the customers. Afterwards, the customers will begin to use the installed systems for operation.
For the contracts where the Group offers free PCS for one year or less, the cost incurred between the preliminary acceptance and the end of the
free PCS period has historically been insignificant. Therefore, revenue is recognized when the entire installation and integration of software is completed, which is indicated by obtaining the preliminary acceptance from customers. For contracts
where the Group offers free PCS for more than one year, the Group defers the revenue for the contracts and recognizes it over the PCS term although the cost incurred during the PCS term has been historically insignificant. Where the PCS term has no
specified definite period, the Group recognizes such revenue over the estimated useful life of the CA Systems, which the Group has determined to be five years.
SD service
The Group
develops head-end system applications relating to digital TV technology for its customers.
Deliverables in SD service include the
completed software application. A few arrangements also include one-year free PCS starting from customer acceptance, but no arrangement includes free PCS for more than one year. Payment terms vary based on the stage of the service. Normally a
portion of the contract amount is paid when the contract is signed, and the remaining is paid upon the completion of the project and customer acceptance. The cost of providing free PCS has historically been insignificant.
Because a system development arrangement requires significant production, modification, or customization of software, the group refers to FASB
Accounting Standards Codification (ASC) 605-35, Construction-Type and Production-Type Contracts for revenue recognition. As the Group cannot properly measure progress toward completion, the completed-contract method is
used. Revenue for system development is recognized when the system development is finished and accepted by the customer.
F-22
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(n) |
Revenue recognition - continued |
Licensing income
The Group coordinates with network operators to produce set-top boxes compatible with the Groups CA Systems. The Group enters into
contracts with set-top box manufacturers selected by customers and provides these manufacturers with CA Systems terminal-end software that is integrated in the set-top boxes and which permits the unscrambling of digital TV broadcasts that have been
transmitted by TV network operators who use the Groups CA Systems. The set-top box manufacturers pay the Group a one-time license fee, which includes a testing and certifying fee, for obtaining the blueprints and technologies in the form of
software. According to the contracts, these manufacturers are required to provide a set-top box prototype to the Group in order to obtain a certificate from the Group which indicates the set-top box is compatible with the Groups CA Systems and
suitable for mass-production. The licenses to set-top box manufacturers are perpetual once provided. No PCS is offered in the licensing arrangement. Licensing income is recognized when all revenue recognition criteria have been met, which is
indicated by the issuance of a certificate to the set-top box manufacturer by the Group.
All advances from customers and prepaid fees
received from customers or set-top box manufacturers are initially recognized as deferred revenue and revenue is recognized when the above revenue recognition criteria are met.
Royalty income
The Group
receives royalties on sales of CA Systems terminal-end software.
Royalties are received either from set-top box manufacturers, or from
television network operators depending on which party the Group enters the contracts with.
Royalty revenue is recognized when earned and
collectability is reasonably assured.
For royalty income collected from set-top box manufacturers, royalty revenue is recognized upon the
receipt of sales reports from set-top box manufacturers and when payment is received.
For royalty income received from television network
operators, the Group requests the television network operators to pay the royalty to the Group directly when they purchase the Groups smart cards, in which case all the revenue is recognized as part of the smart card sales when these smart
cards are delivered to the customers.
F-23
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
Deferred costs are recognized mainly for costs incurred, which
consist of hardware and software purchased from third-party suppliers directly associated with revenue from SI service contracts that provide free PCS for more than one year.
Deferred costs from SI services are recoverable through the future revenue streams and are recorded as an asset and amortized to cost of
revenue over the same period that the revenue is recognized. Amortization of deferred costs for the years ended December 31, 2012, 2013 and 2014 totaled $688, $456 and $397, respectively.
|
(p) |
Value added tax (VAT) and VAT refund |
VAT on sales is calculated at
17% on revenue from product sales and SI Services and paid after netting input VAT on purchases. The excess of output VAT over input VAT is reflected in Accrued Expenses and Other Current Liabilities, and the excess of input VAT over output VAT is
reflected in Prepaid Expenses and Other Current Assets in the consolidated balance sheets.
For certain software related products that
qualify as software products by PRC tax authorities, the Group pays VAT at 17% first and then receives a 14% refund. The Group records VAT refund receivables on an accrual basis. VAT refund is recorded in revenue in the statements of
operations.
In July 2012, the Ministry of Finance and the State Administration of Taxation jointly issued Circular No. 71 regarding
the pilot collection of VAT in lieu of business tax in certain areas and industries in the PRC. Starting from September 1, 2012, certain subsidiaries and the VIE became subject to VAT at the rates of 6% on certain service revenues, such as
royalty income which were previously subject to business tax.
|
(q) |
Business and related taxes |
Other than the services subject to VAT, revenues
related to certain types of services from the Groups PRC subsidiaries, VIE and VIEs subsidiaries are subject to business taxes, surcharges or cultural business construction fees. Revenues are presented net of those taxes and fees
incurred.
F-24
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
Government subsidies mainly represent amounts granted by
local government authorities as an incentive for companies to promote economic development of the local technology industry. When the Group receives the subsidies related to government sponsored projects, the subsidies are recorded as a liability
and are recognized as subsidy income when there is no further performance obligation. Subsidy income of $351, $620 and $2,112 were recognized and recorded in other income for the years ended December 31, 2012, 2013 and 2014, respectively.
Leases where substantially all the rewards and risks of
ownership of assets remain with the lessor are accounted for as operating leases. Payments made under operating leases are charged to the consolidated statements of operations on a straight-line basis over the lease periods.
|
(t) |
Foreign currency translation |
The functional and reporting currency of the
Company is the US dollar. The functional currency of the Companys subsidiaries outside the PRC is the US dollar. The functional currency of the Companys subsidiaries, VIE and VIEs subsidiaries in the PRC is Renminbi
(RMB).
Monetary assets and liabilities denominated in currencies other than the applicable functional currencies are
translated into the functional currencies at the prevailing rates of exchange at the balance sheet date. Nonmonetary assets and liabilities are remeasured into the applicable functional currencies at historical exchange rates. Transactions in
currencies other than the applicable functional currencies during the year are converted into the functional currencies at the applicable rates of exchange prevailing at the transaction dates. Transaction gains and losses are recognized in the
consolidated statements of operations.
For translating the financial statements of the Companys PRC subsidiaries into the reporting
currency of the Company, assets and liabilities are translated from each subsidiarys functional currency to the reporting currency at the exchange rate on the balance sheet date. Equity amounts are translated at historical exchange rates, and
revenues, expenses, gains and losses are translated using the average rate for the period. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive income in the
consolidated statements of comprehensive income.
F-25
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
Deferred income taxes are provided using the asset and liability
method. Under this method, deferred income taxes are recognized based on net operating losses available for carry-forwards and significant temporary differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax basis using enacted tax rates in effect for the years in which the differences are expected to reverse. Deferred tax assets and liabilities are classified as current or non-current based upon the classification of the related
asset or liability in the financial statements or the expected timing of their reversal if they do not relate to a specific asset or liability. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more
likely than not that some portion of, or all of the deferred tax assets will not be realized.
Income taxes are provided for in accordance
with the laws and regulations applicable to the Group as enacted by the relevant tax authorities. The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than not to be
sustained upon audit of the related tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
Comprehensive income includes net income and foreign
currency translation adjustments, and is reported in the consolidated statements of comprehensive income.
Basic earnings per ordinary share is computed by dividing
net income attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.
Diluted
earnings per ordinary share reflect the potential dilution that could occur if securities were exercised or converted into ordinary shares. The Group had stock options which could potentially dilute basic earnings per share in the future. To
calculate the number of shares for diluted income per share, the effect of the stock options is computed using the treasury stock method.
F-26
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(x) |
Research and development expenses |
Research and development expenses are incurred
in the development of the Groups products and technologies, including significant improvements and refinements to existing products and services. All research and development expenses are expensed as incurred.
|
(y) |
Share-based compensation |
Share-based payment transactions with employees and
directors, such as share options, are measured based on the grant date fair value of the equity instrument issued. Share-based compensation expenses, net of forfeitures, are recognized over the requisite service period based on the graded vesting
attribution method, with a corresponding impact reflected in additional paid-in capital.
The Group recognizes the estimated compensation
expenses of performance-based stock options based on the grant date fair value. The awards are earned upon attainment of identified performance goals. The Group recognizes the compensation expenses, net of estimated forfeitures, over the performance
period. The Group also adjusts the compensation expenses based on the probability of performance goal achievement at the end of each reporting period.
Forfeitures are estimated at the time of grant and revised in the subsequent periods if actual forfeitures differ from those estimates. The
Group uses historical data to estimate pre-vesting option forfeitures and record share-based compensation expenses only for those awards that are expected to vest.
A change in any of the terms or conditions of share options shall be accounted for as a modification of the plan. Therefore, the Group
calculates incremental compensation cost of a modification as the excess of the fair value of the modified option over the fair value of the original option immediately before its terms are modified, measured based on the share price and other
pertinent factors at the modification date. For vested options, the Group would recognize incremental compensation cost in the period the modification occurred and for unvested options, the Group would recognize, over the remaining requisite service
period, the sum of the incremental compensation cost and the remaining unrecognized compensation cost for the original award on the modification date.
F-27
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
Fair value is the price that would be received from selling an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group
considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.
Fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the
hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:
|
|
|
Level 1-inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets. |
|
|
|
Level 2-inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and model-based valuation techniques for
which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
|
Level 3-inputs are generally unobservable and typically reflect managements estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined
using model-based techniques. |
The Group measures certain assets, including the cost method investments and equity method
investments, at fair value on a nonrecurring basis when they are deemed to be other-than-temporarily impaired. The fair values of these investments are determined based on valuation techniques using the best information available, and may include
management judgments, future performance projections, etc. An impairment charge is recorded when the carrying amount of the investment exceeds its fair value and this condition is determined to be other-than-temporary.
F-28
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(aa) |
Business combinations |
Business combinations are recorded using the acquisition
method of accounting. The purchase price of the acquisition is allocated to the tangible assets, liabilities, identifiable intangible assets acquired and noncontrolling interest, if any, based on their estimated fair values as of the acquisition
date. The excess of the purchase price over those fair values is recorded as goodwill. If the purchase price is less than those fair values, the difference is recognized directly in the consolidated statements of comprehensive income (loss).
Acquisition-related expenses and restructuring costs are expensed as incurred.
In a business combination achieved in stages, the Group
remeasures its previously held equity interest in the acquiree immediately before obtaining control at its acquisition-date fair value and the re-measurement gain or loss, if any, is recognized in earnings.
Where the consideration in an acquisition includes contingent consideration and the payment of which depends on the achievement of certain
specified conditions post-acquisition, the contingent consideration is recognized and measured at its fair value at the acquisition date and if recorded as a liability, it is subsequently carried at fair value with changes in fair value reflected in
earnings.
|
(bb) |
Transactions between entities under common control |
When accounting for a
transfer of assets or exchange of shares between entities under common control of the Company, the carrying amounts of the assets and liabilities transferred shall remain unchanged subsequent to the transaction, and no gain or loss shall be recorded
in the Groups consolidated statements of comprehensive income (loss).
F-29
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(cc) |
Newly adopted accounting pronouncements |
In March 2013, the Financial Accounting
Standards Board (FASB) has issued an authoritative pronouncement related to parents accounting for the cumulative translation adjustment upon derecognition of certain subsidiaries or groups of assets within a foreign entity or of
an investment in a foreign entity. When a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or
conveyance of oil and gas mineral rights) within a foreign entity, the parent is required to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income
only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. For an equity method investment that is a foreign entity, the partial sale
guidance still applies. As such, a pro rata portion of the cumulative translation adjustment should be released into net income upon a partial sale of such an equity method investment. However, this treatment does not apply to an equity method
investment that is not a foreign entity. In those instances, the cumulative translation adjustment is released into net income only if the partial sale represents a complete or substantially complete liquidation of the foreign entity that contains
the equity method investment. Additionally, the amendments in this pronouncement clarify that the sale of an investment in a foreign entity includes both: (1) events that result in the loss of a controlling financial interest in a foreign
entity (i.e., irrespective of any retained investment); and (2) events that result in an acquirer obtaining control of an acquiree in which it held an equity interest immediately before the acquisition date (sometimes also referred to as a step
acquisition). Accordingly, the cumulative translation adjustment should be released into net income upon the occurrence of those events. The amendments in this pronouncement are effective prospectively for fiscal years (and interim reporting periods
within those years) beginning after December 15, 2013. The amendments should be applied prospectively to derecognition events occurring after the effective date. Prior periods should not be adjusted. Early adoption is permitted. If an entity
elects to early adopt the amendments, it should apply them as of the beginning of the entitys fiscal year of adoption. The adoption of this guidance did not have a significant effect on the Groups consolidated financial statements.
In July 2013, the FASB issued an Accounting Standard Update (ASU) which provides guidance on financial statement presentation of an
unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASBs objective in issuing this ASU is to eliminate diversity in practice resulting from a lack of guidance on this
topic in current US GAAP.
The amendments in this ASU state that an unrecognized tax benefit, or a portion of an unrecognized tax benefit,
should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. The adoption of this guidance did not have a
significant effect on the Groups consolidated financial statements.
F-30
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(dd) |
Recently issued accounting pronouncements not yet adopted |
In April 2014, the
FASB issued a new pronouncement which amends to change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of
discontinued operations guidance in US GAAP.
Under the new guidance, only disposals representing a strategic shift in operations should be
presented as discontinued operations. Those strategic shifts should have a major effect on the organizations operations and financial results. Examples include a disposal of a major geographic area, a major line of business, or a major equity
method investment.
In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial
statement users with more information about the assets, liabilities, income, and expenses of discontinued operations.
The new guidance
also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. This disclosure will provide users with information about the ongoing
trends in a reporting organizations results from continuing operations. The amendments in the ASU are effective in the first quarter of 2015 for public organizations with calendar year ends. Early adoption is permitted. The Group does not
expect the adoption of this guidance will have a significant effect on its consolidated financial statements.
In May 2014, the FASB issued
a new pronouncement which affects any entity using US GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the
scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance
included in Subtopic 605-35, Revenue RecognitionConstruction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract
with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, IntangiblesGoodwill and Other) are amended to be consistent with the guidance on recognition and
measurement (including the constraint on revenue) in this ASU.
F-31
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(dd) |
Recently issued accounting pronouncements not yet adopted - continued |
The core principle of the guidance is that an entity should recognize revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following
steps:
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including
interim periods within that reporting period. Early application is not permitted.
An entity should apply the amendments in this ASU using
one of the following two methods:
1. Retrospectively to each prior reporting period presented and the entity may elect any of the
following practical expedients:
For completed contracts, an entity need not restate contracts that begin and end within the same annual
reporting period.
For completed contracts that have variable consideration, an entity may use the transaction price at the date the
contract was completed rather than estimating variable consideration amounts in the comparative reporting periods.
For all reporting
periods presented before the date of initial application, an entity need not disclose the amount of the transaction price allocated to remaining performance obligations and an explanation of when the entity expects to recognize that amount as
revenue.
2. Retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. If an
entity elects this transition method it also should provide the additional disclosures in reporting periods that include the date of initial application of:
The amount by which each financial statement line item is affected in the current reporting period by the application of this ASU as compared
to the guidance that was in effect before the change.
The Group is in the process of evaluating the impact of adoption of this guidance on
the Groups consolidated financial statements.
F-32
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(dd) |
Recently issued accounting pronouncements not yet adopted - continued |
In June 2014, the FASB issued a new pronouncement which requires that a performance target
that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation Stock Compensation, as it relates to awards
with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes
probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved
before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the
requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be
eligible to vest in the award if the performance target is achieved.
The amendments in this ASU are effective for annual periods and
interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted.
Entities may apply the
amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual
period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the
financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost.
The Group does not expect the adoption of this guidance will have a significant effect on its consolidated financial statements.
In
August, 2014, the FASB issued a new pronouncement which provides guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim
and annual assessments of an entitys ability to continue as a going concern within one year of the date of issuance of the entitys financial statements. Further, an entity must provide certain disclosures if there is substantial
doubt about the entitys ability to continue as a going concern. The new standard is effective for fiscal years ending after December 15, 2016. The Group does not expect the adoption of this guidance will have a significant effect on
its consolidated financial statements.
F-33
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued |
|
(dd) |
Recently issued accounting pronouncements not yet adopted - continued |
In January 2015, the FASB issued a new pronouncement which eliminates from US GAAP the
concept of extraordinary items. Subtopic 225-20, Income Statement - Extraordinary and Unusual Items, required that an entity separately classify, present, and disclose extraordinary events and transactions. Presently, an event or transaction is
presumed to be an ordinary and usual activity of the reporting entity unless evidence clearly supports its classification as an extraordinary item.
If an event or transaction meets the criteria for extraordinary classification, an entity is required to segregate the extraordinary item from
the results of ordinary operations and show the item separately in the income statement, net of tax, after income from continuing operations. The entity also is required to disclose applicable income taxes and either present or disclose
earnings-per-share data applicable to the extraordinary item.
The FASB heard from stakeholders that the concept of extraordinary items
causes uncertainty because it is unclear when an item should be considered both unusual and infrequent. Additionally, some stakeholders said that although users find information about unusual or infrequent events and transactions useful, they do not
find the extraordinary item classification and presentation necessary to identify those events and transactions. Other stakeholders noted that it is extremely rare in current practice for a transaction or event to meet the requirements to be
presented as an extraordinary item.
The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is
permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Group does not expect the adoption of this guidance will have a significant effect on its consolidated financial statements.
F-34
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
3. |
PLANNED DISPOSAL OF SUPER TV |
On October 9, 2014, the Group has entered into a share transfer agreement (as amended by a supplementary agreement
dated October 27, 2014) with Tongda Venture and Cinda Investment Co., Ltd. (Cinda Investment), whereby Tongda Venture will acquire 100% equity interest of Super TV, which is made up of the Groups CA, Screen Cross and VOD
businesses. In exchange, the Group will receive a total consideration of approximately RMB3.2 billion, consisting of RMB2.4 billion in cash and RMB0.8 billion in shares of Tongda Venture which will represent 17.24% of the ordinary shares of Tongda
Venture. The consideration is subject to a profit compensation agreement, under which the Group is obligated to return certain compensation to Tongda Venture if specified performance targets for each of the fiscal years of 2014, 2015 and 2016 are
not met. In connection with the transfer, Cinda Investment is granted a warrant, exercisable within three months after the completion of the sale of Super TV, to subscribe for the Companys new shares at a price of $3.33 per share for an amount
between $25,000 and $30,000. In addition, Cinda Investment has the option to subscribe for no more than an 8% equity interest in each of Cyber Cloud and Joysee, the subsidiaries of the Company.
The share transfer agreement can only come into effect after all the relevant PRC governmental approvals have been obtained, which have not yet
been obtained as of December 31, 2014. Without the approvals from relevant PRC government authorizes, the Company does not have the authority to approve the disposal of Super TV. As such, the Company has classified the assets and liabilities of
Super TV as held and used as of December 31, 2014 and will continue to do so until such a time all the relevant PRC governmental approvals are obtained.
F-35
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
4. |
SEGMENT INFORMATION AND REVENUE ANALYSIS |
The Groups chief operating decision maker is the Chief Executive Officer, who reviews consolidated results of
operations prepared in accordance with U.S. GAAP when making decisions about allocating resources and assessing performance of the Group. The Group has only one operating segment.
The Group operates in the PRC and all of the Groups long-lived assets are located in the PRC.
The gross revenues consist of the following products and services:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Products: |
|
|
|
|
|
|
|
|
|
|
|
|
Smart cards |
|
$ |
75,185 |
|
|
$ |
78,256 |
|
|
$ |
67,108 |
|
Other products |
|
|
10,134 |
|
|
|
4,670 |
|
|
|
6,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
85,319 |
|
|
|
82,926 |
|
|
|
73,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Services: |
|
|
|
|
|
|
|
|
|
|
|
|
Head-end system integration |
|
|
2,175 |
|
|
|
2,731 |
|
|
|
4,591 |
|
Head-end system development |
|
|
987 |
|
|
|
1,103 |
|
|
|
1,566 |
|
Licensing income |
|
|
1,246 |
|
|
|
1,098 |
|
|
|
2,516 |
|
Royalty income |
|
|
382 |
|
|
|
512 |
|
|
|
585 |
|
Other services |
|
|
135 |
|
|
|
77 |
|
|
|
165 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
4,925 |
|
|
|
5,521 |
|
|
|
9,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
90,244 |
|
|
$ |
88,447 |
|
|
$ |
82,943 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VAT refunds of $7,366, $6,603, and $5,433 were included in revenues for the years ended December 31, 2012,
2013 and 2014, respectively.
F-36
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
|
(a) |
In 2010, the Group entered into an agreement with Beijing Yuewu Yuntian Software Technology Ltd. (Yuewu Yuntian) to establish Cyber Cloud, in which the Group and Yuewu Yuntian held 90% and 10% of the equity
interests, respectively. |
Pursuant to a series of agreements dated on April 30, 2014, between the Group, Yuewu Yuntian and
Beijing Holch Capital Investment Center (Holch Capital, a third party), Cyber Cloud acquired 100% equity interest in Xinsi Yijia from Yuewu Yuntian and Holch Capital, and in exchange, Yuewu Yuntian and Holch Capital obtained certain
noncontrolling interests in Cyber Cloud. These transactions were closed on June 30, 2014. As a result, the Group, Yuewu Yuntian and Holch Capital held 75%, 15% and 10% of the equity interests in Cyber Cloud, respectively. Xinsi Yijia became a wholly
owned subsidiary of Cyber Cloud, and therefore a 75% owned subsidiary of the Group after June 30, 2014. The purpose of the acquisition of Xinsi Yijia is to develop the Groups cloud computing technology-based digital video delivery solutions.
The purchase price for the acquisition of Xinsi Yijia was determined to be $2,541 based on the acquisition-date fair value of Xinsi Yijia which is more reliably measurable. Such fair value has been estimated by management with the assistance of a
third party valuer.
The following table summarizes the fair values of assets acquired and liabilities assumed at the date of acquisition:
|
|
|
|
|
|
|
As of June 30, 2014 |
|
Current assets |
|
$ |
1,791 |
|
Property, plant, and equipment |
|
|
132 |
|
Intangible assets |
|
|
478 |
|
Goodwill |
|
|
853 |
|
|
|
|
|
|
Total assets acquired |
|
|
3,254 |
|
|
|
|
|
|
Current liabilities |
|
|
(512 |
) |
Non-current liabilities |
|
|
(201 |
) |
|
|
|
|
|
Total liabilities assumed |
|
|
(713 |
) |
|
|
|
|
|
Net assets acquired |
|
$ |
2,541 |
|
|
|
|
|
|
F-37
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
5. |
ACQUISITION - continued |
|
(b) |
In 2012, the Group and Beijing AirMedia Advertising Co., Ltd. (AirMedia) set up two joint ventures Shibo Movie and Beijing Xinghe Union Media Co., Ltd. (Xinghe Union), in each of which the group
contributed cash of $794, representing 50% of equity interests in each of the joint ventures, respectively. The Group has accounted for these investments using equity method accounting because the Group did not control the investees but had the
ability to exercise significant influence over the operating and financial policies of the investees. |
On September 30,
2013, the Group signed an agreement with AirMedia for the exchange of 50% equity interests in Shibo Movie held by AirMedia with its 50% equity interests in Xinghe Union. In February 2014, the exchange was completed and Shibo Movie became a
wholly-owned subsidiary of the Group. The carrying values of the Group equity investments in Shibo Movie and Xinghe Union were $456 and $291, respective prior to the exchange. The Company accounted for the exchange as a disposal of its equity
investment in Xinghe Union and a step acquisition of Shibo Movie. The fair value of Shibo Movie asset acquired and liabilities assumed was $912. The Company recorded a gain of $165 on the disposal of Xinghe Union.
Restricted cash consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Bank deposits pledged as security for issuing letters of credit |
|
$ |
919 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
Restricted cash |
|
$ |
919 |
|
|
$ |
78 |
|
|
|
|
|
|
|
|
|
|
F-38
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
7. |
ACCOUNTS RECEIVABLE, NET |
Accounts receivable, net, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Accounts receivable |
|
$ |
50,698 |
|
|
$ |
52,368 |
|
Less: allowance for doubtful accounts |
|
|
(4,793 |
) |
|
|
(4,391 |
) |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
$ |
45,905 |
|
|
$ |
47,977 |
|
|
|
|
|
|
|
|
|
|
Movement of allowance for doubtful accounts is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year |
|
|
Charge to expenses |
|
|
Actual write-off |
|
|
Balance at end of the year |
|
|
|
|
|
|
2013 |
|
$ |
2,223 |
|
|
$ |
2,570 |
|
|
$ |
|
|
|
$ |
4,793 |
|
2014 |
|
$ |
4,793 |
|
|
$ |
679 |
|
|
$ |
1,081 |
|
|
$ |
4,391 |
|
Inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Raw materials |
|
$ |
1,890 |
|
|
$ |
1,805 |
|
Finished goods |
|
|
3,137 |
|
|
|
3,161 |
|
|
|
|
|
|
|
|
|
|
Inventories |
|
$ |
5,027 |
|
|
$ |
4,966 |
|
|
|
|
|
|
|
|
|
|
Movement of provision for inventory is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year |
|
|
Charge to expenses |
|
|
Actual write-off |
|
|
Balance at end of the year |
|
|
|
|
|
|
2013 |
|
$ |
667 |
|
|
$ |
2,761 |
|
|
$ |
|
|
|
$ |
3,428 |
|
2014 |
|
$ |
3,428 |
|
|
$ |
1,330 |
|
|
$ |
1,807 |
|
|
$ |
2,951 |
|
F-39
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
9. |
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Prepaid expenses and other current assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Interest receivable |
|
$ |
149 |
|
|
$ |
63 |
|
Deposits |
|
|
980 |
|
|
|
996 |
|
VAT refund receivables |
|
|
1,081 |
|
|
|
2,812 |
|
Prepayments to suppliers |
|
|
1,314 |
|
|
|
858 |
|
Receivable on disposal of property and equipment |
|
|
|
|
|
|
2,852 |
|
Other receivables |
|
|
|
|
|
|
443 |
|
Other prepaid expenses |
|
|
508 |
|
|
|
940 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
4,032 |
|
|
$ |
8,964 |
|
|
|
|
|
|
|
|
|
|
10. |
PROPERTY AND EQUIPMENT, NET |
Property and equipment, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Computers and other electronic equipment |
|
$ |
4,045 |
|
|
$ |
3,617 |
|
Furniture and fixtures |
|
|
232 |
|
|
|
206 |
|
Leasehold improvements |
|
|
610 |
|
|
|
256 |
|
Motor vehicles |
|
|
592 |
|
|
|
602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
5,479 |
|
|
|
4,681 |
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation and amortization |
|
|
(4,309 |
) |
|
|
(3,801 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
1,170 |
|
|
$ |
880 |
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2012, 2013 and 2014, depreciation expense was $921, $833 and $900,
respectively.
F-40
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
11. |
INTANGIBLE ASSETS, NET |
Intangible assets, net, consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Core technology |
|
$ |
496 |
|
|
$ |
596 |
|
Complete technology |
|
|
73 |
|
|
|
73 |
|
Contract backlogs |
|
|
336 |
|
|
|
336 |
|
Customer relationship |
|
|
1,188 |
|
|
|
1,553 |
|
Digital watermarking technology |
|
|
990 |
|
|
|
990 |
|
Image tracing technology |
|
|
410 |
|
|
|
410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
3,493 |
|
|
|
3,958 |
|
Less: accumulated amortization |
|
|
|
|
|
|
|
|
Core technology |
|
|
(490 |
) |
|
|
(502 |
) |
Complete technology |
|
|
(73 |
) |
|
|
(73 |
) |
Contract backlogs |
|
|
(336 |
) |
|
|
(336 |
) |
Customer relationship |
|
|
(1,188 |
) |
|
|
(1,207 |
) |
Digital watermarking technology |
|
|
(990 |
) |
|
|
(990 |
) |
Image tracing technology |
|
|
(119 |
) |
|
|
(119 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
(3,196 |
) |
|
|
(3,227 |
) |
Less: impairment loss of image tracing technology |
|
|
(291 |
) |
|
|
(291 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
6 |
|
|
$ |
440 |
|
|
|
|
|
|
|
|
|
|
The Group recorded amortization expense of $253, $195 and $44 for the years ended December 31, 2012, 2013
and 2014, respectively. Estimated amortization expenses of the existing intangible assets for the years ending December 31, 2015, 2016, 2017, 2018 and 2019 and after are $76, $76, $58, $39 and $191, respectively.
F-41
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
12. |
EQUITY METHOD INVESTMENTS |
Equity method investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
Notes |
|
2013 |
|
|
2014 |
|
|
|
|
|
Nanjing Qingda Yongxin Culture Media Co., Ltd. (Qingda Yongxin) |
|
(a) |
|
$ |
68 |
|
|
$ |
74 |
|
3DiJoy Corp. (3DiJoy) |
|
(b) |
|
|
|
|
|
|
|
|
Guangzhou Rujia Network Technology Co., Ltd., (Rujia) |
|
(c) |
|
|
2,624 |
|
|
|
2,428 |
|
Shibo Movie |
|
(d) |
|
|
489 |
|
|
|
|
|
Xinghe Union |
|
(e) |
|
|
370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,551 |
|
|
$ |
2,502 |
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
In March 2007, the Group and Jiangsu Qingda Technology Co. Limited (Jiangsu Qingda), one of its customers, set up a joint venture Qingda Yongxin, in which the Group contributed cash of $103, representing 40%
of equity interest in the joint venture. Jiangsu Qingda contributed cash of $155 representing 60% of equity interest in the joint venture. |
The Group has accounted for this long-term investment using equity method accounting because the Group does not control the investee but has
the ability to exercise significant influence over the operating and financial policies of the investee.
F-42
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
12. |
EQUITY METHOD INVESTMENTS - continued |
(b) |
In May 2010, the Group entered into a share subscription agreement to purchase 24% of equity interest in 3DiJoy with a consideration of $6,000. The Group had accounted for this long-term investment using equity method
accounting because the Group does not control the investee but has the ability to exercise significant influence over the operating and financial policies of the investee. 3DiJoy was experiencing financial difficulties in 2012 while it was actively
searching for a new capital injection for its operation. In the third quarter of 2012, 3DiJoy assessed that there was no alternative funding and due to the absence of further shareholders support, it did not expect to operate as a going
concern and it laid off nearly half of the employees. As such, as of September 30, 2012, the Group performed an impairment analysis with the assistance of a third party valuer on the investment. The fair value of 3DiJoy decreased significantly
below its carrying value and the decrease was other-than temporary. As a result, the Group did not expect to receive any return from this investment and recognized a full impairment of $4,487 in 2012. |
(c) |
In June 2010, the Group acquired 34.45% of equity interest in Rujia through purchase of existing shares from a shareholder of Rujia and contribution to its capital increase, for a total consideration of $2,500. The
Group has accounted for this long-term investment using equity method accounting because the Group does not control the investee but has the ability to exercise significant influence over the operating and financial policies of the investee.
|
(d) |
In February 2012, the Group and AirMedia set up a joint venture Shibo Movie, in which the group contributed cash of $794, representing 50% of equity interest in joint venture. The Group has accounted for this long-term
investment using equity method accounting because the Group does not control the investee but has the ability to exercise significant influence over the operating and financial policies of the investee. On September 30, 2013, the Group signed a
contract with AirMedia for the exchange for 50% equity interests in Shibo Movie held by AirMedia with its 50% equity interest in Xinghe Union. In February 2014, the exchange was completed and Shibo Movie became a wholly-owned subsidiary of the
Group, and the transaction was accounted for by applying the acquisition method (Note 5(b)). |
(e) |
In March 2012, the Group and AirMedia set up a joint venture Xinghe Union, in which the group contributed cash of $794, representing 50% of equity interest in joint venture. The Group has accounted for this long-term
investment using equity method accounting because the Group does not control the investee but has the ability to exercise significant influence over the operating and financial policies of the investee. On September 30, 2013, the Group signed a
contract with AirMedia for the exchange for 50% equity interests in Shibo Movie held by AirMedia with its 50% equity interest in Xinghe Union. In February 2014, the exchange was completed and the 50% equity interest in Xinghe Union was transferred
to AirMedia. The Company recorded a gain of $165 on the disposal of Xinghe Union (Note 5(b)). |
F-43
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
12. |
EQUITY METHOD INVESTMENTS - continued |
The aggregated financial information for the equity method investments as of and for the
periods presented is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Total current assets |
|
$ |
7,982 |
|
|
$ |
5,581 |
|
Total assets |
|
|
8,640 |
|
|
|
5,738 |
|
Total current liabilities |
|
|
1,615 |
|
|
|
1,313 |
|
Total liabilities |
|
$ |
1,640 |
|
|
$ |
1,329 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Total net revenue |
|
$ |
3,847 |
|
|
$ |
2,646 |
|
|
$ |
1,752 |
|
Loss from operations |
|
$ |
(1,750 |
) |
|
$ |
(1,959 |
) |
|
$ |
(933 |
) |
13. |
COST METHOD INVESTMENTS |
On January 4, 2010, the Group, together with several other third parties entered into a share purchase agreement with
OpenV China Holdings Company (OpenV) for a strategic investment in OpenV with an equity interest of 11.5% (subject to adjustment based on OpenVs performance) for a consideration of $5,000. The Group accounted for this long-term
investment under the cost method of accounting because the Group does not have significant influence and a controlling interest over OpenV.
In October 2010, the Group was informed that OpenV was under investigation over alleged copyright infringements relating to some of its online
video content. Subsequently, its online video service operation had been suspended. Based on the foregoing, the Group had doubts on the going concern of OpenV. As a result, the Group wrote off the entire amount of original $5,000 investment in OpenV
in 2010.
In October 2012, the Group entered into a share redemption agreement with OpenV. Pursuant to the agreement, OpenV repurchased
460,080 of its shares for a consideration of $820, which was recorded in other income in 2012. After the equity changes of OpenV, the Group holds 10.71% equity interest in OpenV with zero carrying amount in OpenV as of December 31, 2012, 2013
and 2014.
F-44
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
To facilitate the cash payment of special cash dividend that the Group declared in November 2010, the Group entered into
foreign currency forward contracts with two banks in April and May 2011. Pursuant to those contracts, the Group obtained two short-term loans in US dollar from these two banks with an aggregated amount of $55,193 for a period of one year,
respectively. Meanwhile, the amount of $55,469 of the Groups bank deposit was restricted until the short-term loan was fully paid back in April and May 2012. The forward contracts were determined to be a derivative instrument. The Group
carries the forward contracts at fair value in its balance sheet and the changes in the forward contract fair value during each period end are recorded in the statement of operations. The Group carries the forward contract as either assets or
liabilities at fair value.
The Group measures the fair value of the forward contract on a recurring basis based on a level 2 measure, i.e.
the Group uses the market forward exchange rate to assess the fair value of the forward contract and recognizes the changes in fair value attributable to the difference between the market forward exchange rate and contractual exchange rate in change
in fair value of forward contract. For the year ended December 31 2012, the Group recorded a loss of $690 in change in fair value of forward contract respectively. The short-term loan and the forward contracts were settled in May 2012, and the
balance of the forward contracts was nil and nil as of December 31, 2013 and 2014, respectively.
15. |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Accrued expenses and other current liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Accrued payroll and bonus |
|
$ |
4,032 |
|
|
$ |
3,805 |
|
Other taxes payable |
|
|
1,756 |
|
|
|
3,721 |
|
Advance payment received in relation to an investment in Cyber Cloud* |
|
|
|
|
|
|
2,254 |
|
Social insurance withholding |
|
|
725 |
|
|
|
732 |
|
Provision for warranty |
|
|
310 |
|
|
|
338 |
|
Others |
|
|
6,311 |
|
|
|
6,802 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
13,134 |
|
|
$ |
17,652 |
|
|
|
|
|
|
|
|
|
|
* |
Pursuant to an agreement dated December 22, 2014, Beijing Gehua CATV Network Co., Ltd. (Gehua, a third party) has agreed to inject capital of $2,254 to Cyber Cloud in exchange of a 10% equity interest
in Cyber Cloud. The transaction is subject to approval from relevant PRC governmental authority, which has not been obtained by December 31, 2014. The Group recorded the advance payment received from Gehua for the capital contribution as a
liability as of December 31, 2014. |
F-45
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
15. |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES - continued |
Movement of provision for warranty is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of the year |
|
|
Charge to expenses |
|
|
Deductions |
|
|
Balance at end of the year |
|
|
|
|
|
|
2013 |
|
$ |
250 |
|
|
$ |
72 |
|
|
$ |
(12 |
) |
|
$ |
310 |
|
2014 |
|
$ |
310 |
|
|
$ |
62 |
|
|
$ |
(34 |
) |
|
$ |
338 |
|
Deferred revenue consists of the following:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
Advance from customers |
|
$ |
5,754 |
|
|
$ |
3,537 |
|
Incentive offered to customers |
|
|
449 |
|
|
|
357 |
|
Deferred revenue for SI service contracts with remaining PCS period within a year |
|
|
339 |
|
|
|
678 |
|
|
|
|
|
|
|
|
|
|
|
|
|
6,542 |
|
|
|
4,572 |
|
Non-current: |
|
|
|
|
|
|
|
|
Deferred revenue for SI service contracts with remaining PCS period longer than a year |
|
|
135 |
|
|
|
617 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
6,677 |
|
|
$ |
5,189 |
|
|
|
|
|
|
|
|
|
|
Incentive offered to customers represents the deferred revenue relating to free smart cards committed to
customers when cumulative purchase volume from the same customers reached certain level. Such deferred revenue is deducted from the initial revenue and to be recognized as revenue when free cards are delivered.
CDTV Holdings and CDTV BVI are tax-exempted companies incorporated in the Cayman Islands and the British Virgin Islands,
respectively.
Golden Benefit and CSM Holdings are subject to Hong Kong Profits Tax on its activities conducted in Hong Kong. No provision
for Hong Kong Profits tax has been made in the consolidated financial statements as they both have no assessable profits for the years presented.
F-46
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
17. |
INCOME TAXES - continued |
Super TV, N-S Digital TV, N-S Media Investment, N-S Information Technology, Joysee, Cyber
Cloud, Shibo Movie, Xinsi Yijia and Dingyuan were registered in the PRC and are subject to PRC Enterprise Income Tax (EIT) on the taxable income in accordance with the relevant PRC income tax laws. Both Super TV and N-S Digital TV were
qualified as High-and-New Technology Enterprise (HNTE) under the Enterprise Income Tax Law effective from January 1, 2008 (the 2008 EIT law) and therefore both of them were qualified for a preferential tax
rate of 15% for a three year period. In October 2011 and again in October 2014, both Super TV and N-S Digital TV successfully renewed their HNTE qualification and were qualified for a preferential tax rate of 15% from 2011 to 2016.
Cyber Cloud was subject to the statutory tax rate of 25% in 2012 and 2013. In October 2014, Cyber Cloud obtained the HNTE certificate for the
tax years from 2014 to 2016, and Cyber Cloud is entitled to a preferential income tax rate of 15% in each of those years.
Super TV was
qualified as Key Software Enterprise in 2010 and entitled for a preferential tax rate of 10% in 2010. In March 2013, Super TV renewed the Key Software Enterprise certificate for the tax years from 2011 to 2012 from the
relevant PRC government authorities and further in December 2013, Super TV obtained such certificate for the tax years from 2013 to 2014, as a result, Super TV was entitled to a preferential income tax rate of 10% in each of those years.
N-S Media Investment, N-S Information Technology, Joysee, Shibo Movie and Xinsi Yijia were subject to the statutory tax rate of 25% in 2012,
2013, and 2014.
Dingyuan was established in 2013 and subject to the statutory tax rate of 25% in 2013 and 2014.
Deferred income taxes result principally from differences in the recognition of certain assets and liabilities for tax and financial reporting
purposes and the tax effect of tax loss carry forwards.
Income tax expenses/(benefits) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Income tax expenses/(benefits) |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
$ |
18,035 |
|
|
$ |
(1,587 |
) |
|
$ |
10,638 |
|
Deferred |
|
|
4,197 |
|
|
|
2,314 |
|
|
|
(4,265 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
22,232 |
|
|
$ |
727 |
|
|
$ |
6,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-47
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
17. |
INCOME TAXES - continued |
The principal components of the deferred income tax assets (liabilities) are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
|
|
|
Current deferred tax assets |
|
|
|
|
|
|
|
|
Write-down of inventory value |
|
$ |
794 |
|
|
$ |
586 |
|
Allowance for doubtful accounts |
|
|
854 |
|
|
|
686 |
|
Accrued expenses |
|
|
878 |
|
|
|
1,149 |
|
Accrued bonus |
|
|
396 |
|
|
|
423 |
|
Deferred revenue-current |
|
|
118 |
|
|
|
162 |
|
Government subsidies-current |
|
|
71 |
|
|
|
24 |
|
Deferred cost-current |
|
|
15 |
|
|
|
(94 |
) |
Warranty |
|
|
47 |
|
|
|
51 |
|
Valuation allowance |
|
|
(627 |
) |
|
|
(600 |
) |
|
|
|
|
|
|
|
|
|
Current deferred tax assets subtotal |
|
$ |
2,546 |
|
|
$ |
2,387 |
|
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets |
|
|
|
|
|
|
|
|
Deferred revenue-non-current |
|
|
161 |
|
|
|
229 |
|
Government subsidies-non-current |
|
|
791 |
|
|
|
667 |
|
Intangible assets amortization |
|
|
76 |
|
|
|
77 |
|
Intangible assets impairment |
|
|
49 |
|
|
|
25 |
|
Deferred cost-non-current |
|
|
(15 |
) |
|
|
(91 |
) |
Tax loss carry-forward deferred tax assets |
|
|
4,704 |
|
|
|
5,997 |
|
Valuation allowance |
|
|
(4,827 |
) |
|
|
(6,119 |
) |
|
|
|
|
|
|
|
|
|
Non-current deferred tax assets subtotal |
|
$ |
939 |
|
|
$ |
785 |
|
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities |
|
|
|
|
|
|
|
|
Accrued withholding tax |
|
|
(8,222 |
) |
|
|
(3,727 |
) |
|
|
|
|
|
|
|
|
|
Current deferred tax liabilities subtotal |
|
$ |
(8,222 |
) |
|
$ |
(3,727 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current deferred tax liabilities |
|
|
|
|
|
|
|
|
Acquired intangible assets |
|
|
|
|
|
|
(110 |
) |
|
|
|
|
|
|
|
|
|
Non-Current deferred tax liabilities subtotal |
|
$ |
|
|
|
$ |
(110 |
) |
|
|
|
|
|
|
|
|
|
F-48
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
17. |
INCOME TAXES - continued |
The Groups subsidiaries registered in the PRC have total net operating loss carry
forwards of $27,706 as of December 31, 2014 which will expire on various dates between December 31, 2015 and December 31, 2019. The net operating loss carry forwards generated by a particular entity in the Group cannot be transferred
or utilized by other entities within the Group. Valuation allowances have been established because the Group believes that it is more likely than not that its deferred tax assets will not be realized as it does not expect to generate sufficient
taxable income in future.
Reconciliation between the provision for income taxes computed by applying the PRC EIT rates of 25% to income
before income taxes and the actual provision of income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Net income before provision for income taxes |
|
$ |
28,410 |
|
|
$ |
23,771 |
|
|
$ |
25,597 |
|
PRC statutory tax rate |
|
|
25% |
|
|
|
25% |
|
|
|
25% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax at statutory tax rate |
|
|
7,103 |
|
|
|
5,943 |
|
|
|
6,399 |
|
Expenses not deductible for tax purposes |
|
|
550 |
|
|
|
574 |
|
|
|
906 |
|
Investment loss deductible for tax purposes (Note a) |
|
|
|
|
|
|
|
|
|
|
(2,104 |
) |
Effect of income tax exemptions/tax holidays |
|
|
(4,470 |
) |
|
|
(10,104 |
) |
|
|
(3,990 |
) |
Effect of income tax rate difference in other jurisdictions |
|
|
1,916 |
|
|
|
233 |
|
|
|
446 |
|
Change in valuation allowance |
|
|
1,655 |
|
|
|
467 |
|
|
|
1,265 |
|
Withholding tax relating to distributable earnings |
|
|
14,296 |
|
|
|
3,614 |
|
|
|
3,451 |
|
Expense adjustment related to non-taxable income (Note b) |
|
|
1,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses |
|
$ |
22,232 |
|
|
$ |
727 |
|
|
$ |
6,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. The
adjustment is related to investment loss incurred upon disposal of Xinghe Union (Note 5(b)), and transfer of certain investments during the reorganizations of the Group (Note 1), which can be deductible for tax purposes. |
|
b. The adjustment is related to non-deductible expenditure incurred in connection to income claimed for VAT refund
for prior periods. |
|
If N-S Digital TV and Super TV were not in a tax holiday period for the years ended December 31, 2012,
2013 and 2014, and Cyber Cloud was not in a tax holiday period for the year ended December 31, 2014, the impact to the earnings per share amounts would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Increase in income tax expenses |
|
$ |
4,470 |
|
|
$ |
10,104 |
|
|
$ |
3,990 |
|
Decrease in net income per share-basic |
|
|
0.08 |
|
|
|
0.17 |
|
|
|
0.07 |
|
Decrease in net income per share-diluted |
|
$ |
0.08 |
|
|
$ |
0.17 |
|
|
$ |
0.06 |
|
F-49
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
17. |
INCOME TAXES - continued |
Uncertainties exist with respect to how the current income tax law in the PRC applies to the
Groups overall operations, and more specifically, with regard to tax residency status. The 2008 EIT Law includes a provision specifying that legal entities organized outside the PRC will be considered residents for Chinese income tax purposes
if the place of effective management or control is within the PRC. The implementation rules to the New EIT Law provide that non-resident legal entities will be considered PRC residents if substantial and overall management and control over the
manufacturing and business operations, personnel, accounting, properties, etc., occurs within the PRC. Despite the present uncertainties resulting from the limited PRC tax guidance on the issue, the Group does not believe that the legal entities
organized outside the PRC should be treated as residents for 2008 EIT law purposes. If the PRC tax authorities subsequently determine that the Company and its subsidiaries registered outside the PRC should be deemed resident enterprises, the Company
and its subsidiaries registered outside the PRC will be subject to the PRC income tax at a rate of 25%.
If the Company were to be
non-resident for PRC tax purpose, dividends paid to it from profits earned by the PRC subsidiary after January 1, 2008 would be subject to a withholding tax. In the case of dividends paid by PRC subsidiaries, the withholding tax would be 10%
and in the case of a subsidiary 25% or more directly owned by the resident in Hong Kong, the withholding tax would be 5%, but that will be subject to the interpretation of Circular No. 601 issued by the State Administration of Taxation, under
which the Companys Hong Kong subsidiary might not be considered to be the beneficial owner of any such dividends and in that case the withholding tax rate would be 10%.
Under the applicable accounting principles, a deferred tax liability should be recorded for taxable temporary differences attributable to the
excess of financial reporting over tax basis, including those differences attributable to an investment in a subsidiary. However, recognition is not required in situations where the tax law provides means by which reported amount of that investment
in subsidiary can be recovered tax-free and the enterprise expects that it will ultimately use that means.
Before the year 2012, the
Company determined that the undistributed earnings of the Companys subsidiaries located in the PRC would be indefinitely reinvested for use in the operation and expansion of its business within the PRC and no deferred tax liability had been
accrued for the PRC dividend withholding tax for the undistributed retained earnings. In 2012, the Company determined to distribute the undistributed retained earnings of the Companys subsidiary located in the PRC without a set schedule.
F-50
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
17. |
INCOME TAXES - continued |
In 2012 and 2014, Super TV declared to distribute its earnings of $92,779 and $78,578,
respectively, to its immediate foreign holding company, Golden Benefit, for purpose of special cash dividend distribution to shareholders of the Company. According to the interpretation of Circular No. 601 issued by the State Administration of
Taxation, the Companys Hong Kong subsidiary might not be considered to be the beneficial owner of any such dividends and in that case the withholding tax rate would be 10%. As a result, withholding tax of $9,278 was recorded to income tax
expenses in 2012, as no previous accrual had been recorded, and $7,858 was recorded in 2014 against the accrued deferred tax liability. As of December 31, 2013 and 2014, the Group accrued deferred tax liabilities related to withholding tax at the
amount of $8,222 and $3,727, respectively, on the undistributed earnings generated after January 1, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Net income (numerator), basic and diluted |
|
$ |
6,927 |
|
|
$ |
24,408 |
|
|
$ |
20,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares (denominator): |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average ordinary shares outstanding used in computing basic net income (loss) per share |
|
|
59,011,396 |
|
|
|
59,111,594 |
|
|
|
59,369,708 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Plus incremental weighted average ordinary shares from assumed exercise of stock options using the treasury stock method |
|
|
81,408 |
|
|
|
64,863 |
|
|
|
2,347,071 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total weighted average ordinary shares outstanding used in computing diluted net income per ordinary share |
|
|
59,092,804 |
|
|
|
59,176,457 |
|
|
|
61,716,779 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share-basic |
|
$ |
0.12 |
|
|
$ |
0.41 |
|
|
$ |
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share-diluted |
|
$ |
0.12 |
|
|
$ |
0.41 |
|
|
$ |
0.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Out of all the outstanding stock options, 644,790, 4,025,390 and 292,097 stock options in 2012, 2013 and 2014,
respectively, could potentially dilute net income per share in the future, but were excluded in the computation of diluted net income per share in those periods, as their exercise prices were above the average market values in such periods.
19. |
SPECIAL CASH DIVIDEND TO SHAREHOLDERS |
In May 2011, the Group declared a special cash dividend of $0.56 per share on the Companys ordinary shares. $32,937
was paid in 2012 and $79 was paid in 2013.
In November 2012, the Group declared a special cash dividend of $2.3 per share on the
Companys ordinary shares. $59,013 was paid in 2012, $76,863 was paid in 2013 and $57 was paid in 2014.
In April 2014, the Group
declared a special cash dividend of $0.5 per share on the Companys ordinary shares with the total amount of $29,635 paid in 2014.
F-51
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION |
|
(a) |
Option granted by the Company |
Option granted to employees
Pursuant to the directors resolution, the Company adopted Share Incentive Plans in 2005, under which the Company may grant options to
purchase up to 4,444,440 ordinary shares of the Company, to its employees, directors, and consultants, subject to vesting requirements. Under Share Incentive Plans in 2005, there are four schemes of the options granted: Scheme I, Scheme II, Scheme
III and Scheme IV, which were granted on February 3, 2005, September 22, 2006, December 5, 2006 and October 5, 2008, respectively. There were no share options granted under Scheme I, Scheme II and Scheme IV outstanding
as of December 31, 2014.
On September 13, 2007, the board of directors of CDTV Holding approved the 2008 Stock Incentive Plan,
pursuant to which the Company may grant options to purchase up to 1,200,000 ordinary shares to its employees and other eligible people. Under Share Incentive Plans in 2008, there are four schemes of the options granted: Scheme V, Scheme VI, Scheme
VII and Scheme VIII, which were granted on October 5, 2008, June 2, 2009, February 10, 2010 and November 15, 2010, respectively. There were no share options granted under Scheme VII and Scheme VIII outstanding as of
December 31, 2014.
On November 19, 2010, the board of directors of CDTV Holding approved the 2010 Stock Incentive Plan, pursuant
to which the Company may grant options to purchase up to 3,600,000 ordinary shares to its employees and other eligible people. Under Share Incentive Plans in 2010, there are four schemes of the options granted: Scheme IX, Scheme X, Scheme XI and
Scheme XII, which were granted on November 19, 2010, May 16, 2011, September 30, 2011 and November 19, 2011, respectively.
On May 1, 2012, the board of directors of CDTV Holding approved the 2012 Stock Incentive Plan, pursuant to which the Company may grant
options to purchase up to 1,200,000 ordinary shares to its employees. Under Share Incentive Plans in 2012, Scheme XIII was granted on January 8, 2013.
Modification of option plans
On November 19, 2010, the board of directors of CDTV Holding approved that the exercise price of all options which were granted under the
2005 Plan, the 2008 Plan and the 2010 Plan prior to December 23, 2010 (the Adjusted Options) and remain outstanding as of December 23, 2010 shall be adjusted as follows to reflect the declaration and payment of the special cash
dividend.
F-52
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Modification of option plans - continued
The per share exercise price of all Adjusted Options with a per share exercise price higher
than $2.00 was reduced by $2.00 on December 23, 2010; the per share exercise price of all Adjusted Options with a per share exercise price no more than $2.00 was reduced to $0.01. The modification to the share exercise price did not have any
incremental compensation cost. The board also determined that if any future dividend is declared by the Board of the Company on all Ordinary Shares of the Company, the per share exercise price of all options granted prior to and outstanding as of
the date of record of such dividend shall be reduced by an amount equal to the dividend payable on each Ordinary Shares, provided that the per share exercise price after adjustment shall not be less than $0.01.
As the Company declared special cash dividends of $0.56, $2.3 and $0.5 per share, on May 20, 2011, November 12, 2012 and
April 2, 2014, respectively, on the Companys ordinary shares, the per share exercise price of all options granted prior to and remaining outstanding as of the respective record dates, which were June 20, 2011, November 26, 2012
and April 14, 2014, was reduced by $0.56, $2.3 and $0.5, respectively, provided that the per share exercise price after adjustment shall not be less than $0.01. And there were no incremental cost arising from the adjustment of per share
exercise price for the years ended December 31, 2012 and 2014.
F-53
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Details of the Share Incentive Plans:
Scheme III
Grant date:
December 5, 2006
Exercise price per share-original: $4.172
Exercise price per share after modification: $0.01
Expiration date: December 4, 2016
Number of options granted: 620,212
Among the 620,212 Scheme III options granted, 352,000 options were granted to one officer of the Group and the remaining 268,212 options were
granted to other employees and directors.
Vesting schedule of the 268,212 options granted to employees and directors:
The option shall become vested as to (1) 25% of the total number of the option shares on the first anniversary of the grant date and
(2) the remaining 75% of the Option Shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following the month in which the first anniversary of the Grant date occurs
and an additional installment vesting on the last day of each of the 35 months thereafter.
Scheme V
Grant date: October 5, 2008
Exercise price per share-original: $7.89
Exercise price per share after modification: $2.53
Expiration date: October 4, 2018
Number of options granted: 406,776
Vesting schedule: (1) 25% of the total number of the option shares on the first anniversary of the grant date and (2) the remaining
75% of the Option Shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following the month in which the first anniversary of the Grant date occurs and an additional
installment vesting on the last day of each of the 35 months thereafter.
F-54
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Details of the Share Incentive Plans: - continued
Scheme VI
Grant date: June 2, 2009
Exercise price per share-original: $9.09
Exercise price per share after modification: $3.73
Expiration date: June 1, 2019
Number of options granted: 357,548
Vesting schedule: (1) 25% of the total number of the option shares on the first anniversary of the grant date and (2) the remaining
75% of the Option Shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following the month in which the first anniversary of the Grant date occurs and an additional
installment vesting on the last day of each of the 35 months thereafter.
Scheme IX
Grant date: November 19, 2010
Exercise price per share-original: $6.90
Exercise price per share after modification: $1.54
Expiration date: November 19, 2020
Number of options granted: 1,000,000
Vesting schedule: (1) 25% of the total number of option shares on the first anniversary of the grant date; and (2) the remaining 75%
of the option shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following the month in which the first anniversary of the grant date occurs and an additional installment
vesting on the last day of each of the 35 months thereafter.
Scheme X
Grant date: May 16, 2011
Exercise price per share-original: $4.90
Exercise price per share after modification: $1.54
Expiration date: May 15, 2021
Number of options granted: 1,600,000
F-55
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Details of the Share Incentive Plans: - continued
Scheme X - continued
Type I under Scheme X:
Number of options granted: 1,457,000
Vesting schedule: (1) 25% of the total number of option shares on November 19, 2011; and (2) the remaining 75% of the option
shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following November 19, 2011 and an additional installment vesting on the last day of each of the 35 months
thereafter.
Type II under Scheme X:
Number of options granted: 143,000
Vesting schedule: The vesting of the options is conditional upon whether the performance of the optionee can meet certain performance targets
as of April 1, 2012.
Scheme XI
Grant date: September 30, 2011
Exercise price per share-original: $4.34
Exercise price per share after modification: $1.54
Expiration date: September 29, 2021
Number of options granted: 700,000
Vesting schedule: (1) 25% of the total number of option shares on November 19, 2011; and (2) the remaining 75% of the option
shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following November 19, 2011 and an additional installment vesting on the last day of each of the 35 months
thereafter.
F-56
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Details of the Share Incentive Plans: -
continued
Scheme XII
Grant date: November 19, 2011
Exercise price per share-original: $4.34
Exercise price per share after modification: $1.54
Expiration date: November 18, 2021
Number of options granted: 300,000
Vesting schedule: (1) 25% of the total number of option shares immediately on November 19, 2011; and (2) the remaining 75% of
the option shares shall vest in 36 substantially equal monthly installments, with the first installment vesting on the last day of the month following November 19, 2011 and an additional installment vesting on the last day of each of the 35
months thereafter.
Scheme XIII
Grant date: January 8, 2013
Exercise price per share-original: $1.18
Exercise price per share after modification: $0.68
Expiration date: January 7, 2023
Number of options granted: 1,200,000
Vesting schedule: (1) 25% of the total number of option shares immediately on January 8, 2013; and (2) the remaining 75% of the
option shares shall vest in 36 substantially equal monthly installments with the first installment vesting on February 28, 2013 and an additional installment vesting on the last day of each of the 35 months thereafter.
Termination of options
If the grantee ceases to be employed by or ceases to provide services to the Group, (a) the grantee will have until the date that is 30
days after his or her severance date to exercise the options (or portion thereof) to the extent that they were vested on the severance date; (b) the options, to the extent not vested on the severance date, shall terminate on the severance date;
(c) the options, to the extent exercisable for the 30-day period following the severance date and not exercised during such period, shall terminate at the close of the business on the last day of the 30-day period.
F-57
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Option exercise
The option shall be exercisable by the delivery to the secretary of corporation of a written notice, in the form approved by the Group, stating
the number of ordinary shares to be purchased pursuant to the option and payment in full for the exercise price of the shares to be purchased in cash, by check or by electronic funds transfer to the Group.
Management used the Black-Scholes option pricing model to estimate the fair value of the following options on their respective grant date with
the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected price volatility range |
|
Risk-free interest rate range |
|
Expected life range |
|
Expected dividends |
|
|
Fair value of ordinary share at grant date |
|
|
|
|
|
|
|
Scheme III |
|
49.8%-52.4% |
|
5.77%-5.83% |
|
5.28-6.54 |
|
|
1.00 |
% |
|
$ |
3.56 |
|
Scheme V |
|
56.20% |
|
2.92% |
|
6.25 |
|
|
0 |
% |
|
$ |
7.66 |
|
Scheme VI |
|
51.50% |
|
3.28% |
|
6.25 |
|
|
2.50 |
% |
|
$ |
9.09 |
|
Management used Binomial model to estimate the fair value of the following options on their respective grant
date with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected price volatility range |
|
|
Risk-free interest rate range |
|
|
Time to vest |
|
Expected dividends |
|
|
Fair value of ordinary share at grant date |
|
|
|
|
|
|
|
Scheme IX |
|
|
38.89 |
% |
|
|
3.82 |
% |
|
2.16 |
|
|
0 |
% |
|
$ |
7.26 |
|
Scheme X |
|
|
45.17 |
% |
|
|
3.99 |
% |
|
0.88-1.69 |
|
|
0 |
% |
|
$ |
6.39 |
|
Scheme XI |
|
|
73.61 |
% |
|
|
3.91 |
% |
|
1.32 |
|
|
0 |
% |
|
$ |
3.9 |
|
Scheme XII |
|
|
72.80 |
% |
|
|
3.68 |
% |
|
1.18 |
|
|
0 |
% |
|
$ |
3.89 |
|
Scheme XIII |
|
|
67.44 |
% |
|
|
1.94 |
% |
|
1.2 |
|
|
0 |
% |
|
$ |
1.8 |
|
The fair value of the option at the grant date was $1.67, $4.24, $3.83, $3.16, $3.11-$3.42, $1.57-$1.65,
$1.54-$1.62 and $1.09-$1.23 for each option for Scheme III, Scheme V, Scheme VI, Scheme IX, Scheme X, Scheme XI, Scheme XII and Scheme XIII option plans, respectively.
F-58
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Option exercise - continued
In calculating the fair value of the options using the Black-Scholes or Binomial option
pricing model, the following major assumptions were used:
For options granted prior to 2011, the volatility of the underlying ordinary shares
during the life of the options was estimated based on the historical stock prices volatility of listed comparable companies over a period comparable to the expected term of the options. For options granted since 2011, volatility of the underlying
ordinary shares during the life of the options was estimated based on the historical stock price volatility of the Companys own historical stock price volatility over the past years.
|
(2) |
Risk free interest rate |
Risk free interest rate was estimated based on the yield to maturity
of government bonds with a maturity period close to the expected term of the options.
The Company estimated the expected term as the average between the vesting term
of the options and the original contractual term.
The Company estimated the time to vest as the weighted average remaining vesting
period of the options based on the vesting schedule of the options.
The dividend yield was estimated by the Company based on its expected dividend
policy over the expected term of the options and its historical special cash dividend payments.
The exercise price of the options was determined by the Companys board of
directors.
|
(7) |
Fair value of underlying ordinary shares |
The fair value of ADSs representing its ordinary
shares on the grant date is determined by the closing trade price of ordinary shares on the grant date.
F-59
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Option exercise - continued
A summary of stock option activity is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
|
|
Options outstanding as at January 1, 2013 |
|
|
4,186,399 |
|
|
$ |
2.26 |
|
Granted |
|
|
1,200,000 |
|
|
|
1.18 |
|
Exercised |
|
|
(48,399 |
) |
|
|
1.18 |
|
Forfeited |
|
|
(193,867 |
) |
|
|
1.99 |
|
|
|
|
|
|
|
|
|
|
Options outstanding as at December 31, 2013 |
|
|
5,144,133 |
|
|
|
1.53 |
|
Exercised |
|
|
(556,417 |
) |
|
|
1.21 |
|
Forfeited |
|
|
(47,878 |
) |
|
|
1.48 |
|
|
|
|
|
|
|
|
|
|
Options outstanding as at December 31, 2014 |
|
|
4,539,838 |
|
|
|
1.57 |
|
|
|
|
|
|
|
|
|
|
Options exercisable as at December 31, 2014 |
|
|
4,246,245 |
|
|
|
1.63 |
|
|
|
|
|
|
|
|
|
|
The following table summarizes information with respect to share options outstanding at December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average exercise price |
|
|
Number outstanding |
|
|
Number exercisable |
|
|
Weighted-average remaining contractual life |
|
Intrinsic value |
|
|
|
|
|
|
|
Scheme III |
|
$ |
0.01 |
|
|
|
211 |
|
|
|
211 |
|
|
1.92 years |
|
$ |
3.05 |
|
Scheme V |
|
|
2.53 |
|
|
|
251,856 |
|
|
|
251,856 |
|
|
3.76 years |
|
|
0.53 |
|
Scheme VI |
|
|
3.73 |
|
|
|
292,097 |
|
|
|
292,097 |
|
|
4.42 years |
|
|
|
|
Scheme IX |
|
|
1.54 |
|
|
|
1,000,000 |
|
|
|
1,000,000 |
|
|
5.89 years |
|
|
1.52 |
|
Scheme X |
|
|
1.54 |
|
|
|
1,447,526 |
|
|
|
1,447,526 |
|
|
6.37 years |
|
|
1.52 |
|
Scheme XI |
|
|
1.54 |
|
|
|
576,605 |
|
|
|
576,605 |
|
|
6.75 years |
|
|
1.52 |
|
Scheme XII |
|
|
1.54 |
|
|
|
99,604 |
|
|
|
99,604 |
|
|
6.88 years |
|
|
1.52 |
|
Scheme XIII |
|
|
0.68 |
|
|
|
871,939 |
|
|
|
578,346 |
|
|
8.00 years |
|
|
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,539,838 |
|
|
|
4,246,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-60
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(a) |
Option granted by the Company - continued |
Option exercise - continued
The weighted-average grant-date fair value of options granted in 2013 was $1.14. There were
no new options granted during 2012 and 2014.
The aggregate intrinsic value of options outstanding, vested and exercisable as of
December 31, 2014 was $6,956, $6,258 and $6,258 respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2013 and 2014 was $199, $27 and $1,027, respectively.
A summary of unvested stock option activity as of December 31, 2014, and changes during the year ended December 31, 2014 are
presented below:
|
|
|
|
|
|
|
|
|
Unvested Stock Option |
|
Number of Shares |
|
|
Weighted average Grant-date Fair Value |
|
|
|
|
Unvested at January 1, 2014 |
|
|
1,350,522 |
|
|
$ |
2.09 |
|
Vested |
|
|
(1,033,470 |
) |
|
|
2.37 |
|
Forfeited |
|
|
(23,459 |
) |
|
|
1.23 |
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2014 |
|
|
293,593 |
|
|
|
1.15 |
|
|
|
|
|
|
|
|
|
|
The Company recorded the share-based compensation expense of $2,503, $2,191 and $736 for the years ended
December 31, 2012, 2013 and 2014, respectively.
As of December 31, 2014, total unrecognized compensation expense related to the
unvested share options was $66, which is expected to be recognized over a weighted-average period of 0.72 years according to the graded vesting schedule. Total fair value of stock options vested during the years ended December 31, 2012, 2013
and 2014 was $3,437, $3,138 and $2,452, respectively.
F-61
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(b) |
Options granted by Cyber Cloud |
On January 18, 2012, Cyber Cloud, a majority-owned
subsidiary of the Group, approved the Cyber Cloud 2012 Stock Incentive Plan, under which Cyber Cloud granted 551,000 options to its employees. The share option plan has a term of ten years, which will expire on January 17, 2022 unless
terminated earlier by its shareholders and board of directors. The exercise price of the options is $0.17 per share.
On January 31,
2013, Cyber Cloud approved the Cyber Cloud 2013 Stock Incentive Plan, under which Cyber Cloud granted 613,000 options to its employees. The share option plan has a term of ten years, which will expire on January 30, 2023 unless terminated
earlier by its shareholders and board of directors. The exercise price of the options is $0.16 per share.
The following table summarizes
the Cyber Clouds share option activities with employees:
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
|
|
Options outstanding as at January 1, 2013 |
|
|
478,000 |
|
|
$ |
0.17 |
|
Granted |
|
|
613,000 |
|
|
|
0.16 |
|
Forfeited |
|
|
(362,000 |
) |
|
|
0.16 |
|
|
|
|
|
|
|
|
|
|
Options outstanding as at December 31, 2013 |
|
|
729,000 |
|
|
|
0.17 |
|
Forfeited |
|
|
(83,000 |
) |
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
Options outstanding as at December 31, 2014 |
|
|
646,000 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
Options exercisable as at December 31, 2014 |
|
|
379,292 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
Management used Binomial model to estimate the fair value of the following options on their respective grant
date with the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility range |
|
|
Risk-free interest rate range |
|
|
Expected life |
|
|
Expected dividends |
|
|
|
|
|
|
Options granted under 2012 Stock Incentive Plan |
|
|
54.90 |
% |
|
|
3.44 |
% |
|
|
10 years |
|
|
|
|
|
Options granted under 2013 Stock Incentive Plan |
|
|
47.10 |
% |
|
|
3.61 |
% |
|
|
10 years |
|
|
|
|
|
The fair value of the option at the grant date was $0.23 and $0.16 for each option granted under 2012 and 2013
Stock Incentive Plan, respectively.
F-62
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(b) |
Option granted by Cyber Cloud - continued |
In calculating the fair value of the options using the Binomial option pricing model, the
following major assumptions were used:
The volatility of the underlying ordinary shares during the life of the options was
estimated based on the historical stock prices volatility of listed comparable companies over a period comparable to the expected term of the options.
|
(2) |
Risk free interest rate |
Risk free interest rate was estimated based on the yield to maturity
of government bonds with a maturity period close to the expected term of the options.
Cyber Cloud estimated the expected term as the average between the vesting term
of the options and the original contractual term.
Cyber Cloud estimated the time to vest as the weighted average remaining vesting
period of the options based on the vesting schedule of the options.
The dividend yield was estimated by Cyber Cloud based on its expected dividend
policy over the expected term of the options and its historical special cash dividend payments.
The exercise price of the options was determined by Cyber Clouds board of
directors.
|
(7) |
Fair value of underlying ordinary shares |
The estimated fair value of the ordinary shares
underlying the options as of the grant date was determined based on a retrospective valuation.
Vesting schedule: all options will vest
equally in 48 months after the grant date.
Cyber Cloud recorded share-based compensation expense of $52, $49 and $23 for the years ended
December 31, 2012, 2013 and 2014, respectively.
As of December 31, 2014, total unrecognized compensation expense related to the
unvested share options was $17, which is expected to be recognized over a weighted-average period of 0.86 years according to the graded vesting schedule.
F-63
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(c) |
Option granted by Joysee |
On February 17, 2012, Joysee, a subsidiary of the Group,
approved the Joysee 2012 Stock Incentive Plan, under which Joysee granted 520,000 options to its employees. The share option plan has a term of ten years, which will expire on February 16, 2022 unless terminated earlier by its shareholders and
board of directors. The exercise price of the options is $0.17 per share.
The following table summarizes the Joysees share option
activities with employees:
|
|
|
|
|
|
|
|
|
|
|
Number of options |
|
|
Weighted average exercise price |
|
|
|
|
Options outstanding as at January 1, 2013 |
|
|
468,000 |
|
|
$ |
0.17 |
|
Forfeited |
|
|
(35,000 |
) |
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
Options outstanding as at December 31, 2013 |
|
|
433,000 |
|
|
|
0.17 |
|
Forfeited |
|
|
(414,000 |
) |
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
Options outstanding as at December 31, 2014 |
|
|
19,000 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
Options exercisable as at December 31, 2014 |
|
|
9,500 |
|
|
|
0.17 |
|
|
|
|
|
|
|
|
|
|
The fair value of options granted was $0.31, measured on the grant date based on the Binomial option pricing
model with the following assumptions:
|
|
|
|
|
Risk-free interest rate |
|
|
3.58 |
% |
Expected life (years) |
|
|
10 years |
|
Expected dividend yield |
|
|
|
|
Volatility |
|
|
66.29 |
% |
In calculating the fair value of the options using the Binomial option pricing model, the following major
assumptions were used:
The volatility of the underlying ordinary shares during the life of the options was
estimated based on the historical stock prices volatility of listed comparable companies over a period comparable to the expected term of the options.
F-64
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
20. |
SHARE-BASED COMPENSATION - continued |
|
(c) |
Option granted by Joysee - continued |
|
(2) |
Risk free interest rate |
Risk free interest rate was estimated based on the yield to maturity
of government bonds with a maturity period close to the expected term of the options.
Joysee estimated the expected term as the average between the vesting term of
the options and the original contractual term.
Joysee estimated the time to vest as the weighted average remaining vesting
period of the options based on the vesting schedule of the options.
The dividend yield was estimated by Joysee based on its expected dividend
policy over the expected term of the options and its historical special cash dividend payments.
The exercise price of the options was determined by Joysees board of
directors.
|
(7) |
Fair value of underlying ordinary shares |
The estimated fair value of the ordinary shares
underlying the options as of the grant date was determined based on a retrospective valuation.
Vesting schedule: all options will vest
equally in 4 years after the grant date.
For above options granted under Joysees stock incentive plan, Joysee recorded share-based
compensation expense of $59 and $31 for the years ended December 31, 2012 and 2013, respectively, and reversed share-based compensation expense of $23 for the year ended December 31, 2014 to reflect the actual forfeiture rate.
As of December 31, 2014, total unrecognized compensation expense related to the unvested share options was less than $1, which is expected
to be recognized over a weighted-average period of 0.63 years according to the graded vesting schedule.
F-65
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
21. |
FAIR VALUE MEASUREMENT |
Measured at fair value on a recurring basis
The Group measured its financial assets and liabilities, including cash equivalents, restricted cash, notes receivable, accounts receivable,
notes payable and accounts payable on a recurring basis as of December 31, 2013 and 2014. Cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in
an active market. The carrying amounts of notes receivable, accounts receivable, notes payable and accounts payable approximate their fair values due to their short-term maturity.
Measured at fair value on a non-recurring basis
The Group measured the fair value of equity method investment in 3Dijoy using the income approach-DCF method based on which to recognize the
impairment loss in 2012. The equity method investment in 3Dijoy is considered as Level 3 assets because the Group used unobservable inputs, such as weighted average cost of capital (WACC) and lack of marketability discount
(LoMD), to determine the fair value of the equity method investment. The WACC and LoMD used in the fair value measurement were 22% and 40%, respectively. Increase (decrease) in any of WACC and LoMD in isolation could result in lower
(higher) fair value measurement.
The Group measured the fair value of the purchased intangible using the cost, income
approach-excess earnings or with & without valuation methods. These purchased intangible assets are considered Level 3 assets because the Group used unobservable inputs, such as forecast financial performance of the
acquired business and discount rates, to determine the fair value of these purchased assets.
Goodwill and intangible assets are measured
at fair value on a nonrecurring basis and they are recorded at fair value only when impairment is recognized.
22. |
MAINLAND CHINA CONTRIBUTION PLAN |
Full time employees of the Group in the PRC participate in a government-mandated multiemployer defined contribution plan
pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue for these benefits based on certain
percentages of the employees salaries. The total contribution for such employee benefits was $5,016, $5,712 and $5,763 for the years ended December 31, 2012, 2013 and 2014, respectively.
F-66
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
Operating lease commitment
The Group has operating lease agreements principally for its office spaces in the PRC. These leases expire through 2015 and are renewable upon
negotiation. Rental expense under operating leases for the years ended December 31, 2012 and 2013 and 2014 was $2,443, $2,864 and $2,300 respectively.
Future minimum lease payments under non-cancelable operating lease agreements are as follows:
Purchase commitments
As of December 31, 2014, purchase commitments were $1,585, mainly for services and products.
24. |
NONCONTROLLING INTEREST |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cyber Cloud |
|
|
Joysee |
|
|
Super Movie |
|
|
Total |
|
|
|
|
|
|
|
|
|
(Note c) |
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2012 |
|
$ |
538 |
|
|
$ |
3,229 |
|
|
$ |
113 |
|
|
$ |
3,880 |
|
Share-based compensation |
|
|
5 |
|
|
|
21 |
|
|
|
|
|
|
|
26 |
|
Net loss |
|
|
(402 |
) |
|
|
(870 |
) |
|
|
(117 |
) |
|
|
(1,389 |
) |
Foreign currency translation adjustment |
|
|
30 |
|
|
|
157 |
|
|
|
1 |
|
|
|
188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2012 |
|
|
171 |
|
|
|
2,537 |
|
|
|
(3 |
) |
|
|
2,705 |
|
Share-based compensation |
|
|
5 |
|
|
|
11 |
|
|
|
|
|
|
|
16 |
|
Net (loss)/income |
|
|
(209 |
) |
|
|
(1,626 |
) |
|
|
3 |
|
|
|
(1,832 |
) |
Foreign currency translation adjustment |
|
|
2 |
|
|
|
45 |
|
|
|
|
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2013 |
|
|
(31 |
) |
|
|
967 |
|
|
|
|
|
|
|
936 |
|
Share-based compensation |
|
|
4 |
|
|
|
(15 |
) |
|
|
|
|
|
|
(11 |
) |
Partial disposal of Joysees equity (Note b) |
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
215 |
|
Transfer of noncontrolling interest-Cyber Cloud (Note a) |
|
|
1,160 |
|
|
|
|
|
|
|
|
|
|
|
1,160 |
|
Net loss |
|
|
(620 |
) |
|
|
(1,105 |
) |
|
|
|
|
|
|
(1,725 |
) |
Foreign currency translation adjustment |
|
|
9 |
|
|
|
(19 |
) |
|
|
|
|
|
|
(10 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014 |
|
$ |
522 |
|
|
$ |
43 |
|
|
$ |
|
|
|
$ |
565 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-67
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
24. |
NONCONTROLLING INTEREST - continued |
The following summarized the effects of changes in the Groups ownership interests in
its subsidiaries on the Groups equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Net income attributable to the Group |
|
$ |
6,927 |
|
|
$ |
24,408 |
|
|
$ |
20,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from the noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in the Groups additional paid-in capital for transfer of noncontrolling interest in Joysee (Note b) |
|
|
|
|
|
|
|
|
|
|
(215 |
) |
Increase in the Groups additional paid-in capital for transfer of noncontrolling interest in Cyber Cloud (Note a) |
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net transfers from noncontrolling interest |
|
|
|
|
|
|
|
|
|
|
1,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes from net income attributable to the Group and transfers from noncontrolling interest |
|
$ |
6,927 |
|
|
$ |
24,408 |
|
|
$ |
22,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a. |
Pursuant to a series of agreements dated April 30, 2014, Cyber Cloud acquired 100% equity interest in Xinsi Yijia from Yuewu Yuntian and Holch Capital, and in exchange, Yuewu Yuntian and Holch Capital obtained certain
noncontrolling interests in Cyber Cloud. Moreover, Super TV transferred its remaining equity interest in Cyber Cloud to CSM Holdings. As a result of these transactions, CSM Holdings, Yuewu Yuntian and Holch Capital held 75%, 15% and 10% of the
equity interest in Cyber Cloud, respectively (Note 5(a)). |
b. |
Pursuant to agreements dated June 20, 2014, the Group transferred 17.9% equity interests in Joysee to Beijing Ying Zhi Cheng Technology Co., Ltd. (Ying Zhi Cheng Technology), an entity that is held mainly by
employees of Joysee and who held 5.2% of the equity interest in Joysee before the equity transfer. As a result of this transaction, the Group, Ying Zhi Cheng Technology and Intel Semiconductor (Dalian) Ltd., held 46.9%, 23.1% and 30% of the equity
interests in Joysee, respectively. According to the article of association of Joysee, N-S Information Technology is entitled to recommend for appointment three out of the five members to the board of directors of Joysee. The Group is still
considered to have the ability to control Joysee accordingly. The Group has accounted for the transfer of equity interest as stock based compensation. Stock based compensation of $963 has been recorded for the year ended December 31, 2014
accordingly. |
c. |
On November 7, 2013, Super Movie was dissolved. |
F-68
CHINA DIGITAL TV HOLDING CO., LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - continued
FOR THE YEARS ENDED DECEMBER 31, 2012, 2013 AND 2014
(U.S. dollars in thousands, except share and per share data)
25. |
RELATED PARTY BALANCES AND TRANSACTIONS |
In the years ended December 31, 2012, 2013 and 2014, the Group purchased a certain media information system amounting
to $290, $27 and $66, respectively, from Rujia. As of December 31, 2013 and 2014, the amounts due to Rujia were $212 and $10 respectively.
Pursuant to a series of agreements, dated April 30, 2014, Super TV transferred a portion of its equity interest in Cyber Cloud to Yuewu
Yuntian, over which the Chief Technology Officer of the Company can exercise significant influence. And Yuewu Yuntian transferred its equity interest in Xinsi Yijia to Cyber Cloud (Note 24(a)).
26. |
STATUTORY RESERVES AND RESTRICTED NET ASSETS |
As stipulated by the relevant law and regulations in the PRC, the Companys subsidiaries in the PRC are required to
maintain non-distributable statutory reserves. Appropriations to the statutory reserves are required to be made at 10% of profit after taxes as reported in these entities statutory financial statements prepared under PRC GAAP. Once
appropriated, these amounts are not available for future distribution to owners or shareholders. Once the statutory reserves are accumulated to 50% of these entities registered capital, these entities can choose not to provide further
statutory reserves. The statutory reserves may be applied against prior year losses, if any, and may be used for general business expansion and production and an increase in registered capital of these entities. Amounts contributed to the statutory
reserves were $162, $51 and $70 for 2012, 2013 and 2014, respectively.
Relevant PRC laws and regulations restrict the foreign invested
enterprises (FIE) and VIE from transferring a portion of their net assets to the Company in the form of loans, advances or cash dividends.
Based on the Companys group structure and as advised by the Companys PRC legal counsel, the registered capital of the FIEs
subsidiaries, the VIE and the VIEs subsidiary (all of which are domestic PRC entities) may be reduced as approved by their respective shareholders, subject to the minimum registered capital requirements under PRC law and after repayment of or
provision for guarantees of debt as required by creditor (if any), and any excess registered capital after such reduction (Excess Capital) may be transferred to such shareholders within the PRC without the consent of a third party
pursuant to relevant PRC laws, rules and regulations. Such Excess Capital may be transferred to the FIE, which could be in turn transferred to the parent of the FIE (a non-PRC entity) and ultimately transferred to the Company in the form of dividend
distributions.
As a result, the Companys restricted net assets (which consist of the registered capital of the FIE and the minimum
required registered capital of the FIEs subsidiaries and the VIE and the VIEs subsidiary, together with the statutory reserve, attributable to the Company) was $54,498 as of December 31, 2014.
F-69
CHINA DIGITAL TV HOLDING CO., LTD.
Additional Information-Financial Statement Schedule I
Condensed Financial Information of Parent Company
BALANCE SHEETS
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
2013 |
|
|
2014 |
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
4,154 |
|
|
$ |
2,482 |
|
Accounts due from subsidiaries and VIE-current |
|
|
495 |
|
|
|
1,821 |
|
Dividend receivable |
|
|
6,001 |
|
|
|
6,001 |
|
Prepaid expenses and other current assets |
|
|
30 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
10,680 |
|
|
|
10,321 |
|
Accounts due from subsidiaries and VIE-non-current |
|
|
1,090 |
|
|
|
1,090 |
|
Investment in subsidiaries and VIE |
|
|
99,212 |
|
|
|
91,449 |
|
Deferred tax assets non-current |
|
|
138 |
|
|
|
138 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
111,120 |
|
|
$ |
102,998 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accrued expenses and other current liabilities |
|
|
163 |
|
|
|
902 |
|
Deferred revenue-current |
|
|
864 |
|
|
|
634 |
|
Dividend payable |
|
|
57 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
1,084 |
|
|
|
1,536 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,084 |
|
|
|
1,536 |
|
|
|
|
|
|
|
|
|
|
Equity: |
|
|
|
|
|
|
|
|
Ordinary shares |
|
|
30 |
|
|
|
30 |
|
Additional paid-in capital |
|
|
32,037 |
|
|
|
35,639 |
|
Retained earnings |
|
|
49,029 |
|
|
|
40,284 |
|
Accumulated other comprehensive income |
|
|
28,940 |
|
|
|
25,509 |
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
110,036 |
|
|
|
101,462 |
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
111,120 |
|
|
$ |
102,998 |
|
|
|
|
|
|
|
|
|
|
F-70
CHINA DIGITAL TV HOLDING CO., LTD.
Additional Information-Financial Statement Schedule I
Condensed Financial Information of Parent Company
STATEMENTS OF COMPREHENSIVE INCOME
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Operating expenses |
|
$ |
(2,822 |
) |
|
$ |
(2,388 |
) |
|
$ |
(2,554 |
) |
Interest income |
|
|
10 |
|
|
|
15 |
|
|
|
4 |
|
Impairment loss on long-term investments |
|
|
(4,487 |
) |
|
|
|
|
|
|
|
|
Loss from equity method investment |
|
|
(578 |
) |
|
|
|
|
|
|
|
|
Equity in earnings of subsidiaries and VIE |
|
|
14,191 |
|
|
|
26,985 |
|
|
|
23,528 |
|
Other income |
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before provision for income taxes |
|
|
7,134 |
|
|
|
24,612 |
|
|
|
20,978 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes - current |
|
|
(276 |
) |
|
|
(204 |
) |
|
|
(88 |
) |
Provision for income taxes - deferred |
|
|
69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to ordinary shareholders |
|
$ |
6,927 |
|
|
$ |
24,408 |
|
|
$ |
20,890 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
348 |
|
|
|
2,857 |
|
|
|
(3,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income attributable to ordinary shareholders |
|
$ |
7,275 |
|
|
$ |
27,265 |
|
|
$ |
17,459 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
CHINA DIGITAL TV HOLDING CO., LTD.
Additional Information-Financial Statement Schedule I
Condensed Financial Information of Parent Company
STATEMENTS OF CHANGES IN EQUITY
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary |
|
|
Additional paid-in capital |
|
|
Accumulated other comprehensive income |
|
|
Retained earning |
|
|
Total equity |
|
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2012 |
|
|
58,981,890 |
|
|
$ |
29 |
|
|
$ |
126,583 |
|
|
$ |
25,735 |
|
|
$ |
54,095 |
|
|
$ |
206,442 |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
2,588 |
|
|
|
|
|
|
|
|
|
|
|
2,588 |
|
Exercise of stock option |
|
|
118,864 |
|
|
|
1 |
|
|
|
85 |
|
|
|
|
|
|
|
|
|
|
|
86 |
|
Special cash dividend to shareholders |
|
|
|
|
|
|
|
|
|
|
(99,532 |
) |
|
|
|
|
|
|
(36,401 |
) |
|
|
(135,933 |
) |
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,927 |
|
|
|
6,927 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
348 |
|
|
|
|
|
|
|
348 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
59,100,754 |
|
|
|
30 |
|
|
|
29,724 |
|
|
|
26,083 |
|
|
|
24,621 |
|
|
|
80,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
2,255 |
|
|
|
|
|
|
|
|
|
|
|
2,255 |
|
Exercise of stock option |
|
|
48,399 |
|
|
|
|
|
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,408 |
|
|
|
24,408 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,857 |
|
|
|
|
|
|
|
2,857 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2013 |
|
|
59,149,153 |
|
|
|
30 |
|
|
|
32,037 |
|
|
|
28,940 |
|
|
|
49,029 |
|
|
|
110,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
1,710 |
|
|
|
|
|
|
|
|
|
|
|
1,710 |
|
Exercise of stock option |
|
|
556,417 |
|
|
|
|
|
|
|
726 |
|
|
|
|
|
|
|
|
|
|
|
726 |
|
Special cash dividend to shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29,635 |
) |
|
|
(29,635 |
) |
Partial disposal of Joysees equity |
|
|
|
|
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
|
(215 |
) |
Transfer of noncontrolling interest-Cyber Cloud |
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
1,381 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,890 |
|
|
|
20,890 |
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,431 |
) |
|
|
|
|
|
|
(3,431 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2014 |
|
|
59,705,570 |
|
|
$ |
30 |
|
|
$ |
35,639 |
|
|
$ |
25,509 |
|
|
$ |
40,284 |
|
|
$ |
101,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-72
CHINA DIGITAL TV HOLDING CO., LTD.
Additional Information-Financial Statement Schedule I
Condensed Financial Information of Parent Company
STATEMENTS OF CASH FLOWS
(U.S. dollars in thousands, except share and per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, |
|
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
|
|
|
Net cash provided by operating activities |
|
$ |
88,986 |
|
|
$ |
76,120 |
|
|
$ |
27,294 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities |
|
|
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(92,020 |
) |
|
|
(76,884 |
) |
|
|
(28,966 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
(2,214 |
) |
|
|
(764 |
) |
|
|
(1,672 |
) |
CASH AND CASH EQUIVALENTS, BEGINNING OF THE YEAR |
|
|
7,132 |
|
|
|
4,918 |
|
|
|
4,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF THE YEAR |
|
$ |
4,918 |
|
|
$ |
4,154 |
|
|
$ |
2,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-73
CHINA DIGITAL TV HOLDING CO., LTD.
Additional Information-Financial Statement Schedule I
Condensed Financial Information of Parent Company
NOTES TO THE FINANCIAL STATEMENTS
(U.S. dollars in thousands, except share and per share data)
1. |
Schedule I has been provided pursuant to the requirements of Rule 12-04(a) and 5-04(c) of Regulation S-X, which require condensed financial information as to the financial position, changes in financial position and
results of operations of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have been presented when the restricted net assets of consolidated subsidiaries exceed 25 percent of
consolidated net assets as of the end of the most recently completed fiscal year. |
2. |
The condensed financial information of China Digital TV Holding Co., Ltd. has been prepared using the same accounting policies as set out in the accompanying consolidated financial statements except that the equity
method has been used to account for investments in its subsidiaries. |
3. |
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. The footnote disclosures contain supplemental information
relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the consolidated financial statements of the Group. |
4. |
As of December 31, 2014, there were no material contingencies, significant provisions of long-term obligations, mandatory dividend or redemption requirements of redeemable stocks or guarantees of the Company,
except for those which have been separately disclosed in the consolidated financial statements, if any. |
5. |
Nil, $77,500 and $30,000 of cash dividends were paid to the Company by its subsidiary in the years ended December 31, 2012, 2013 and 2014. |
F-74
EXHIBIT INDEX
|
|
|
Number |
|
Description of Exhibit |
|
|
1.1(1) |
|
Second Amended and Restated Memorandum and Articles of Association of China Digital TV Holding Co., Ltd. |
|
|
2.1(1) |
|
Specimen of Share Certificate. |
|
|
2.2(1) |
|
Form of Deposit Agreement, including form of American Depositary Receipts. |
|
|
2.3(1) |
|
First Amended and Restated Shareholders Agreement of China Digital TV Holding Co., Ltd., dated September 13, 2007, among Novel-Tongfang Information Engineering Co., Ltd., Beijing Novel-Tongfang Digital TV Technology Co., Ltd.,
China Digital TV Technology Co., Ltd., China Capital Investment Holdings Limited, China Cast Investment Holdings Limited, SB Asia Infrastructure Fund L.P., Capital International Private Equity Fund IV, L.P., CGPE IV, L.P. and certain other
shareholders. |
|
|
4.1(1) |
|
Asset Transfer Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. |
|
|
4.2(1) |
|
Equity Transfer Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. and related (i) Equity Entrustment Agreement, dated September
10, 2004, and (ii) Equity Purchase Entrustment Agreement, dated April 1, 2004, both between the same parties. |
|
|
4.3(1) |
|
Asset Purchase Agreement, dated June 8, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.4(1) |
|
Equity Transfer Agreement, dated August 4, 2006, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and related Equity Transfer Agreement, dated March 15, 2007, among
Novel-Tongfang Information Engineering Co., Ltd., Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Panasonic Corporation of China. |
|
|
4.5(1) |
|
Asset Transfer Agreement, dated August 5, 2006, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and the Supplemental Agreement thereto, dated April 6,
2007. |
|
|
4.6(1) |
|
Trademark Licensing Agreement entered into in March 2007 between Beijing Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. |
|
|
4.7(1) |
|
Equipment Leasing Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.8(1) |
|
Technical Support and Related Service Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.9(1) |
|
Technology License Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.10(1) |
|
Technology Development Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.11(1) |
|
Products and Software Purchase Agreement, dated June 7, 2004, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.12(3) |
|
Letter of Consent, dated April 30, 2009, issued by Beijing Super TV Co., Ltd. to Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.13(3) |
|
Equity Transfer Agreement, dated June 20, 2008 between Wei Gao and Junming Wu for Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.14(3) |
|
Equity Transfer Agreement, dated November 24, 2008, between Novel-Tongfang Information Engineering Co., Ltd. and Shizhou Shen for Beijing Novel-Super Digital TV Technology Co.,
Ltd. |
|
|
|
|
|
4.15(3) |
|
Equity Transfer Agreement, dated November 24, 2008, between Novel-Tongfang Information Engineering Co., Ltd. and Lei Zhang for Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.16 |
|
Equity Transfer Option Agreement, dated June 7, 2004, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd. and Li Yang(1); the Supplemental
Agreement thereto, dated September 1, 2005, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang and Beijing Novel-Tongfang Digital TV Technology Co., Ltd.(1); the No. 2 Supplemental Agreement thereto, dated August 18, 2007, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang, Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Wei Gao(1); the No. 3 Supplemental Agreement thereto, dated June 20, 2008, among Beijing Super TV Co.,
Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Wei Gao and Junming Wu(3); the No. 4
Supplemental Agreement thereto, dated November 24, 2008, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Junming Wu, Lei Zhang and Shizhou Shen(3); and the No. 5 Supplemental Agreement thereto, dated July 11, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co.,
Ltd., Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang(6). |
|
|
4.17(1) |
|
Share Pledge Agreement, dated September 1, 2005, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.18(3) |
|
Termination Agreement of Share Pledge, dated November 24, 2008, between Beijing Super TV Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. |
|
|
4.19 |
|
Share Pledge Agreement, dated September 1, 2005, between Li Yang and Beijing Super TV Co., Ltd.(1); the Supplemental Agreement thereto, dated August 18, 2007, among Li
Yang, Beijing Super TV Co., Ltd. and Wei Gao(1); the No. 2 Supplemental Agreement thereto, dated June 20, 2008, among Beijing Super TV Co., Ltd., Wei Gao and Junming Wu(3); and the Share Pledge Termination Agreement, dated July 11, 2011 between Beijing Super TV Co., Ltd. and Junming Wu(6). |
|
|
4.20(3) |
|
Share Pledge Agreement, dated November 24, 2008, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.21(3) |
|
Share Pledge Agreement, dated November 24, 2008, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.22 |
|
Business Operating Agreement, dated September 1, 2005, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang and Beijing Novel-Tongfang Digital TV Technology Co., Ltd.(1); the Supplemental Agreement thereto, dated August 18, 2007, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Li Yang, Beijing Novel-Tongfang Digital TV
Technology Co., Ltd. and Wei Gao(1); the No. 2 Supplemental Agreement thereto, dated June 20, 2008, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd.,
Novel-Tongfang Information Engineering Co., Ltd., Wei Gao and Junming Wu(3); the No. 3 Supplemental Agreement thereto, dated November 24, 2008, among Beijing Super TV Co., Ltd., Beijing
Novel-Super Digital TV Technology Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd., Junming Wu, Lei Zhang and Shizhou Shen(3); and the No. 4 Supplemental Agreement thereto, dated July
11, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang(6). |
|
|
4.23(1) |
|
Power of Attorney, dated September 1, 2005, of Novel-Tongfang Information Engineering Co., Ltd. |
|
|
|
|
|
4.24(1) |
|
Power of Attorney, dated August 18, 2007, of Wei Gao. |
|
|
4.25(3) |
|
Power of Attorney, dated June 20, 2008, of Junming Wu. |
|
|
4.26(3) |
|
Power of Attorney, dated November 24, 2008, of Shizhou Shen. |
|
|
4.27(3) |
|
Power of Attorney, dated November 24, 2008, of Lei Zhang. |
|
|
4.28(1) |
|
Entrusted Loan Agreement, dated August 23, 2004, among Beijing Super TV Co., Ltd., Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.29(1) |
|
Entrusted Loan Agreement, dated July 13, 2004, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.30(1) |
|
Entrusted Loan Agreement, dated August 25, 2005, among Beijing Super TV Co., Ltd., Novel-Tongfang Information Engineering Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.31(1) |
|
Loan Agreement, dated April 4, 2007, between Beijing Super TV Co., Ltd. and Novel-Tongfang Information Engineering Co., Ltd. and the related Entrusted Loan Agreement, dated April 12, 2007, among Beijing Super TV Co., Ltd.,
Novel-Tongfang Information Engineering Co., Ltd. and Bank of Beijing, Shangdi Branch. |
|
|
4.32(3) |
|
Loan Agreement, dated November 24, 2008, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.33(3) |
|
Loan Agreement, dated November 24, 2008, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.34(1) |
|
Service Agreement, dated April 2, 2007, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Novel-Tongfang Digital TV Technology Co., Ltd. |
|
|
4.35(1) |
|
Interest Payment Agreement, dated November 30, 2006, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.36(1) |
|
Form of Property Lease Agreement. |
|
|
4.37(1) |
|
Fixed Assets Transfer Agreement, dated March 28, 2007, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
4.38(1) |
|
Form of Employment Agreement and related Form of Agreement on Confidentiality and Intellectual Property. |
|
|
4.39(1) |
|
Form of Non-Disclosure, Non-Competition, Commitment and Proprietary Information Agreement. |
|
|
4.40(1) |
|
Form of Indemnification Agreement for Directors. |
|
|
4.41(1) |
|
Amended and Restated 2005 Stock Incentive Plan of China Digital TV Holding Co., Ltd. and form of share option agreement. |
|
|
4.42(1) |
|
Cooperation Agreement, dated January 5, 2007, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and Jiangsu Qingda Science and Technology Industries Co., Ltd. |
|
|
4.43(1) |
|
Cooperation Agreement, dated July 18, 2007, between Beijing Novel-Tongfang Digital TV Technology Co., Ltd. and China Electronics Smart Card Co., Ltd. |
|
|
4.44(1) |
|
2008 Stock Incentive Plan of China Digital TV Holding Co., Ltd. |
|
|
4.45(2) |
|
Agreement for Equity Transfer of Beijing Novel-Super Digital TV Technology Co., Ltd., dated December 2007, between China Digital TV Technology Co., Ltd. and Golden Benefit Technology Co., Ltd. |
|
|
4.46(3) |
|
Intellectual Property Transfer Agreement, dated August 13, 2008, between Novel-Tongfang Information Engineering Co., Ltd. and Beijing Super TV Co., Ltd. |
|
|
|
|
|
4.47(3) |
|
Equity Transfer Agreement, dated October 5, 2008, between Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.48(3) |
|
Framework Agreement for Purchase of Computer Chips, dated December 12, 2008, between Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.49(4) |
|
Framework Agreement for Sale of Software Products, dated July 14, 2009, between Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.50(4) |
|
Equity Transfer Agreement, dated February 26, 2010, between Beijing Novel-Super Digital TV Technology Co., Ltd. and Beijing Shi Xun Hu Lian Technology Co., Ltd. |
|
|
4.51(5) |
|
Shareholders Agreement, dated December 1, 2010, between Beijing Super TV Co., Ltd. and Beijing Yuewu Yuntian Software Technology Ltd. |
|
|
4.52(5) |
|
Shareholders Agreement, dated April 29, 2011, between Beijing Super TV Co., Ltd. and Beijing Ying Zhi Cheng Technology Co., Ltd. |
|
|
4.53(5) |
|
2010 Stock Incentive Plan of China Digital TV Holding Co., Ltd. |
|
|
4.54(6) |
|
Loan Agreement, dated July 11, 2011, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.55(6) |
|
Loan Agreement, dated July 11, 2011, between Tianxing Wang and Beijing Super TV Co., Ltd. |
|
|
4.56(6) |
|
Loan Agreement, dated July 11, 2011, between Wenjun Wang and Beijing Super TV Co., Ltd. |
|
|
4.57(6) |
|
Capital Increase and Equity Transfer Agreement, dated July 11, 2011, between Junming Wu, Lei Zhang, Shizhou Shen, Wenjun Wang, Tianxing Wang and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.58(6) |
|
Power of Attorney, dated July 11, 2011, of Lei Zhang. |
|
|
4.59(6) |
|
Power of Attorney, dated July 11, 2011, of Shizhou Shen. |
|
|
4.60(6) |
|
Power of Attorney, dated July 11, 2011, of Tianxing Wang. |
|
|
4.61(6) |
|
Power of Attorney, dated July 11, 2011, of Wenjun Wang. |
|
|
4.62(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.63(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.64(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Tianxing Wang and Beijing Super TV Co., Ltd. |
|
|
4.65(6) |
|
Share Pledge Agreement, dated July 11, 2011, between Wenjun Wang and Beijing Super TV Co., Ltd. |
|
|
4.66(6) |
|
Written Undertaking, dated November 22, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang. |
|
|
4.67(6) |
|
Power of Attorney, dated January 16, 2012, of Lei Zhang. |
|
|
4.68(6) |
|
Power of Attorney, dated January 16, 2012, of Shizhou Shen. |
|
|
4.69(6) |
|
Power of Attorney, dated January 16, 2012, of Tianxing Wang. |
|
|
4.70(6) |
|
Power of Attorney, dated January 16, 2012, of Wenjun Wang. |
|
|
4.71(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Lei Zhang and Beijing Super TV Co., Ltd. |
|
|
4.72(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
|
|
|
4.73(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Tianxing Wang and Beijing Super TV Co., Ltd. |
|
|
4.74(6) |
|
Share Pledge Agreement, dated January 16, 2012, between Wenjun Wang and Beijing Super TV Co., Ltd. |
|
|
4.75(6) |
|
Supplemental Agreement to Loan Agreements, dated January 16, 2012, among Beijing Super TV Co., Ltd., Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang. |
|
|
4.76(6) |
|
Supplemental Agreement, dated February 9, 2012, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Lei Zhang, Shizhou Shen, Wenjun Wang and Tianxing Wang. |
|
|
4.77(6) |
|
Cooperation Termination Agreement, dated November 9, 2011, between Dongguan SuperTV Video Info Co., Ltd. and the Dongguan branch of the Guangdong Broadcasting TV Network Co., Ltd. |
|
|
4.78(6) |
|
Capital Increase Agreement, dated May 24, 2011, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Ying Zhi Cheng Technology Co., Ltd. and Beijing Joysee Technology Co., Ltd. |
|
|
4.79(6) |
|
First Amendment to First Amended and Restated Shareholders Agreement of China Digital TV Holding Co., Ltd., dated June 14, 2011, among China Digital TV Technology Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., China
Cast Investment Holdings Limited, SB Asia Infrastructure Fund L.P., Capital International Private Equity Fund IV, L.P., CGPE IV, L.P. and certain other shareholders. |
|
|
4.80(7) |
|
China Digital TV Holding Co., Ltd. 2012 Stock Incentive Plan. |
|
|
4.81(7) |
|
Second Supplemental Agreement to Loan Agreement, dated April 12, 2013, between Beijing Super TV Co., Ltd. and Tianxing Wang. |
|
|
4.82 |
|
Share Transfer Agreement, dated April 30, 2014, among Beijing Yuewu Yuntian Software Technology Ltd., Beijing Holch Capital Investment Center, Beijing Cyber Cloud Co., Ltd. and Beijing Xinsi Yijia Technology Co., Ltd. |
|
|
4.83 |
|
Share Transfer Agreement, dated April 30, 2014, among Beijing Super TV Co., Ltd., China Super Media Holdings Limited, Beijing Yuewu Yuntian Software Technology Ltd., Beijing Holch Capital Investment Center and Beijing Cyber Cloud
Co., Ltd. |
|
|
4.84 |
|
Termination Agreement of Existing Contractual Agreements, dated June 20, 2014, among Beijing Super TV Co., Ltd., Beijing Novel-Super Digital TV Technology Co., Ltd., Lei Zhang, Tianxing Wang, Wenjun Wang and Shizhou Shen. |
|
|
4.85 |
|
Termination Agreement of Existing Contractual Agreements, dated April 14, 2015, among Beijing Super TV Co., Ltd. and Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
|
4.86 |
|
Share Transfer Agreement, dated June 20, 2014, among Lei Zhang, Tianxing Wang, Wenjun Wang, Shizhou Shen and Beijing Super TV Co., Ltd. |
|
|
4.87(8) |
|
Framework Agreement, dated June 13, 2014, among China Digital TV Holding Co., Ltd., Golden Benefit Technology Limited and Cinda Investment Co., Ltd. |
|
|
4.88(8) |
|
Framework Agreement Amendment, dated October 9, 2014, among China Digital TV Holding Co., Ltd., Golden Benefit Technology Limited and Cinda Investment Co., Ltd. |
|
|
4.89(8) |
|
Share Transfer Agreement, dated October 9, 2014, among China Digital TV Holding Co., Ltd., China Digital TV Technology Co., Ltd., Golden Benefit Technology Limited, Cinda Investment Co., Ltd. and Shanghai Tongda Venture Capital Co.,
Ltd. |
|
|
|
|
|
4.90 |
|
Supplementary Share Transfer Agreement, dated October 27, 2014, among China Digital TV Holding Co., Ltd., China Digital TV Technology Co., Ltd., Golden Benefit Technology Limited, Cinda Investment Co., Ltd. and Shanghai Tongda
Venture Capital Co., Ltd. |
|
|
4.91(8) |
|
Profit Compensation Agreement, dated October 9, 2014, among Shanghai Tongda Venture Capital Co., Ltd., Golden Benefit Technology Limited, and China Digital TV Holding Co., Ltd. |
|
|
4.92(8) |
|
Supplementary Profit Compensation Agreement, dated October 27, 2014, among Shanghai Tongda Venture Capital Co., Ltd., Golden Benefit Technology Limited, and China Digital TV Holding Co., Ltd. |
|
|
4.93(8) |
|
Share Subscription Agreement, dated October 9, 2014, between Shanghai Tongda Venture Capital Co., Ltd. and Golden Benefit Technology Limited. |
|
|
8.1 |
|
List of Subsidiaries of China Digital TV Holding Co., Ltd. |
|
|
11.1(1) |
|
Code of Business Conduct and Ethics of China Digital TV Holding Co., Ltd. |
|
|
12.1 |
|
CEO Certification pursuant to Rule 13a - 14(a). |
|
|
12.2 |
|
CFO Certification pursuant to Rule 13a - 14(a). |
|
|
13.1 |
|
CEO Certification pursuant to Rule 13a - 14(b). |
|
|
13.2 |
|
CFO Certification pursuant to Rule 13a - 14(b). |
|
|
23.1 |
|
Consent of Deloitte Touche Tohmatsu Certified Public Accountants LLP. |
|
|
23.2 |
|
Consent of Han Kun, PRC Lawyers. |
|
|
101.INS |
|
XBRL Instance Document |
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
Portions of the agreement have been omitted pursuant to a confidential treatment request and have been filed with the SEC separately with a confidential treatment request. |
(1) |
Previously filed as an exhibit to the Registration Statement on Form F-1 (File No. 333-146072) of China Digital TV Holding Co., Ltd. and incorporated herein by reference thereto. |
(2) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on June 18, 2008 and incorporated herein by reference thereto.
|
(3) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on May 20, 2009 and incorporated herein by reference thereto.
|
(4) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on April 30, 2010 and incorporated herein by reference thereto.
|
(5) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on May 12, 2011 and incorporated herein by reference thereto.
|
(6) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on April 17, 2012 and incorporated herein by reference thereto.
|
(7) |
Previously filed as an exhibit to the annual report on Form 20-F (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on April 16, 2013 and incorporated herein by reference thereto.
|
(8) |
Previously filed as an exhibit to the report on Form 6-K (File No. 001-33692) of China Digital TV Holding Co., Ltd. filed with the SEC on November 10, 2014 and incorporated herein by reference thereto.
|
Exhibit 4.82
[Translation of Chinese Original]
Share
Transfer Agreement
of
Beijing Xinsi Yijia Technology Co., Ltd.
By and among
Beijing
Yuewu Yuntian Software Technology Ltd.
Beijing Holch Capital Investment Center
and
Beijing Cyber Cloud Co.,
Ltd.
April 30, 2014
1
Contents
|
|
|
|
|
|
|
1. |
|
Equity Transfer |
|
|
4 |
|
|
|
|
2. |
|
Delivery Terms for Equity Transfer: |
|
|
5 |
|
|
|
|
3. |
|
Representations and Warranties |
|
|
6 |
|
|
|
|
4. |
|
Parties Commitments |
|
|
11 |
|
|
|
|
5. |
|
Tax |
|
|
13 |
|
|
|
|
6. |
|
Agreement Termination |
|
|
13 |
|
|
|
|
7. |
|
Indemnification |
|
|
14 |
|
|
|
|
8. |
|
Force Majeure |
|
|
14 |
|
|
|
|
9. |
|
Confidentiality |
|
|
14 |
|
|
|
|
10. |
|
Governing Laws and Dispute Settlement |
|
|
15 |
|
|
|
|
11. |
|
Miscellaneous |
|
|
15 |
|
2
Equity Transfer Agreement
This Equity Transfer Agreement (this Agreement) is signed and entered into on April 30, 2014 (Signing Date) at Beijing,
Peoples Republic of China (China) by and among the following Parties:
Party A:
Beijing Yuewu Yuntian Software Technology Ltd. (hereinafter referred to as Yuewu Yuntian)
Address: 2/F, Tower B, Jingmeng High-tech Building, No. 5, Shangdi Road East, Haidian District, Beijing, China
Legal representative: Han Jian
Beijing Holch Capital
Investment Center (Limited Partnership) (hereinafter referred to as Holch Capital)
Address: No. 2, Zhengfu Road, Zhongguancun Science
Park Opto-Mechatronics Industrial Park, Tongzhou District, Beijing, China
Legal representative: Gao Peng
(Yuewu Yuntian and Holch Capital are collectively referred to as Party A or Original Shareholder.)
Party B: Beijing Cyber Cloud Co., Ltd. (hereinafter referred to as Party B or Cyber Cloud)
Address: Room 6810, Building 3, No. 3 Xijing Road, Badachu Hi-tech Industrial Park, Shijingshan District, Beijing, China
Legal representative: Han Jian
Party C: Beijing Xinsi Yijia
Technology Co., Ltd. (hereinafter referred to as Party C, Target Company or Xinsi Yijia)
Address: Room 409, 4/F,
Building 4, No. 5 Compound, Shangdi Road East, Haidian District, Beijing, China
Legal representative: Su Jiang
The above parties shall be hereinafter referred to individually as Party and collectively as Parties.
3
Whereas:
1. |
Beijing Xinsi Yijia Technology Co., Ltd. (hereinafter referred to as Xinsi Yijia) is a limited liability company duly incorporated and validly existing under the laws of the Peoples Republic of China,
with the registered capital of RMB 10 million; |
2. |
Yuewu Yuntian is a limited liability company duly incorporated and validly existing under the laws of the Peoples Republic of China, holding 75% of the equity interests of Xinsi Yijia; |
3. |
Holch Capital is a limited partnership duly incorporated and validly existing under the laws of the Peoples Republic of China, holding 25% of the equity interests of Xinsi Yijia; |
4. |
Cyber Cloud is a limited liability company duly incorporated and validly existing under the laws of the Peoples Republic of China, and Yuewu Yuntian is a shareholder of Cyber Cloud and holds 10% of the equity
interests of Cyber Cloud; |
5. |
Yuewu Yuntian, Holch Capital, Cyber Cloud, Beijing Super TV Co., Ltd. and China Super Media Holdings Limited have signed the Cyber Cloud Reorganization Agreement on April 30, 2014. According to the Cyber Cloud
Reorganization Agreement and the resolutions adopted in the board of shareholders of the Parties, Party A intends to transfer 100% of the equity interests (Target Equity) of Xinsi Yijia to Party B, and Party B agrees to accept such
transfer of Target Equity of Xinsi Yijia by Party A according to the terms and conditions of this Agreement. |
NOW THEREFORE, after
friendly consultations and based on the principles of equality and mutual benefit, the Parties hereby agree as follows:
1.1 |
Yuewu Yuntian, original shareholder of Xinsi Yijia, intends to transfer 75% of the above-mentioned equity interests (with the total price of RMB 7.5 million) to Cyber Cloud (Party B). |
4
1.2 |
Holch Capital, original shareholder of Xinsi Yijia, intends to transfer 25% of the above-mentioned equity interests (with the total price of RMB 8.33 million) to Cyber Cloud (Party B). |
1.3 |
After such transfer, Party B shall be entitled to the corresponding shareholders rights according to its shareholding proportion at Xinsi Yijia and this Agreement. |
1.4 |
After such equity transfer, the changes of the Companys equity structure are as follows: Cyber Cloud will hold 100% of the equity interests of Xinsi Yijia. |
|
|
|
|
|
|
|
|
|
Name of shareholders |
|
Registered capital (RMB0,000) |
|
|
Equity ratio |
|
Cyber Cloud |
|
|
1,000 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
1,000 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
1.5 |
Target Equity transfer method: This equity transfer will be conducted by means of equity replacement as agreed in the Reorganization Agreement. |
1.6 |
Party A shall indemnify Party B against any direct losses incurred by Party B as a result of Party As violation of the representations, warranties, commitments or obligations hereunder. |
1.7 |
Target Equity closing date: Target Equity shall be duly delivered on the day of change of registration with the industrial and commercial registration authority. |
2. |
Delivery Terms for Equity Transfer: |
Party Bs obligations in conducting the equity transfer
pursuant to this Agreement and the Reorganization Agreement may not be performed until all the following conditions are satisfied. Party B may, at its sole discretion, determine whether the following conditions have been satisfied.
5
2.1 |
The Parties have obtained all the necessary internal approvals (including but not limited to the board resolutions and resolutions of board of shareholders), agree to comply with all the terms and conditions hereunder,
and have eventually signed this Agreement. Meanwhile, all the representatives authorized by the Parties to sign this Agreement have been legally authorized. This Agreement has become a legal, valid and enforceable agreement binding on the Parties.
|
2.2 |
The Companys representations and warranties listed in Article 3 hereof are true, accurate and complete on Signing Date and Closing Date. Party A and Target Company shall not violate such representations and
warranties made herein, nor shall they refuse to perform any obligations that shall be performed and fulfilled after the equity closing date. |
2.3 |
Based on Party Bs independent judgment, there have been no material adverse changes in the Companys assets, business, financial and operating conditions from the date on which this Agreement is signed by the
Parties to the Closing Date. |
3. |
Representations and Warranties |
3.1 |
Party A and Target Company hereby jointly and severally make the following representations and warranties to Party B and acknowledge that Party B has relied on the following representations and warranties when signing
and entering into this Agreement: |
|
3.1.1 |
Target Company is a limited liability company duly established and validly existing under laws of the Peoples Republic of China. Its registered capital of RMB 10 million has been paid in full by Party A and other
shareholders of Target Company and the capital verification procedures have been carried out in accordance with the relevant laws. Furthermore, there are no pledges, other security interests or any other third party rights and interests.
|
|
3.1.2 |
Party A is a current legal shareholder of Target Company and has registered with a competent industrial and commercial administrative department in accordance with the relevant laws; it enjoys all the shareholders
equity interests in respect of the registered capital of Target Company under the law of China. The funds used for investment in Target Company by Party A are all legitimate funds owned by Party A. |
6
|
(a) |
All fixed assets, office facilities, materials in stock, patents, software copyrights, domain names, registered trademarks, etc. actually held by Target Company prior to the Closing Date (see Attachment I List of
Assets Owned by Xinsi Yijia). Target Company promises that above-mentioned assets are legally owned by Target Company, with no encumbrances nor subject to any judicial restrictions, and that they have no potential or apparent defects and are in
a normal operating state. |
|
(b) |
All employees of the Target Company (see Attachment II List of Employees of Xinsi Yijia). Target Company promises that it has signed the legal labor contract with all its employees, provides them with labor
conditions and social benefits in accordance with the law and pays the social insurance. Target Company has not violated the applicable labor laws, violation of which may cause material adverse effect on the transactions and Party Bs interests
under this Agreement. Labor disputes arising from failure to pay the social insurance according to the actual wage amount shall be resolved by compensation by the Original Shareholder of Target Company. |
|
(c) |
All business contracts signed by Target Company (see Attachment III List of Contracts Signed by Xinsi Yijia). Target Company promises that all business contracts signed by it have been expressly listed, and all
such contracts are legal and valid and binding upon all parties thereof. Any party to the contract has no default or anticipatory breach of contract, breach of which will have major adverse effect on Target Company. |
|
(d) |
Target Company promises that any circumstances such as inflated expense and concealed earning will not exist before the Closing Date (exclusive of the continuous normal financial expenses), and that financial statements
and various information submitted to Party B are free from undisclosed debts, lawsuits or other matters which may cause material change on the Companys assets. The foregoing assets, employees and business contracts will not have any
substantial changes, including but not limited to any apparent discrepancy with the legal status at the time of execution of this Agreement, such as disposal of material assets, demission of key personnel, termination or subject change of business
contracts, etc. If any Party is in breach of the foregoing commitment, the breaching Party shall compensate all losses occurred to non-breaching Parties. |
7
|
3.1.3 |
Except for those circumstances disclosed in writing to Party B, no other circumstances below in respect of the current registered capital and equity of Target Company: (i) escrow or similar arrangement of any
shareholders equity; (ii) related rights and interests of any priority, options or convertible securities; or (iii) attachment, seizure, freezing or compulsory transfer by any judicial or administrative authority. |
|
3.1.4 |
Party A has no debts and legal liabilities that may affect the completion of the transactions specified herein in accordance with the terms and conditions of this Agreement. |
|
3.1.5 |
As of the Signing Date, except for those shown in the financial due diligence before signing this Agreement and those related to the normal business of Target Company within its business scope disclosed in writing to
Party B, Target Company has no debts, including but not limited to any guarantees and warranties in whatever form made by Target Company to any entity or natural person. Party A and Target Company specifically agree that even though Party B has
conducted any proper investigation of the financial condition of Target Company by means of document review, Party B may not be deemed to be liable for any single debt or compensation exceeding RMB 10,000 before the Signing Date hereof, and such
liability shall be borne by Party A. |
|
3.1.6 |
Target Company has performed the obligations under any agreement, contract or other legal documents to which it is a party and has no default that may affect the conclusion and performance of this Agreement.
|
|
3.1.7 |
Party A and Target Company are willing and have the sole right and authority to sign and perform this Agreement and complete the transactions specified herein, and have taken all necessary actions respectively for such
purpose. This Agreement will create legal, valid and enforceable obligations binding on both Party A and Target Company according to the terms hereof. |
8
|
3.1.8 |
Signing and performance of this Agreement will not violate or conflict with Target Companys articles of association or other organization documents and applicable laws, regulations and government executive order
to Target Company and/or Party A or other contracts or legal documents to which Target Company and/or Party A is a party. |
|
3.1.9 |
All the financial documents or instructions and contents thereof provided respectively by Target Company and Party A are true, complete and accurate, and there are no major omissions, concealments or misleading
statements that may cause substantial impact on the transactions specified herein. |
|
3.1.10 |
In accordance with Chinas fiscal and tax laws and regulations, there are no tax arrears, late payment of tax, tax evasion, tax fraud or other violation of tax laws and regulations that could affect the signing and
performance of this Agreement in respect of the management and application of Target Companys financial system, account book, vouchers and invoices. |
|
3.1.11 |
There are no litigations, arbitrations, administrative punishments, administrative reconsiderations, complaints, investigations or other legal proceedings in respect to Target Company or Target Companys assets or
equity or production or business activities, nor are there any legal responsibilities or obligations to be borne by Target Company according to any order, judgment or decision made by any court, arbitration institution and other judicial or
administrative authority. |
|
3.1.12 |
Except for those disclosed to Party B in writing, Target Company enjoys ownership and/or use rights in respect to all the movable and immovable properties and intangible assets (collectively referred to as Target
Company Assets) owned, occupied and used by Target Company, and such Target Company Assets contain no pledge, mortgage, lien, other security interests or third party interests. |
|
3.1.13 |
Any transactions between Target Company and any of its affiliates do, in all aspects, comply with Chinas laws and regulations. The transaction content is true, legitimate and effective, and the transaction terms
are based on the principle of fairness. Target Company will bear no legal liability that could affect the signing and performance hereof as a result of any such transaction with its affiliates. |
9
|
3.1.14 |
Target Company has complied with the Chinas laws on labor management, and has not been punished by any labor management department due to violation of the laws and regulations on labor management to the extent
that it could affect the signing and performance of this Agreement. |
3.2 |
Party A and the Target Company further acknowledge and agree that all the representations and warranties in Article 3 shall remain fully effective since Party B becomes a shareholder of the Company. |
3.3 |
Party A and the Target Company commit that, if they are aware of any circumstance occurring after the date of this Agreement which causes any representation and warranty untrue, in accurate or misleading in any aspect,
they will promptly inform Party B in writing. The Target Company and Party A shall bear the direct economic losses incurred to Party B as a result of any representation or warranty in Article 3 inconsistent with facts. |
3.4 |
Party B hereby makes the following representations and warranties to Party A and the Target Company: |
|
3.4.1 |
Party B is a limited liability company duly organized and validly existing under the laws of China; it enjoys all necessary company powers and authorities to execute, submit and perform this Agreement according to its
incorporation documents and the applicable laws. |
|
3.4.2 |
Party B has taken all the necessary incorporate measures so as to be duly authorized to execute, deliver and perform this Agreement; |
|
3.4.3 |
This Agreement, once executed by Party Bs duly authorized representative, shall constitute an effective, binding and enforceable law document upon Party B. |
|
3.4.4 |
Party Bs execution, delivery and performance of this Agreement will neither violate or contradict with the terms or conditions under its incorporation documents, any important contracts signed by and binding on
Party B, its commitments and other obligations, nor constitute or lead to its violation against such terms or conditions in other way, based on any notice and/or passing time. |
10
4.1 |
Target Companys current business will maintain and continue in normal operations and no substantial change shall be made to their nature, scope or mode. |
4.2 |
Neither Party A nor Target Company may be engaged in any omission or act which constitutes any representation or warranty herein or causes to violate any representation or warranty herein. |
4.3 |
Without prior writing consent or requirement of Party B, the Target Company may not: |
|
4.3.1 |
Purchase any equities or assets or dispose or change its existing investment; |
|
4.3.2 |
Change any existing contract to which Party C is a party, which would have a material effect on Party Cs operation nature or scope; |
|
4.3.3 |
Borrow or lend any amount or provide a guarantee; |
|
4.3.4 |
Enter into any contract, agreement, arrangement or trade with Party A and the related parties of Party A or other shareholders of the Company and/or Party Cs related parties, unless such contract, agreement,
arrangement or trade is made in normal commercial process on ordinary and fair trading principles. |
|
4.3.5 |
Sell, lease or transfer, or set mortgage, pledge, lien or other security rights on, or in any way dispose, Party Cs assets and business; |
|
4.3.6 |
Modify its charter or other constitutional documents (except for the purpose of this Agreement); or |
|
4.3.7 |
Appoint, dismiss or replace any senior management or core person. |
4.4 |
Party A commits that the execution and performance of this Agreement will cause no legal liability for any matters out of this Agreement to Party B, and Party A will be responsible for all the legal liabilities and
obligations accrued thereon. |
11
4.5 |
Within three (3) years upon the date on which the commercial and industrial registration for Target Equity transfer is completed (Commercial and Industrial Change Date), if any governmental authorities
or agencies imposes a fine on or charges the Target Company with respect to tax and labor management before the Commercial and Industrial Change Date, Party A shall unconditionally bear the losses suffered by Party B and compensate Party B for its
losses. |
4.6 |
Without the specific prior writing consent of Party B, except for the debts accrued in ordinary and normal business and management process and surviving the Commercial and Industrial Change Date, Party B is not liable
for any debts or liabilities of Party C accrued before the Commercial and Industrial Change Date, and Party A commits to assume such debts or liabilities, including (i) tax payable by Party A or Party C as of the Commercial and Industrial
Change Date, (ii) any pending litigation, arbitration or other proceeding in connection with Party A, Party C or target equity as of the Commercial and Industrial Change Date, and any potential, incurred or generated liability or punishment due
to Party A, Party C or target equity as of the Commercial and Industrial Change Date, (iii) any debts (including but not limited to salary, wage, separation payment, compensation fee, pension insurance, unemployment insurance, medical
insurance, work-related injury insurance, maternity insurance and other benefits payable to employees) in connection with Party A, Party C or target equity as of the Commercial and Industrial Change Date, or (iv) claims on the products or
services sold by Party A or Party C as of the Commercial and Industrial Change Date. If Party B, with respect to the above claims made by any third party, has any litigation, arbitration or other proceeding only caused by its act in strict
compliance with this Agreement or suffers any losses, Party B shall promptly notify Party A and provide reasonable assistance, and Party A shall response to such litigation, arbitration or other proceeding or deal with relevant punishing and legal
procedures, and compensate Party B for all the losses suffered. To the full extent of the laws, Party A shall independently participate in relevant litigations or administrative procedures and may not cause Party B to participate in the relevant
litigation, dispute or legal or administrative procedure. |
4.7 |
Party A and Target Company shall be jointly liable for the responsibilities, obligations, representations, guarantees, commitments and undertakings specified herein. |
12
4.8 |
During the transfer of target equity, no contract, agreement or document signed as required by relevant administrations of industry and commerce and only used for industrial and commercial filing shall constitute any
modification to this Agreement. |
5.1. |
Unless otherwise required by relevant laws or specified herein, the Parties hereto shall respectively pay the taxes in connection with the transaction contemplated herein according to the law. |
5.2. |
All the expenses accrued in connection with transfer of target equity (including but not limited to approving fees and the industrial and commercial registration change fees) shall be borne by the Target Company.
However, each Partys attorney fees and other consultation fees shall be borne by each Party respectively. |
6.1. |
This Agreement may be terminated for any of the following causes: |
|
6.1.1. |
The Parties agree to terminate this Agreement in writing; |
|
6.1.2. |
The occurrence and continuance of any Force Majeure event defined herein for more than six (6) months causes this Agreement unable to be further performed; |
|
6.1.3. |
If Party As or Party Cs representations, commitments or guarantees with respect to transfer of target equity are untruthful, inaccurate, incomplete or insufficient enough to constitute material breach or
substantial breach of this Agreement, then Party B is entitled to terminate this Agreement. |
|
6.1.4. |
If Party Bs representations, commitments or guarantees for receiving target equity are untrue, inaccurate, incomplete or insufficient enough to constitute material breach or substantial breach of this Agreement,
then Party A is entitled to terminate this Agreement. |
6.2. |
Upon termination of this Agreement, each Party shall return all the records, documents and payments provided to it hereunder to the providing Parties, despite that the said records, documents and payments are provided
before or after the date of this Agreement. |
6.3. |
When this Agreement is effectively terminated according to this article, this Agreement will immediately cease to be effective and the Parties shall make joint efforts to recover the target equity to be the target
equity is before the date of this Agreement. |
13
The Parties hereby agree and commit that the default Party shall protect and indemnify
the non-default Parties from any loss as a result of any claims, damages, costs or expenses (including but not limited to legal fees and reasonable attorney fees) faced or suffered by the non-default Parties, by the reason that the default Party
violates, misrepresents or fails to perform or abide by this Agreement (including any attachments hereto) or as required by any representation, commitment, guarantee or other obligation or provision specified in any materials, documents or
information delivered hereunder.
In case any Partys delay in performing its obligations hereunder is due to Force
Majeure, such Party is not liable to any losses occurred to the other Parties therefrom, including but not limited to actual, indirect and/or special losses. The Party affected by the force majeure shall immediately inform the other Parties, and
provide supporting evidences for occurrence of the force majeure event within fifteen days after its occurrence. The Party affected by the force majeure shall take effective measures to minimize the losses caused by its delay in performing
obligations hereunder. The period during which any Party delays in performing obligations hereunder shall be equal to the duration of Force Majeure.
The Parties acknowledge and agree that any oral or writing information exchanged for
this Agreement are confidential. The Parties shall keep in confidential all such information and shall not disclose to any third party any relevant documents prior to written consent from the other Parties, except: (a) such information is or
will be in the public domain (which is not disclosed to the public by any recipient Party without authorization), (b) such information is required to disclose by applicable laws and regulations or rules and procedures of stock exchange; or
(c) any Party needs to disclose such information to its legal or financial counsel for the purpose of the transaction hereunder, and such legal or financial counsel is obliged to confidentiality liability similar to this clause. The disclosure
by any Partys employee or employed agency shall be deemed as the disclosure by such Party and such Party shall be liable for breach of this Agreement. This article shall survive the termination of this Agreement for any reason.
14
10. |
Governing Laws and Dispute Settlement |
10.1 |
Execution, effectiveness, performance, interpretation and enforcement of this Agreement shall be governed by the laws of the Peoples Republic of China. |
10.2 |
In case of any dispute arising out of or in connection with this Agreement, the Parties shall settle this dispute through friendly consultation. In an event no amicable agreement is achieved among the Parties within
thirty (30) days after such dispute has arisen, any Party hereto is entitled to submit such dispute to Beijing Arbitration Commission, and such dispute shall be settled by the Commission in accordance with its rules in force at the time of
submittal. The arbitration award shall be final and binding on the Parties. The Parties hereby commit to subject themselves to such award. Any Party hereto may apply to any competent court for enforcement of such award. All arbitration fees,
including any expenses for executing arbitration award, shall be borne by the losing party. The Parties agree that: during the arbitration, the Parties shall continue to abide by and perform all other provisions of the Agreement except for the part
that is under arbitration. |
11.1. |
The notice or other communications from any Party to others hereto shall be made by fax or post. The legal address or residence of each Party stated herein shall be such Partys correspondence address, except that
such Party informs others of other address in writing. |
11.2. |
This Agreement is an attachment to Cyber Cloud Reorganization Agreement and will come into force upon the Parties signatures and seals. |
11.3. |
No amendment to this Agreement, if any, will take effect until a written agreement is formally entered by and among the Parties hereto and is approved by competent approving authority. |
11.4. |
This Agreement is made in Chinese in quadruplicate, one for each Party. Each copy shall be equally binding. |
11.5. |
IN WITNESS WHEREOF, this Agreement is executed by the Parties or their duly authorized representatives at the date first written above. |
15
(This page is intentionally left blank.)
16
(This page is left blank for signatures)
|
|
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Beijing Yuewu Yuntian Software Technology Ltd.
Legal representative: Han Jian |
|
|
Signed by: |
|
/s/ Han Jian |
Beijing Holch Capital Investment Center (Limited Partnership)
Legal representative: Gao Peng
|
Signed by: |
|
/s/ Gao Peng |
Beijing Cyber Cloud Co., Ltd.
Legal representative: Han Jian
|
Signed by: |
|
/s/ Han Jian |
17
|
|
|
Party C: Beijing Xinsi Yijia Technology Co., Ltd.
Legal representative: Su Jiang |
|
|
Signed by: |
|
/s/ Su Jiang |
18
Exhibit 4.83
[Translation of Chinese Original]
Share
Transfer Agreement
of
Beijing Cyber Cloud Co., Ltd.
By and among
Beijing
Super TV Co., Ltd.
and
China Super Media Holdings Limited
Beijing Yuewu Yuntian Software Technology Ltd.
Beijing Holch Capital Investment Center
April 30, 2014
1
Contents
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1. |
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Equity Transfer |
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4 |
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2. |
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Delivery Terms for Equity Transfer: |
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6 |
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3. |
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Representations and Warranties |
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6 |
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4. |
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Parties Commitments |
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11 |
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5. |
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Tax |
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13 |
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6. |
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Agreement Termination |
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13 |
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7. |
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Indemnification |
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14 |
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8. |
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Force Majeure |
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14 |
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9. |
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Confidentiality |
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15 |
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10. |
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Governing Laws and Dispute Resolution |
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15 |
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11. |
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Miscellaneous |
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16 |
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2
Equity Transfer Agreement
This Equity Transfer Agreement (this Agreement) is signed and entered into on April 30, 2014 (Signing Date) in Beijing,
Peoples Republic of China (China) by and among the following Parties:
Party A: Beijing Super TV Co., Ltd. (Party A or
Super TV)
Address: 4/F, Tower B, Jingmeng High-tech Building, No. 5, Shangdi East Road, Haidian District, Beijing, China
Legal representative: Zhu Jianhua
Party B: China Super
Media Holdings Limited (CSM)
Address: Room 1501, 15/F, SPA Centre, 53-55 Lockhart Road, Wanchai, Hong Kong
Legal representative: Zhu Jianhua
Beijing Yuewu Yuntian
Software Technology Ltd. (Yuewu Yuntian)
Address: 2/F, Tower B, Jingmeng High-tech Building, No. 5, Shangdi East Road, Haidian
District, Beijing, China
Legal representative: Han Jian
Beijing Holch Capital Investment Center (Limited Partnership) (Holch Capital)
Address: No. 2, Zhengfu Road, Zhongguancun Science Park Opto-Mechatronics Industrial Park, Tongzhou District, Beijing, China
Legal representative: Gao Peng
(CSM, Yuewu Yuntian and Holch
Capital collectively referred to as Party B)
3
Party C: Beijing Cyber Cloud Co., Ltd. (Party C, Target Company or Cyber
Cloud)
Address: Room 6810, Building 3, No. 3, Xijing Road, Badachu Hi-tech Industrial Park, Shijingshan District, Beijing, China
Legal representative: Han Jian
The above Parties shall be
hereinafter referred to individually as a Party and collectively as Parties.
Whereas:
1. |
Cyber Cloud is a limited liability company duly incorporated and validly existing under the laws of the Peoples Republic of China, having registered capital of RMB 83.33 million; |
2. |
Super TV is an exclusively foreign-owned enterprise duly incorporated and validly existing under the laws of the Peoples Republic of China, holding 94% of the equity interests of Cyber Cloud; |
3. |
CSM is a company duly incorporated and validly existing under the laws of the Hong Kong; |
4. |
Yuewu Yuntian is a limited liability company duly incorporated and validly existing under the laws of the Peoples Republic of China, holding 6% of the equity interests of Cyber Cloud; |
5. |
Holch Capital is a limited partnership duly incorporated and validly existing under the laws of the Peoples Republic of China; and |
6. |
The Parties have signed the Cyber Cloud Reorganization Agreement on April 30, 2014. According to the Cyber Cloud Reorganization Agreement and the resolutions adopted in the board of shareholders of the
Parties, Party A intends to transfer 75% of the equity interests in Cyber Cloud to CSM, 9% of the same to Yuewu Yuntian and 10% of the same to Holch Capital (the above collectively referred as Target Equity). Party B agrees to accept all
the equity interests held by Party A in Cyber Cloud according to the terms and conditions of this Agreement. |
On the principle of equality
and mutual benefit, the Parties hereto, through amicable negotiation, agree as follows:
1.1 |
Super TV intends to transfer 75% of its holding equity interests to CSM for RMB 62.5 million. |
4
1.2 |
Super TV intends to transfer 9% of its holding equity interests to Yuewu Yuntian for RMB 7.5 million. |
1.3 |
Super TV intends to transfer 10% of its holding equity interests to Holch Capital for RMB 8.33 million. |
1.4 |
After such Transfer, Party B shall be entitled to the corresponding shareholders rights according to its shareholding proportion at Cyber Cloud and this Agreement. |
1.5 |
Other shareholders of Cyber Cloud waive the preemption for the equity interests transferred by Party A. |
1.6 |
After this Equity Transfer, the ownership structure of the Company will become as follows: |
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Name of shareholders |
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Registered capital (RMB0,000) |
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Equity ratio |
|
CSM |
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6,250 |
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75 |
% |
Yuewu Yuntian |
|
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1,250 |
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15 |
% |
Holch Capital |
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833 |
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10 |
% |
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Total |
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8,333 |
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100 |
% |
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1.7 |
Target Equity transfer method: This equity transfer will be conducted by means of equity replacement as agreed in the Reorganization Agreement. |
1.8 |
Party A shall indemnify Party B against any direct losses incurred by Party B as a result of Party As violation of the representations, warranties, commitments or obligations hereunder. |
1.9 |
Target Equity closing date: Target Equity shall be duly delivered on the day of change of registration with the industrial and commercial registration authority. |
5
2. |
Delivery Terms for Equity Transfer: |
Party Bs obligations in conducting the equity transfer
pursuant to this Agreement and the Reorganization Agreement may not be performed until all the following conditions are satisfied. Party B may, at its sole discretion, determine whether the following conditions have been satisfied.
2.1 |
The Parties have obtained all the necessary internal approvals (including but not limited to the board resolutions and resolutions of board of shareholders), agree to comply with all the terms and conditions hereunder,
and have eventually signed this Agreement. Meanwhile, all the representatives authorized by the Parties to sign this Agreement have been legally authorized. This Agreement has become a legal, valid and enforceable agreement binding on the Parties.
|
2.2 |
The Companys representations and warranties listed in Article 3 hereof are true, accurate and complete on Signing Date and Closing Date. Party A and Target Company shall not violate such representations and
warranties made herein, nor shall they refuse to perform any obligations that shall be performed and fulfilled after the equity closing date. |
2.3 |
Based on Party Bs independent judgment, there have been no material adverse changes in the Target Companys assets, business, financial and operating conditions from the date on which this Agreement is signed
by the Parties to the Closing Date. |
3. |
Representations and Warranties |
3.1 |
Party A and Target Company hereby jointly and severally make the following representations and warranties to Party B and acknowledge that Party B has relied on the following representations and warranties when signing
and entering into this Agreement: |
|
3.1.1 |
Target Company is a limited liability company duly established and validly existing under laws of the Peoples Republic of China. Its registered capital of RMB 83.33 million has been paid in full by Party A and
other shareholders of Target Company and the capital verification procedures have been carried out in accordance with the relevant laws. Furthermore, there are no pledges, other security interests or any other third party rights and interests.
|
6
|
3.1.2 |
Party A is a current legal shareholder of Target Company and has registered with a competent industrial and commercial administrative department in accordance with the relevant laws; it enjoys all the shareholders
equity interests in respect of the registered capital of Target Company under the law of China. The funds used for investment in Target Company by Party A are all legitimate funds owned by Party A. |
|
(a) |
All fixed assets, office facilities, materials in stock, patents, software copyrights, domain names, registered trademarks, etc. actually held by Target Company prior to the Closing Date (see Attachment I List of
Assets Owned by Cyber Cloud). Target Company promises that above-mentioned assets are legally owned by Target Company, with no encumbrances nor subject to any judicial restrictions, and that they have no potential or apparent defects and are in
a normal operating state. |
|
(b) |
All employees in the Target Company (see Attachment II List of Employees in Cyber Cloud). Target Company promises that it has signed the legal labor contract with all its employees, provides them with labor
conditions and social benefits in accordance with the law and pays the social insurance. Target Company has not violated the applicable labor laws, violation of which may cause material adverse effect on the transactions and Party Bs interests
under this Agreement. Labor disputes arising from failure to pay the social insurance according to the actual wage amount shall be resolved by compensation by the Original Shareholder of Target Company. |
|
(c) |
All business contracts signed by Target Company (see Attachment III List of Contracts Signed by Cyber Cloud). The Target Company commits that all business contracts signed by it have been expressly listed, and
all such contracts are legal and valid and binding upon all parties thereto. Any party to the contract has no default or anticipatory breach of contract, breach of which will have major adverse effect on Target Company. |
7
|
(d) |
Target Company promises that any circumstances such as inflated expense and concealed earning will not exist before the Closing Date (exclusive of the continuous normal financial expenses), and that financial statements
and various information submitted to Party B are free from undisclosed debts, lawsuits or other matters which may cause material change on the Companys assets. The foregoing assets, employees and business contracts will not have any
substantial changes, including but not limited to any apparent discrepancy with the legal status at the time of execution of this Agreement, such as disposal of material assets, demission of key personnel, termination or subject change of business
contracts, etc. If any Party is in breach of the foregoing commitment, the breaching Party shall compensate for all losses occurred to non-breaching Parties. |
|
3.1.3 |
Except for those circumstances disclosed in writing to Party B, no other circumstances below in respect of the current registered capital and equity of Target Company: (i) escrow or similar arrangement of any
shareholders equity; (ii) related rights and interests of any priority, options or convertible securities; or (iii) attachment, seizure, freezing or compulsory transfer by any judicial or administrative authority. |
|
3.1.4 |
Party A has no debts and legal liabilities that may affect the completion of the transactions specified herein in accordance with the terms and conditions of this Agreement. |
|
3.1.5 |
As of the Signing Date, except for those shown in the financial due diligence before signing this Agreement and those related to the normal business of Target Company within its business scope disclosed in writing to
Party B, Target Company has no debts, including but not limited to any guarantees and warranties in whatever form made by Target Company to any entity or natural person. Party A and Target Company specifically agree that even though Party B has
conducted any proper investigation of the financial condition of Target Company by means of document review, Party B may not be deemed to be liable for any single debt or compensation exceeding RMB 10,000 before the Signing Date hereof, and such
liability shall be borne by Party A and Target Company. |
|
3.1.6 |
Target Company has performed the obligations under any agreement, contract or other legal documents to which it is a party and has no default that may affect the conclusion and performance of this Agreement.
|
8
|
3.1.7 |
Party A and Target Company are willing and have the sole right and authority to sign and perform this Agreement and complete the transactions specified herein, and have taken all necessary actions respectively for such
purpose. This Agreement will create legal, valid and enforceable obligations binding on both Party A and Target Company according to the terms hereof. |
|
3.1.8 |
Signing and performance of this Agreement will not violate or conflict with Target Companys articles of association or other organization documents and applicable laws, regulations and government executive order
to Target Company and/or Party A or other contracts or legal documents to which Target Company and/or Party A is a party. |
|
3.1.9 |
All the financial documents or instructions and contents thereof provided respectively by Target Company and Party A are true, complete and accurate, and there are no major omissions, concealments or misleading
statements that may cause substantial impact on the transactions specified herein. |
|
3.1.10 |
In accordance with Chinas fiscal and tax laws and regulations, there are no tax arrears, late payment of tax, tax evasion, tax fraud or other violation of tax laws and regulations that could affect the signing and
performance of this Agreement in respect of the management and application of Target Companys financial system, account book, vouchers and invoices. |
|
3.1.11 |
There are no litigations, arbitrations, administrative punishments, administrative reconsiderations, complaints, investigations or other legal proceedings in respect to Target Company or Target Companys assets or
equity or production or business activities, nor are there any legal responsibilities or obligations to be borne by Target Company according to any order, judgment or decision made by any court, arbitration institution and other judicial or
administrative authority. |
|
3.1.12 |
Except for those disclosed to Party B in writing, Target Company enjoys ownership and/or use rights in respect to all the movable and immovable properties and intangible assets (collectively referred to as Target
Company Assets) owned, occupied and used by Target Company, and such Target Company Assets contain no pledge, mortgage, lien, other security interests or third party interests. |
9
|
3.1.13 |
Any transactions between Target Company and any of its affiliates do, in all aspects, comply with Chinas laws and regulations. The transaction content is true, legitimate and effective, and the transaction terms
are based on the principle of fairness. Target Company will bear no legal liability that could affect the signing and performance hereof as a result of any such transaction with its affiliates. |
|
3.1.14 |
Target Company has complied with the Chinas laws on labor management, and has not been punished by any labor management department due to violation of the laws and regulations on labor management to the extent
that it could affect the signing and performance of this Agreement. |
3.2 |
Party A and Target Company further acknowledge and agree that all the representations and warranties in Article 3 shall remain fully effective since Party B becomes the shareholder of the Company. |
3.3 |
Party A and Target Company commit that, if they are aware of any circumstance occurring after the date of this Agreement which causes any representation and warranty untrue, in accurate or misleading in any aspect, they
will promptly inform Party B in writing. Target Company and Party A shall bear the direct economic losses incurred to Party B as a result of any representation or warranty in above Article 3 in consistent with facts. |
3.4 |
Party B hereby makes the following representations and warranties to Party A and Target Company: |
|
3.4.1 |
In accordance with incorporation documents and applicable laws, Party A has all the necessary incorporate powers and authorities to execute, deliver and perform this Agreement; |
|
3.4.2 |
Party B has taken all the necessary incorporate measures to be duly authorized to execute, deliver and perform this Agreement; |
|
3.4.3 |
This Agreement, once executed by Party Bs duly authorized representative, shall constitute an effective, binding and enforceable law document upon Party B; and |
10
|
3.4.4 |
Party Bs execution, delivery and performance of this Agreement will neither violate or contradict with the terms or conditions under its incorporation documents, any important contracts signed by and binding on
Party B, its commitments and other obligations, nor constitute or lead to its violation against such terms or conditions in other way, based on any notice and/or passing time. |
4.1 |
Target Companys current business will maintain and continue in normal operations and no substantial change shall be made to their nature, scope or mode. |
4.2 |
Neither Party A nor Target Company may be engaged in any omission or act which constitutes any representation or warranty herein or causes to violate any representation or warranty herein. |
4.3 |
Without prior writing consent or requirement of Party B, the Target Company may not: |
|
4.3.1 |
Purchase any equities or assets or dispose or change its existing investment; |
|
4.3.2 |
Change any existing contract to which Party C is a party, which would have a material effect on Party Cs operation nature or scope; |
|
4.3.3 |
Borrow or lend any amount or provide a guarantee; |
|
4.3.4 |
Enter into any contract, agreement, arrangement or trade with Party A and the related parties of Party A or other shareholders of the Company and/or Party Cs related parties, unless such contract, agreement,
arrangement or trade is made in normal commercial process on ordinary and fair trading principles. |
|
4.3.5 |
Sell, lease or transfer, or set mortgage, pledge, lien or other security rights on, or in any way dispose, Party Cs assets and business; |
|
4.3.6 |
Modify its charter or other constitutional documents (except for the purpose of this Agreement); or |
|
4.3.7 |
Appoint, dismiss or replace any senior management or core person. |
11
4.4 |
Party A commits that the execution and performance of this Agreement will cause no legal liability for any matters out of this Agreement to Party B, and Party A will be responsible for all the legal liabilities and
obligations accrued thereon. |
4.5 |
Within three (3) years upon the date on which the commercial and industrial registration for Target Equity transfer is completed (Commercial and Industrial Change Date), if any governmental authorities
or agencies imposes a fine on or charges the Target Company with respect to tax and labor management before the Commercial and Industrial Change Date, Party A shall unconditionally bear the losses suffered by Party B according to the proportion of
its holding shares and compensate Party B for its losses. |
4.6 |
Without the specific prior writing consent of Party B, except for the debts accrued in ordinary and normal business and management process and surviving the Commercial and Industrial Change Date, Party B is not liable
for any debts or liabilities of Party C accrued before the Commercial and Industrial Change Date, and Party A and other original shareholders of the Company commit to assume such debts or liabilities, including (i) tax payable by Party A and
other original shareholders of the Company or Party C as of the Commercial and Industrial Change Date, (ii) any pending litigation, arbitration or other proceeding in connection with Party A and other original shareholders of the Company, Party
C or Target Equity as of the Commercial and Industrial Change Date, and any potential, incurred or generated liability or punishment due to Party A and other original shareholders of the Company, Party C or Target Equity as of the Commercial and
Industrial Change Date, (iii) any debts (including but not limited to salary, wage, separation payment, compensation fee, pension insurance, unemployment insurance, medical insurance, work-related injury insurance, maternity insurance and other
benefits payable to employees) in connection with Party A and other original shareholders of the Company, Party C or Target Equity as of the Commercial and Industrial Change Date, or (iv) claims on the products or services sold by Party A and
other original shareholders of the Company or Party C as of the Commercial and Industrial Change Date. If Party B, with respect to the above claims made by any third party, has any litigation, arbitration or other proceeding only caused by its
behavior in strict compliance with this Agreement or suffers any losses, Party B shall promptly ask Party A and other original shareholders of the Company for help, and Party A and other original shareholders of the Company shall response to such
litigation, arbitration or other proceeding or deal with relevant punishing and legal procedures, and compensate Party B for all the suffered losses. To the full extent of the laws, Party A shall independently participate in relevant litigations or
administrative procedures and may not cause Party B to participate in relevant litigation, dispute or legal or administrative procedure. |
12
4.7 |
Party A and Target Company shall be jointly liable for the responsibilities, obligations, representations, guarantees, commitments and undertakings specified herein. |
4.8 |
During the transfer of Target Equity, no contract, agreement or document signed as required by relevant administrations of industry and commerce and only used for industrial and commercial filing shall constitute any
modification to this Agreement. |
5.1. |
Unless otherwise required by relevant laws or specified herein, the Parties hereto shall respectively pay the taxes in connection with the transaction contemplated herein according to the law. |
5.2. |
All the expenses accrued in connection with transfer of Target Equity (including but not limited to approving fees and the industrial and commercial registration change fees) shall be borne by the Target Company.
However, each Partys attorney fees and other consultation fees shall be borne by each Party respectively. |
6.1. |
This Agreement may be terminated for any of the following causes: |
|
6.1.1. |
The Parties agree to terminate this Agreement in writing; |
|
6.1.2. |
The occurrence and continuance of any Force Majeure event defined herein for more than six (6) months causes this Agreement unable to be further performed; |
|
6.1.3. |
If Party As or Party Cs representations, commitments or guarantees with respect to transfer of Target Equity are untruthful, inaccurate, incomplete or insufficient enough to constitute material breach or
substantial breach of this Agreement, then Party B is entitled to terminate this Agreement. |
13
|
6.1.4. |
If Party Bs representations, commitments or guarantees for receiving Target Equity are untrue, inaccurate, incomplete or insufficient enough to constitute material breach or substantial breach of this Agreement,
then Party A is entitled to terminate this Agreement. |
6.2. |
Upon termination of this Agreement, each Party shall return all the records, documents and payments provided to it hereunder to the providing Parties, despite that the said records, documents and payments are provided
before or after the date of this Agreement. |
6.3. |
When this Agreement is effectively terminated according to this article, this Agreement will immediately cease to be effective and the Parties shall make joint efforts to recover the Target Equity to be the Target
Equity is before the date of this Agreement. |
The Parties hereby agree and commit that the default Party shall protect and indemnify
the non-default Parties from any loss as a result of any claims, damages, costs or expenses (including but not limited to legal fees and reasonable attorney fees) faced or suffered by the non-default Parties, by the reason that the default Party
violates, misrepresents or fails to perform or abide by this Agreement (including any attachments hereto) or as required by any representation, commitment, guarantee or other obligation or provision specified in any materials, documents or
information delivered hereunder.
In case any Partys delay in performing its obligations hereunder is due to Force
Majeure, such Party is not liable to any losses occurred to the other Parties therefrom, including but not limited to actual, indirect and/or special losses. The Party affected by the Force Majeure shall immediately inform the other Parties, and
provide supporting evidences for occurrence of the Force Majeure event within fifteen days after its occurrence. The Party affected by the Force Majeure shall take effective measures to minimize the losses caused by its delay in performing
obligations hereunder. The period during which any Party delays in performing obligations hereunder due to Force Majeure shall be equal to the duration of such Force Majeure.
14
The Parties acknowledge and agree that any oral or writing documents exchanged for this
Agreement are confidential. Each Party shall keep all of such documents confidential and, without written consent of the others, may not disclose them to any third party, only except: (a) the information that is or will be informed by the
public (only except that the receiving party discloses such information to the public); (b) the information required to be by disclosed by applicable laws or regulations or the codes or rules of stock exchanges; or (c) the information as
necessary to be disclosed by any Party to its legal or financial advisor for the transaction contemplated in this Agreement where such legal or financial advisor shall be bound by the confidentiality obligation similar to this article. The
disclosure by any Partys employee or employed agency shall be deemed as the disclosure by such Party and such Party shall be liable for breach of this Agreement. This article shall survive the termination of this Agreement for any reason.
10. |
Governing Laws and Dispute Resolution |
10.1 |
The execution, effectiveness, performance, interpretation and implementation of this Agreement shall be governed by the laws of the Peoples Republic of China. |
10.2 |
In case of any disputes arising out of or in connection with this Agreement, the Parties shall resolve this dispute through friendly consultation. In the event no amicable agreement is achieved among the Parties within
thirty (30) days after such dispute has arisen, any Party hereto is entitled to submit such dispute to Beijing Arbitration Commission, and such dispute shall be settled by the Commission in accordance with its rules in force at the time of
submittal. The arbitration award shall be final and binding on the Parties. The Parties hereby commit to subject themselves to such award. Any Party hereto may apply to any competent court for enforcement of such award. All arbitration fees,
including any expenses for executing arbitration award, shall be borne by the losing Party. The Parties agree that, during the arbitration, the Parties shall continue to abide by and perform all other provisions of the Agreement except for the part
that is under arbitration. |
15
11.1. |
The notice or other communications from any Party to others hereto shall be made by fax or post. The legal address or residence of each Party stated herein shall be such Partys correspondence address, except that
such Party informs others of other address in writing. |
11.2. |
This Agreement is attached to Cyber Cloud Reorganization Agreement and will come into force upon the Parties signatures and seals. |
11.3. |
No amendment to this Agreement, if any, will take effect until a written agreement is formally entered by and among the Parties hereto and is approved by competent approving authority. |
11.4. |
This Agreement is made in Chinese in quintuplicate, one copy for each Party. Each copy shall be equally binding. |
11.5. |
IN WITNESS WHEREOF, this Agreement is executed by the Parties or their duly authorized representatives at the date first written above. |
(The remainder is intentionally left blank)
16
(This page is left blank for signatures)
|
|
|
Beijing Super TV Co., Ltd.
Legal representative: Zhu Jianhua |
|
|
Signed by: |
|
/s/ Zhu Jianhua |
|
|
|
China Super Media Holdings Limited
Legal representative: Zhu Jianhua |
|
|
Signed by: |
|
/s/ Zhu Jianhua |
|
|
|
Beijing Yuewu Yuntian Software Technology Ltd.
Legal representative: Han Jian |
|
|
Signed by: |
|
/s/ Han Jian |
17
Beijing Holch Capital Investment Center (Limited Partnership)
Legal representative: Gao Peng
Beijing Cyber Cloud Co., Ltd.
Legal representative: Han Jian
18
Exhibit 4.84
[Translation of Chinese Original]
Termination Agreement of Existing Contractual Agreements
This Termination Agreement of Existing Contractual Agreements (the Agreement) is signed by the following Parties on June 20, 2014 in Beijing.
Party A: Beijing Super TV Co., Ltd., a wholly foreign-owned company incorporated and existing under the laws of China, whose registered address is Room
406, 4/F, Tower B, Jingmeng High-tech Building, No. 5-2 Shangdi East Road, Haidian District, Beijing (Super TV);
Party B: Beijing
Novel-Super Digital TV Technology Co., Ltd., a limited liability company incorporated and existing under the laws of China, whose registered address is Room 402, Tower B, Jingmeng High-tech Building, No. 5-2 Shangdi East Road, Haidian District,
Beijing (N-S Digital TV);
Party C: (1) Zhang Lei, a Chinese citizen, ID card no.: 11010219690528111X;
(2) Wang Tianxing, a Chinese citizen, ID card no.: 110108196810109016;
(3) Wang Wenjun, a Chinese citizen, ID card no.: 110108197410028991;
(4) Shen Shizhou, a Chinese citizen, ID card no.: 110108196911148954.
In this Agreement, Party A, Party B and Party C are each referred to as one Party and collectively referred to as Parties.
Whereas:
1) There are signed files listed in Annex I
signed by Party A, Party B, Party C and other related Parties (the files listed in Annex I are collectively referred to as existing contractual agreements).
2) Party C has signed relevant equity transfer agreements according to the request of Party A to transfer its entire equity interest in Party B to Party A and
agrees to pay all its equity transfer prices to Party A.
3) The Parties agree to terminate all existing contractual agreements according to this
Agreement.
Here all Parties agree as follows by consensus:
1. Termination of Existing Contractual Agreements
1.1
Party A, Party B and Party C hereby irrevocably agree and acknowledge that all of the above, and / or any existing contractual agreements will terminate and not have any effect upon the signing of this Agreement. As for the Share Pledge
Agreement, the Parties shall immediately handle the pledge release registration procedure at relevant administrative departments for industry and commerce.
1.2 Upon the signing of this Agreement, the Parties no longer have the rights under all and / or any existing contractual agreements and no longer need to
fulfill the obligations under all and / or any existing contractual agreements.
1
1.3 The Parties of this Agreement shall irrevocably and unconditionally exempt the disputes, claims, demands,
rights, obligations, liabilities, actions, contracts or causes of action of any kind or nature, owned or may owned by other Parties of this Agreement, directly or indirectly relevant to all and / or any existing contractual agreements or generated
by existing contractual agreements in the past, now or in the future.
1.4 Without prejudice to the generality provisions in 1.3, upon the signing of this
Agreement, the Parties of this Agreement, their heirs, successors, assigns or estate executors shall exempt the commitments, debts, demands, requirements, obligations and responsibilities of any kind or nature, owned or may owned by other Parties of
this Agreement, their present and former directors, officers, employees, legal advisors, agents, their related Parties and their successors and assigns, relevant with existing contractual agreements or generated by existing contractual agreements in
the past, now or in the future, including claims and causes of action based on laws and the principles of equality, whether these claims or demands have already been filed or not, absolute or contingent, known or unknown.
2. Consideration
2.1 The Parties agree that the premise
and condition of the entry into force of the aforementioned Article 1 is that Party C has signed relevant equity transfer agreement according to the request of Party A to transfer its entire equity interests in Party B to Party A and agreed to pay
all its equity transfer prices to Party A (the specific mode of operation is that, Party C designates Party A in writing as the payee of the equity transfer price, the equity transfer price Party A shall pay to Party C shall be offset by the loans
Party C shall pay to Party A according to the Loan Agreement and its supplementary protocols under existing contractual agreements, and the balance (if any) of the equity transfer price deducted the loans that Party C shall pay to Party A shall be
fully paid to Party A. Given that the actual payer and the payee of the payment is Party A and the payment is offset, it shall be deemed that Party A has received all equity transfer prices since the date Party A and Party C having signed the
payment confirmation containing the foregoing contents) and that Party A has received all equity transfer prices.
3. Representations and Warranties
Each Party hereby, at the date of the signing of this Agreement, jointly and severally represents and warrants to other Parties as follows:
3.1 It has obtained the necessary authorization and has the right to sign this Agreement. The signing and performance of this Agreement will not lead to
conflicts, restrictions or violation of laws, regulations or agreements having binding forces or affects on it.
3.2 Upon signing this Agreement, it
constitutes legal, valid, binding and enforced obligations under the terms of this Agreement.
3.3 There are no litigations, arbitrations, or legal,
administrative or other proceedings or government investigations related to the subject matter of this Agreement.
2
4. Commitment
4.1 In order to successfully complete the termination of the rights and obligations under existing contractual agreements, the Parties shall sign all necessary
or appropriate documents, take all necessary or appropriate actions, actively cooperate with other Parties to obtain relevant government approvals and/or registration documents, and handle relevant termination procedures.
5. Liability for Breach of Contract
Any Party breaches
this Agreement and make it impossible to perform all or part of this Agreement shall be liable for breach of this Agreement and indemnify the damages which are caused by this breach and suffered by other Parties of this Agreement.
6. Obligation of Confidentiality
The Parties acknowledge
and confirm that any oral or written information relating to this Agreement exchanged between each other belongs to confidential information. Each Party shall maintain the confidentiality of all such information and shall not disclose any
information to any third Party without the prior written consent of other Parties of this Agreement, except in the following circumstances: (a) the public knows or will know such information (rather than being disclosed by any information
acceptor to the public without authorization); (b) information needs to be disclosed required by any applicable law or regulation; or (c) any Party needs to disclose the information on transactions mentioned in this Agreement to its
potential investors, legal or financial advisers and that its potential investors, legal or financial advisors shall comply with the Obligation of Confidentiality similar to this provision. The breach of confidence of staff members or hired agencies
of any Party shall be deemed to be the breach of confidence of this Party and this Party shall be liable for breach of this Agreement. This provision shall be in force whether this Agreement is terminated for any reason.
7. Applicable Law and Dispute Resolution
7.1 The
formation, validity, interpretation, performance, amendment, termination and dispute resolution of this Agreement shall all apply Chinese laws.
7.2 The
Parties shall resolve any dispute, claim and controversy concerning the interpretation or implementation of this Agreement, or the breach, termination, invalid situation (Dispute) first through friendly consultations. If the Parties fail
to resolve the Dispute through friendly consultations within 30 days after the written notice sent by any Party for the negotiation of the Dispute, unless otherwise agreed in writing, the Dispute shall be submitted to China International Economic
and Trade Arbitration Commission for arbitration according to currently effective rules for arbitration in Beijing. Any arbitration award made under this provision shall be final and binding on all Parties. Costs of arbitration shall be ruled by the
arbitration award.
7.3 If the arbitration of any dispute or arbitration relating to the interpretation or implementation of this Agreement is in progress,
except for the matters under dispute, the Parties of this Agreement shall continue to exercise their other rights and perform their other obligations under this Agreement.
8. Miscellaneous
8.1 This Agreement takes effect since
being signed by the Parties on the date listed at the beginning of this Agreement.
8.2 This Agreement is in sixtuplicate, Party A and Party B holds one
copy each and Party C holds four copies which have the same effect.
3
8.3 The Parties of this Agreement may change and supplement this Agreement through written agreement. The
modification agreement and/or supplemental agreement of this Agreement made by the Parties are integral parts of this Agreement and shall have the same legal effect as this Agreement.
8.4 The infectiveness of any terms of this Agreement does not affect the legal validity of the remaining provisions under this Agreement.
[No text body below]
4
Given this, the duly authorized representatives of all Parties have signed this Agreement at the date shown at
the beginning of this Agreement.
Party A:
Beijing Super TV Co., Ltd. (sealed)
Signature: /s/ Zhu Jianhua
Name:
Position:
Party B:
Beijing Novel-Super Digital TV Technology Co., Ltd (sealed)
Signature: /s/ Zhu Jianhua
Name:
Position:
Signature page of Termination
Agreement of Existing Contractual Agreements
5
Given this, the duly authorized representatives of all Parties have signed this Agreement at the date shown at
the beginning of this Agreement.
Party C:
Zhang Lei
Wang Tianxing
|
|
|
Signature: |
|
/s/ Wang Tianxing |
Wang Wenjun
|
|
|
Signature: |
|
/s/ Wang Wenjun |
Shen Shizhou
|
|
|
Signature: |
|
/s/ Shen Shizhou |
Signature page of Termination Agreement of Existing Contractual Agreements
6
Annex
Existing Contractual Agreements
Content:
|
|
|
|
|
|
|
No. |
|
Agreement Name |
|
Signatories |
|
Signature Date |
(1) |
|
Technical Support and Related Services Agreement |
|
Guangbo Technology, (the predecessor of Super TV), Novel-Tongfang, (the predecessor of N-S Digital TV) |
|
June 7, 2004 |
|
|
|
|
(2) |
|
Technology License Agreement |
|
Guangbo Technology, Novel-Tongfang |
|
June 7, 2004 |
|
|
|
|
(3) |
|
Products and Software Purchase Agreement |
|
Guangbo Technology, Novel-Tongfang |
|
June 7, 2004 |
|
|
|
|
(4) |
|
Equipment Lease Agreement |
|
Guangbo Technology, Novel-Tongfang |
|
June 7, 2004 |
|
|
|
|
(5) |
|
Share Transfer Option Agreement |
|
Guangbo Technology, Yang Li, Novel-Tongfang Information |
|
June 7, 2004 |
|
|
|
|
(6) |
|
Supplemental Agreement of Share Transfer Option Agreement |
|
Guangbo Technology, Novel-Tongfang, Novel-Tongfang Information, Yang Li |
|
September 1, 2005 |
|
|
|
|
(7) |
|
Supplemental Agreement of Share Transfer Option Agreement (2) |
|
Super TV, Novel-Tongfang, Novel-Tongfang Information, Yang Li, Gao Wei |
|
August 18, 2007 |
|
|
|
|
(8) |
|
Supplemental Agreement of Share Transfer Option Agreement (3) |
|
Super TV, N-S Digital TV, Novel-Tongfang Information, Gao Wei, Wu Junming |
|
June 18, 2008 |
|
|
|
|
(9) |
|
Supplemental Agreement of Share Transfer Option Agreement (4) |
|
Super TV, N-S Digital TV, Novel-Tongfang Information, Wu Junming, Zhang Lei, Shen Shizhou |
|
November 24, 2008 |
|
|
|
|
(10) |
|
Supplemental Agreement of Share Transfer Option Agreement (5) |
|
Super TV, N-S Digital TV, Shen Shizhou, Zhang Lei, Wang Wenjun, Wang Tianxing, Wu Junming |
|
July 11, 2011 |
|
|
|
|
(11) |
|
Business Operation Agreement |
|
Guangbo Technology, Novel-Tongfang, Novel-Tongfang Information, Yang Li |
|
September 1, 2005 |
|
|
|
|
(12) |
|
Supplemental Agreement of Business Operation Agreement |
|
Super TV, Novel-Tongfang, Novel-Tongfang Information, Yang Li, Gao Wei |
|
August 18, 2007 |
|
|
|
|
(13) |
|
Supplemental Agreement of Business Operation Agreement (2) |
|
Super TV, N-S Digital TV, Novel-Tongfang Information, Gao Wei, Wu Junming |
|
June 18, 2008 |
|
|
|
|
(14) |
|
Supplemental Agreement of Business Operation Agreement (3) |
|
Super TV, N-S Digital TV, Novel-Tongfang Information, Wu Junming, Zhang Lei, Shen Shizhou |
|
November 24, 2008 |
|
|
|
|
(15) |
|
Supplemental Agreement of Business Operation Agreement (4) |
|
Super TV, N-S Digital TV, Shen Shizhou, Zhang Lei, Wang Tianxing, Wu Junming |
|
July 11, 2011 |
7
|
|
|
|
|
|
|
No. |
|
Agreement Name |
|
Signatories |
|
Signature Date |
(16) |
|
Loan Agreement |
|
Super TV, Shen Shizhou |
|
November 24, 2008 |
|
|
|
|
(17) |
|
Loan Agreement |
|
Super TV, Zhang Lei |
|
November 24, 2008 |
|
|
|
|
(18) |
|
Loan Agreement |
|
Super TV, Wang Wenjun |
|
July 11, 2011 |
|
|
|
|
(19) |
|
Loan Agreement |
|
Super TV, Wang Tianxing |
|
July 11, 2011 |
|
|
|
|
(20) |
|
Loan Agreement |
|
Super TV, Zhang Lei |
|
July 11, 2011 |
|
|
|
|
(21) |
|
Supplemental Agreement of Loan Agreement |
|
Super TV, Shen Shizhou, Zhang Lei, Wang Wenjun, Wang Tianxing |
|
January 16, 2012 |
|
|
|
|
(22) |
|
Supplemental Agreement of Loan Agreement (2) |
|
Super TV, Wang Tianxing |
|
April 12, 2013 |
|
|
|
|
(23) |
|
Share Pledge Agreement |
|
Super TV, Shen Shizhou |
|
January 16, 2012 |
|
|
|
|
(24) |
|
Share Pledge Agreement |
|
Super TV, Wang Tianxing |
|
January 16, 2012 |
|
|
|
|
(25) |
|
Share Pledge Agreement |
|
Super TV, Wang Wenjun |
|
January 16, 2012 |
|
|
|
|
(26) |
|
Share Pledge Agreement |
|
Super TV, Zhang Lei |
|
January 16, 2012 |
8
Exhibit 4.85
[Translation of Chinese Original]
Termination Agreement of Existing Contractual Agreements
The Agreement Termination Agreement of Existing Contractual Agreements (The Agreement) is signed by the following two parties on
April 14, 2015 in Beijing.
Party A: Beijing Super TV Co., Ltd., a wholly foreign-owned enterprise incorporated and existing under the laws of
the Peoples Republic of China, whose registered address is Room 406, Tower B, Jingmeng High-tech Building, No. 5-2 Shangdi East Road, Haidian District, Beijing (Super TV);
Party B: Beijing Novel-Super Digital TV Technology Co., Ltd., a limited liability company incorporated and existing under the laws of the
Peoples Republic of China, whose registered address is Room 402, Tower B, Jingmeng High-tech Building, No. 5-2 Shangdi East Road, Haidian District, Beijing (N-S DIGITAL TV).
In this Agreement, Party A and Party B are each referred to as One Party, collectively referred to as Both Parties.
Whereas:
1) |
There are signed files listed in Annex I signed by Party A and Party B (as the files listed in Annex I are collectively referred as existing contractual agreements) |
2) |
Both Parties agree to terminate all existing contractual agreements according to the Agreement. |
Here both
Parties agree as follows by consensus:
1. |
Termination of Existing Contractual Agreements |
1.1 |
Party A and Party B hereby irrevocably agree and acknowledge that all of the above, and / or any existing contractual agreements had terminated since June 20, 2014 (effective date of termination)
and not have any effect. |
1.2 |
Since the effective date of the termination, both Parties no longer had the rights under all and / or any existing contractual agreements, or no longer need to fulfil the obligations under all and / or any existing
contractual agreements. |
1.3 |
The Parties of this Agreement shall irrevocably and unconditionally exempt the disputes, claims, demands, rights, obligations, liabilities, actions, contracts or causes of action of any kind or nature, owned or may
owned by the other party of this Agreement, directly or indirectly relevant to all and / or any existing contractual agreements or generated by existing contractual agreements in the past, at present or in the future. |
1.4 |
Without prejudice to the generality provisions in 1.3, since the effective date of the termination, both Parties of this Agreement, their heirs, successors, assigns or estate executors shall exempt the commitments,
debts, demands, requirements, obligations and responsibilities of any kind or nature, owned by may owned by the other Party of this Agreement, their present and former directors, officers, employees, legal advisors, agents, their related Parties and
their successors and assigns, relevant with existing contractual agreements or generated by existing contractual agreements in the past, now or in the future, including claims and causes of action based on laws and the principles of equality,
whether these claims or demands have already been filed or not, absolute or contingent, known or unknown. |
2. |
Representation and warranties |
Each Party hereby, at the date of signing of the
Agreement, jointly and severally represents and warrants to the other party as follows:
2.1 |
It has obtained the necessary authorization and has the right to sign this Agreement; the signing and performance of this Agreement will not lead to conflicts, restrictions or violation of laws, regulations or agreement
having binding force or effect on it. |
2.2 |
Upon signing of this Agreement, it shall constitute legal, valid and binding and enforced obligations under the terms of this Agreement. |
2.3 |
There are no litigations, arbitrations or legal, administrative or other proceedings or government investigation related to the subject mater of this Agreement. |
3.1 |
In order to successfully complete the termination of the rights and obligations under existing contractual agreements, both Parties shall sign all necessary or appropriate documents, and take all necessary or
appropriate actions, actively cooperate with other parties to obtain relevant government approvals or/and registration documents, and handle the relevant termination procedures. |
4 |
Liability for Breach of Contract |
Any Party breaches this Agreement and make it
impossible to perform all or part of this Agreement shall be liable for breach of this Agreement and indemnify the damages which are caused by this breach and suffered by other Parties of this Agreement.
5 |
Obligation of Confidentiality |
Both Parties acknowledge and confirm that any oral or
written information relating to this Agreement exchanged between each other belong to confidential information. Each Party shall maintain the confidentiality of all such information and shall not disclose any information to any third party without
the prior written content of the other Party of this Agreement, except in the following circumstances: (a) The public knows or will know such information (rather than being disclosed by any information acceptor to the public without
authorization); (b) information needs to be disclosed as required by applicable law or regulation; or (c) any Party needs to disclose the information on transactions as mentioned in this Agreement to its potential investor, legal or
financial advisors who shall comply with the Obligations of Confidentiality similar to this provision. The breach of confidence of staff members or hired agencies of any Party shall be deemed to be the breach of confidence of this Party and this
Party shall be liable for breach of this Agreement. This provision shall remain in force whether this Agreement is terminated for any reason.
6. |
Applicable Law and Dispute Resolution |
6.1 |
The formation, validity, interpretation, performance, amendment, termination and dispute resolution of this Agreement shall all apply Chinese laws. |
6.2 |
Both Parties shall resolve any dispute, claim and controversy concerning the interpretation or implementation of this Agreement, or the breach, termination and invalid situation (dispute) first
through friendly consultations. If the Parties fail to resolve the Dispute through friendly consultations within 30 days after the written notice sent by any Party for the negotiation of the Dispute, , unless otherwise agreed in writting, the
Dispute shall be submitted to China International Economic and Trade Arbitration Commission (CIETAC) for arbitration according to currently effective rules for arbitration in Beijing. Any arbitral award made under this provision shall be final, and
biding on both Parties. The costs of arbitration shall be ruled by the arbitral award. |
6.3 |
If the arbitration of any dispute or arbitration relating to the interpretation and performance of this Agreement is in progress, the Parties of this Agreement shall continue to exercise their other rights and perform
their other obligations under this Agreement. |
7.1 |
This Agreement shall takes effect since being signed by the Parties on the date listed at the beginning of this Agreement. |
7.2 |
This Agreement is in duplicate, Party A and Party B holds one copy each which have the same effect. |
7.3 |
The Parties of this Agreement may change and supplement this Agreement through written agreement. Any modification agreement and / or supplemental agreement of this Agreement made by the Parties are an integral part of
this Agreement, and shall have the same legal effect as this Agreement. |
7.4 |
The ineffectiveness of any terms of this Agreement shall not affect the legal validity of the remaining provisions of this Agreement. |
[The remainder of this page is intentionally left blank.]
2
Given this, the duly authorized representatives of both parties have signed this Agreement on the date shown at
the beginning of this Agreement.
|
|
|
Party A: |
|
Beijing Super TV Co., Ltd. (sealed) |
|
Signature: /s/ Zhu
Jianhua |
|
Name: |
|
Position: |
|
Party B: |
|
Beijing Novel-Super Digital TV Technology Co., Ltd. (sealed) |
|
Signature: /s/ Zhu
Jianhua |
|
Name: |
|
Position: |
Signature page of the Termination Agreement of Existing contractual agreements
3
Annex
Existing Contractual Agreements
Contents:
|
|
|
|
|
|
|
Serial
no. |
|
Agreement Name |
|
Signatories |
|
Signature Date |
(1) |
|
Technology Development Agreement |
|
Super TV, N-S DIGITAL TV |
|
June 07, 2004 |
(2) |
|
Framework Agreement for Purchase of Computer Chips |
|
Super TV, N-S DIGITAL TV |
|
December 12, 2008 |
(3) |
|
Framework Agreement for Sale of Software Products |
|
Super TV, N-S DIGITAL TV |
|
July 14, 2009 |
4
Exhibit 4.86
[Translation of Chinese Original]
Share
Transfer Agreement
This Equity Transfer Agreement (hereinafter referred to as This Agreement) is entered into by the following Parties in
Beijing, the Peoples Republic of China (hereinafter referred to as China) on June 20, 2014:
Transferor
1. Zhang Lei, a Chinese citizen, ID card no.: 11010219690528111X;
2. Wang Tianxing, a Chinese citizen, ID card no.: 110108196810109016;
3. Wang Wenjun, a Chinese citizen, ID card no.: 110108197410028991;
4. Shen Shizhou, a Chinese citizen, ID card no.: 110108196911148954.
Transferee: Beijing Super TV Co., Ltd., a wholly foreign-owned corporation duly registered and validly surviving according to laws of China; registered
address: Room 406, 4/F, Tower B, Jingmeng High-tech Building, No. 5 -2 Shangdi East Road, Haidian District, Beijing.
The Transferor and Transferee
are each referred to as Party and collectively as Parties.
Definitions
Unless otherwise specified below in this Agreement, the following words express the following meanings:
Subject Company indicates the Beijing Novel-Super Digital TV Technology Co., Ltd., a limited liability company duly registered and validly surviving according
to laws of China, whose registered address: Room 402, 4/F, Tower B, Jingmeng High-tech Building, No. 5 -2 Shangdi East Road, Haidian District, Beijing;
Transfer subject indicates the 100% stock equity of the subject company held by the Transferor.
Whereas:
1. The subject company is a limited liability
company duly registered and validly surviving according to laws of China with a registered and paid-in capital of RMB 150million. See Annex I for equity structure of the subject company on the date of signing this Agreement. Among which,
shareholding ratio of the Transferor is 100%.
2. The Transferor intends to transfer the 100% stock equity of the subject company to the Transferee and the
Transferee intends to buy the total 100% stock equity of the subject company held by the Transferor.
Hereby, according to provisions of relevant Chinese
laws, regulations and rules, the Parties, following the voluntariness, fairness, honesty and credibility principles and through friendly consultations, have reached a consensus on relevant matters of the Transferor transferring the 100% stock equity
of the subject company to the Transferee and signed this Agreement as follows:
Article I Transfer subject
1.1 Transfer subject of this Agreement is the 100% stock equity of the subject company held by the Transferor.
The Transferor agrees to transfer the transfer subject to the Transferee.
1.2 Total subscribed capital (RMB 150 million) of the transfer subject held by the Transferor has been paid in full.
1.3 The transfer subject has no guarantee in any other forms except all the pledges to the Transferee when signing this Agreement, including but not limited to
any other pledges or any other restrictions or obligations set on the transfer subject affecting transferring of the transfer subject or exercising of shareholders rights. Also, no competent authorities have taken any compulsory measures on
the transfer subject. The Parties agree to go through the pledge releasing registration formalities against the pledge registration and the equity change registration formalities immediately after signing this Agreement.
Article II Subject company
2.1 The subject company
involved in this Agreement has independent enterprise legal person qualifications as a company legally existing under Chinese laws.
2.2 The subject
company has legal approval or license files related to operations.
Article III Transfer price and payment
3.1 Transfer price: The Parties agree that transfer price under terms of this Agreement is RMB 150 million; in which, the Transferee shall pay Zhang Lei RMB
47,479,380, pay Wang Tianxing RMB 46,855,328, pay Wang Wenjun RMB 43,268,392 and pay Shen Shizhou RMB 12,396,900.
3.2 Payment method of the transfer price
shall be further confirmed by the Parties in written.
Article IV Pledge release and registration change
4.1 The Transferor shall urge the subject company to start to go through the pledge registration releasing formalities for the transfer subject within three
days as of signing this Agreement and the Transferee shall sign relevant necessary documents and provide necessary assistance; the Transferor shall also urge the subject company to go through the equity change registration formalities at the
industrial and commercial registration authority for the subject company immediately after releasing the pledge registration (Relevant documents shall be submitted no later than the next day after obtaining pledge registration releasing document).
The transaction is deemed to be finished after completion of equity change registration formalities and issuance of new business license for the subject company.
2
Article V Transferor representations and warranties
The Transferor represents, promises and warrants to the Transferee that:
5.1 The Transferor has paid total registered capital of the subject company fully and obtained the capital verification report through capital verification. No
feigned capital contribution or capital flight acts exist.
5.2 The Transferor has legal, effective and complete rights of disposing the transfer subject
under the terms of this Agreement. The transfer subject held by the Transferor has no other pledge or guarantee in any other forms or third party rights except all the pledges given to the Transferee.
Article VI Transferee representations and warranties
6.1
It conforms to the provisions of the laws and regulations for the Transferee to buy the transfer subject under the terms of this Agreement and has no conflict with the industrial polities of China.
6.2 The documentary evidence and information submitted to the Transferor for the purpose of signing this Agreement are true and complete.
6.3 All the approvals required by signing this Agreement have been effectively obtained in a legal way.
Article VII Bearing of transaction expenses
Transaction
expenses incurred during the transaction process under terms of this Agreement shall be undertaken by each of the Parties respectively according to relevant provisions.
Article VIII Liability for breach of contract
8.1 If any
Party violates provisions of this Agreement, he shall be liable for the compensation responsibilities fully against the losses of other Parties resulted in by his breach of this agreement.
8.2 If any Party violates provisions of this Agreement, he shall bear the liabilities for breach of contract despite termination of this Agreement.
Article IX Modification and termination of the Agreement
9.1 Parties concerned may modify or terminate this Agreement after reaching consensus through consultations. Things left unmentioned of this Agreement shall be
supplemented by signing written agreement between the Parties.
9.2 If any of the following cases occur, any Party shall have the right to terminate this
Agreement:
9.2.1 Where purpose of this Agreement fails to realize due to force majeure or reasons not attributable to the Parties, any Party shall have
the right to terminate this Agreement;
9.2.2 Where one Party loses actual performance capabilities, the counter Party shall have the right to terminate
this Agreement;
9.2.3 Where purpose of this Agreement fails to realize due to one Partys serious breach of the contract, the counter Party shall
have the right to terminate this Agreement;
9.2.4 Where any Party violates the representation and warranties of this Agreement in Article V and Article
VI, the counter Party shall have the right to terminate this Agreement.
3
Article X Applicable laws and dispute resolution
10.1 Laws of the Peoples Republic of China shall be applicable to this Agreement.
10.2 The Parties concerned shall try to solve any dispute concerning interpretation or performance of this Agreement through negotiations; if negotiation
fails, any Party shall have the right to submit the dispute to China International Economic and Trade Arbitration Commission for arbitration according to the provisions of this Agreement. The arbitration shall be carried out in Beijing, China by the
Commission in accordance with the current effective arbitration rules. The arbitral decision shall be final and legally binding to all Parties.
Article XI Validity of the Agreement
This Agreement
takes effect since being signed by the Parties on the date shown at the beginning of this Agreement.
Article XII Miscellaneous
12.1 Any modification or supplement to this Agreement by the Parties shall be concluded in written and attached as annex to this agreement. Annex of this
Agreement shall have the same legal effect.
12.2 This Agreement is in quintuplicate and each Party shall hold one copy.
4
[This page, as signature of the Equity Transfer Agreement, has no body text.]
Transferor:
Zhang Lei
Wang Tianxing
|
|
|
Signature: |
|
/s/ Wang Tianxing |
Wang Wenjun
|
|
|
Signature: |
|
/s/ Wang Wenjun |
Shen Shizhou
|
|
|
Signature: |
|
/s/ Shen Shizhou |
5
[This page, as signature of the Equity Transfer Agreement, has no body text.]
Transferee: Beijing Super TV Co., Ltd.
|
|
|
Signature:
Name:
Position: |
|
/s/ Zhu Jianhua |
6
Annex I
Equity structure of the subject company (as of signing date of this Agreement)
|
|
|
|
|
|
|
|
|
|
|
Shareholders name |
|
Capital contribution (yuan) |
|
|
Form of contributions |
|
Ratio of contributions |
|
Zhang Lei |
|
|
47,479,380 |
|
|
Currency |
|
|
31.65 |
% |
Wang Tianxing |
|
|
46,855,328 |
|
|
Currency |
|
|
31.24 |
% |
Wang Wenjun |
|
|
43,268,392 |
|
|
Currency |
|
|
28.85 |
% |
Shen Shizhou |
|
|
12,396,900 |
|
|
Currency |
|
|
8.26 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
150,000,000 |
|
|
Currency |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
7
Exhibit 4.90
[Translation of Chinese Original]
Supplementary Share Transfer Agreement
of
Beijing Super TV Co.,
Ltd.
October 27, 2014
Supplementary Share Transfer Agreement
of
Beijing Super TV
Co., Ltd.
This Supplementary Share Transfer Agreement is made and entered into by and among the following parties on October 27, 2014 in
Beijing:
Party A (Purchaser): Shanghai Tongda Venture Capital Co., Ltd. (hereinafter referred to as the Tongda Venture)
Legal Representative: ZHOU Liwu
Registered
Address: 24/F Yinqiao Building, No.58 Jinxin Road, Pudong New Area, Shanghai
Party B (Transferor): Golden Benefit Technology Limited
(hereinafter referred to as Golden Benefit)
Director: LU Zengxiang
Registered Address: Room 1501, 15/F, SPA centre, 53-55 Lockhart Road, Wanchai, Hong Kong
Party C: Cinda Investment Co., Ltd. (hereinafter referred to as the Cinda Investment)
Legal Representative: LI Deran
2
Registered Address: No.1 Building, Courtyard No.9, Naoshikou Avenue, Xicheng District
Party D: China Digital TV Holding Co., Ltd. (hereinafter referred to as the CDTV Holding)
Chairman: LU Zengxiang
Registered Address:
Cricket Square, Hutchins Drive, PO BOX 2681, Grand Cayman, KY1-1111, Cayman Islands
Party E: China Digital TV Technology Co., Ltd. (hereinafter
referred to as the CDTV Technology)
Director: LU Zengxiang
Registered Address: Room 1501, 15/F, SPA centre, 53-55 Lockhart Road, Wanchai, Hong Kong
The parties mentioned above are hereinafter collectively referred to as the Parties.
Whereas:
1. With respect
to the purchase of 100% equity of Super TV by Tongda Venture from Golden Benefit, on October 9, 2014, the Parties have concluded the Share Transfer Agreement of Beijing Super TV Co., Ltd. (hereinafter referred to as the Share Transfer
Agreement), and on the same day, Tongda Venture, Golden Benefit and CDTV Holding have concluded the Profit Compensation Agreement for the Transfer of Shares of Beijing Super TV Co., Ltd. (hereinafter referred to as the Profit
Compensation Agreement) with respect to special commitments on performance of Super TV made by Golden Benefit and the compensation thereof.
3
2. Article 3.1 of the Share Transfer Agreement states that, considering that the preparation of
the Valuation Report of Target Asset has not completed up to the date of this Agreement, the Parties agree to conclude a supplementary agreement to finally determine the Purchase Consideration of the Target Asset upon completion of the preparation
of the Valuation Report of Target Asset.
3. Up to the date of this Supplementary Share Transfer Agreement, the preparation of the
Valuation Report of Target Asset has completed.
In order to specify the rights and obligations of the Parties and on the principles of
equality and mutual benefits, the Parties have agreed as follows for joint compliance:
Article 1 The Parties agree to revise the
definitions of Expected Net Profits and Actual Net Profits in Article 1 of the Share Transfer Agreement as follows:
Expected Net Profits refer to the net profits of Super TV attributable to the owner of the parent company under the consolidated statements
of 2014, 2015 and 2016, before or after deducting the non-recurring profits and losses, whichever lower, as promised by Golden Benefits.
Actual
Net Profits refer to realized net profits of Super TV attributable to the owner of the parent company under the consolidated statements of 2014, 2015 and 2016 audited by an accounting firm with securities business qualifications, before or
after deducting the non-recurring profits and losses, whichever lower
Article 2 Article 3.1 of the Share Transfer Agreement shall be revised as
follows:
Pursuant to the Valuation Report (Zhong Lian Ping Bao Zi [2014] No.1100) issued by China United Asset Appraisal Group Co. , Ltd., the
assessed value of the Target Asset on the Base Date of Valuation is RMB3,204,481,200; therefore, the Parties agree that the Purchase Consideration of the Target Asset shall be determined as RMB3,200,000,000.
4
Article 3 Article 3.4 of the Share Transfer Agreement shall be revised as follows:
The Parties agree that the Purchase Consideration shall be consisted of Share Consideration and Cash Consideration, of which, Share Consideration shall be the
77,294,685 shares of Tongda Venture with a total value of RMB800,000,000 calculated on basis of the issue price of the Non-public Offering of Tongda Venture, i.e. RMB10.35 per share; and the Cash Consideration shall be RMB2,400,000,000.
Article 4 Article 3.6 of the Share Transfer Agreement shall be amended as follows:
The Cash Consideration shall be paid in the following order:
|
(1) |
Within 5 Business Days upon the satisfaction of the conditions for tax declaration and the transfer of funds raised from the Non-public Offering to the special account for raising funds opened by Tongda Venture, Tongda
Venture shall declare and withhold the enterprise income tax and other taxes (which shall be specifically determined by competent tax authorities according to the laws) applicable to the transfer of 100% equity of Super TV by Golden Benefit;
|
|
(2) |
Within 15 Business Days upon the date of completion of the withholding of the enterprise income tax and other taxes applicable to the transfer of 100% equity of Super TV by Golden Benefit and compliance with the
restrictive conditions on tax and foreign exchange control as required for making overseas payments to Golden Benefit by Tongda Venture, Tongda Venture shall go to the designated foreign exchange bank to apply for going through the examination and
review formalities for payment of at least 35% of the Cash Consideration in foreign exchange to Golden Benefit; and |
5
|
(3) |
Within 5 Business Days upon completion of change of shareholder registration of Super TV and satisfaction of the conditions for purchase and payment of foreign exchange, Tongda Venture shall go to the designated foreign
exchange bank to apply for going through the examination and review formalities for payment to Golden Benefit in foreign exchange of the remaining Cash Consideration deducting all withholding taxes legally assessed by the competent tax authorities.
|
Article 5 Article 4.2.2 of the Share Transfer Agreement shall be revised as follows:
Within 5 Business Days upon completion of the payment of Cash Consideration agreed in Article 4 (2) hereof, Super TV shall apply to the industry and
commerce administration for change of shareholder registration under this Purchase to register Tongda Venture as its shareholder.
Notwithstanding the
foregoing, where Tongda Venture fails to meet the conditions for payment of Cash Consideration under Article 4 (2) hereof due to commerce, taxation, foreign exchange control or other restrictive conditions, Golden Benefit and Tongda Venture
agree to further negotiate the order of payment of Cash Consideration and the time for submittal of application for change of industrial and commercial registration subject to compliance with the existing laws and regulations.
Article 6 Article 5.1 of the Share Transfer Agreement shall be revised as follows:
The Parties agree that, upon completion of the Purchase, they will jointly make efforts to promote Tongda Venture to further improve the marketization
management mechanism, so as to facilitate the stable operation and sustainable development of digital TV businesses under the Purchase. Upon completion of the Purchase, the board of directors of Tongda Venture will be overhauled and consisted of 9
members, of which, three are independent directors. Golden Benefit will recommend 2 candidates for director and Cinda Investment agrees to cast affirmative votes for the candidates for director recommended by Golden Benefit, and for that such
candidates will serve as members of the Tongda Venture Strategic Committee. In order to satisfy the business development needs of Tongda Venture, Cinda Investment agrees that 1 to 2 professional managers will be employed to serve as senior
executives of Tongda Venture to be in charge of the relevant businesses of Super TV, by recommendation of Golden Benefit or market-oriented employment.
6
Article 7 Article 9.8 of the Share Transfer Agreement shall be revised as follows:
Subject to the PRC Laws and relevant regulatory requirements for listed companies, and in order to cooperate with the audit requirements for CDTV Holding,
Tongda Venture agrees that CDTV Holding may use the information in the audited and unaudited financial reports of Tongda Venture that have been announced, in its disclosure documents and other communications with its shareholders (including the
Letter for Submittal of Voting Proxy).
Article 8 Miscellaneous
In case of any inconsistency between the Share Transfer Agreement and this Supplementary Share Transfer Agreement, the provisions of this Supplementary Share
Transfer Agreement shall prevail; matters not covered herein shall be handled in accordance with the provisions of the Share Transfer Agreement.
This
Supplementary Share Transfer Agreement shall be established from the date of the signature and seal by the Parties, and shall become effective on the effectiveness of the Share Transfer Agreement.
This Supplementary Share Transfer Agreement is made in 18 copies of equal legal force. The Parties hereto shall each hold three copies of this Supplementary
Share Transfer Agreement, and the rest shall be kept by Tongda Venture for going through the relevant formalities for examination and approval, registration or filing.
(The remainder of this page is intentionally left blank.)
7
(This page is intentionally left blank, and is the signature page of the Supplementary Share Transfer Agreement
of Beijing Super TV Co., Ltd.)
Party A: Shanghai Tongda Venture Capital Co., Ltd. (Seal)
Legal Representative or Authorized Representative:
/s/
ZHOU Liwu
8
(This page is intentionally left blank, and is the signature page of the Supplementary Share Transfer Agreement
of Beijing Super TV Co., Ltd.)
Party B: Golden Benefit Technology Limited
Director or Authorized Representative:
/s/ LU Zengxiang
9
(This page is intentionally left blank, and is the signature page of the Supplementary Share Transfer Agreement
of Beijing Super TV Co., Ltd.)
Party C: Cinda Investment Co., Ltd. (Seal)
Legal Representative or Authorized Representative:
/s/ LI Deran
10
(This page is intentionally left blank, and is the signature page of the Supplementary Share Transfer Agreement
of Beijing Super TV Co., Ltd.)
Party D: China Digital TV Holding Co., Ltd.
Chairman or Authorized Representative:
/s/ LU Zengxiang
11
(This page is intentionally left blank, and is the signature page of the Supplementary Share Transfer Agreement
of Beijing Super TV Co., Ltd.)
Party E: China Digital TV Technology Co., Ltd.
Director or Authorized Representative:
/s/ LU
Zengxiang
12
Exhibit 8.1
List of Subsidiaries of China Digital TV Holding Co., Ltd.
|
|
|
Name |
|
Jurisdiction of Incorporation |
|
|
China Digital TV Technology Co., Ltd. |
|
British Virgin Islands |
|
|
Golden Benefit Technology Limited |
|
Hong Kong |
|
|
China Super Media Holdings Limited |
|
Hong Kong |
|
|
Beijing Super TV Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing Novel-Super Digital TV Technology Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing N-S Information Technology Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing Novel-Super Media Investment Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing Joysee Technology Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing Shibo Movie Technology Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing Cyber Cloud Co., Ltd. |
|
Peoples Republic of China |
|
|
Beijing Xinsi Yijia Technology Co., Ltd. |
|
Peoples Republic of China |
Exhibit 12.1
Certification
I, Zengxiang Lu, certify
that:
|
1. |
I have reviewed this annual report on Form 20-F of China Digital TV Holding Co., Ltd. (the Company); |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this report; |
|
4. |
The Companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting; and |
|
5. |
The Companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the
Companys board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process,
summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting. |
Date: April 28, 2015
|
|
|
CHINA DIGITAL TV HOLDING CO., LTD. |
|
|
By: |
|
/s/ Zengxiang Lu |
Name: |
|
Zengxiang Lu |
Title: |
|
Chairman and Chief Executive Officer |
Exhibit 12.2
Certification
I, Qian Yue, certify that:
|
1. |
I have reviewed this annual report on Form 20-F of China Digital TV Holding Co., Ltd. (the Company); |
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this report; |
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this report; |
|
4. |
The Companys other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
(c) |
Evaluated the effectiveness of the Companys disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the
period covered by this report based on such evaluation; and |
|
(d) |
Disclosed in this report any change in the Companys internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to
materially affect, the Companys internal control over financial reporting; and |
|
5. |
The Companys other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Companys auditors and the audit committee of the
Companys board of directors (or persons performing the equivalent functions): |
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Companys ability to record, process,
summarize and report financial information; and |
|
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal control over financial reporting |
Date: April 28, 2015
|
|
|
CHINA DIGITAL TV HOLDING CO., LTD. |
|
|
By: |
|
/s/ Qian Yue |
Name: |
|
Qian Yue |
Title: |
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Acting Chief Financial Officer |
Exhibit 13.1
Certification
Pursuant
to 18 U.S.C. § 1350, the undersigned officer of China Digital TV Holding Co., Ltd. (the Company), hereby certifies, to his knowledge, that the Companys annual report on Form 20-F for the year ended December 31, 2014 (the
Report) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: April 28, 2015
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CHINA DIGITAL TV HOLDING CO., LTD. |
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By: |
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/s/ Zengxiang Lu |
Name: |
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Zengxiang Lu |
Title: |
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Chairman and Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part
of the Report or as a separate disclosure document.
Exhibit 13.2
Certification
Pursuant
to 18 U.S.C. § 1350, the undersigned officer of China Digital TV Holding Co., Ltd. (the Company), hereby certifies, to his knowledge, that the Companys annual report on Form 20-F for the year ended December 31, 2014 (the
Report) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, and that the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
Date: April 28, 2015
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|
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CHINA DIGITAL TV HOLDING CO., LTD. |
|
|
By: |
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/s/ Qian Yue |
Name: |
|
Qian Yue |
Title: |
|
Acting Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part
of the Report or as a separate disclosure document.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statements No. 333-149888, No. 333-178533 and No. 333-186336 on Form S-8 of our reports dated April 28, 2015, relating to the consolidated financial statements of China Digital TV Holding
Co., Ltd., its subsidiaries, its variable interest entity (the VIE) and the VIEs subsidiary (collectively, the Group) as of December 31, 2013 and 2014, and for the years ended December 31, 2012, 2013 and 2014, and the
financial statement schedule of China Digital TV Holding Co., Ltd. (which report expresses an unqualified opinion), and the effectiveness of the Groups internal control over financial reporting (which report expresses an adverse opinion on the
effectiveness of the Groups internal control over financial reporting because of a material weakness), appearing in this Annual Report on Form 20-F of China Digital TV Holding Co., Ltd. for the year ended December 31, 2014.
/s/ Deloitte Touche Tohmatsu Certified Public Accountants LLP
Deloitte Touche Tohmatsu Certified Public Accountants LLP
Beijing, the Peoples Republic of China
April 28, 2015
Exhibit 23.2
HAN KUN LAW OFFICES
Suite 906,
Office Tower C1, Oriental Plaza, 1 East Chang An Avenue, Beijing 100738, P. R. China
TEL: (86 10) 8525 5500; FAX: (86 10) 8525 5511 / 8525
5522
April 28, 2015
China Digital TV Holding Co.,
Ltd.
Jingmeng High-Tech Building B, 4th Floor
No. 5
Shangdi East Road
Haidian District, Beijing
Peoples
Republic of China 100085
Dear Sir/Madam:
We hereby consent
to the reference of our name under the heading Risk Factors and Regulation in China Digital TV Holding Co., Ltd.s Annual Report on Form 20-F for the year ended December 31, 2014, which will be filed with the
Securities and Exchange Commission in the month of April 2015. In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the
Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.
Very truly yours,
/s/ Han Kun Law Offices
Han Kun Law Offices