China Youth Media, Inc. Form 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED: DECEMBER 31, 2009
COMMISSION FILE NUMBER: 000-33067

CHINA YOUTH MEDIA, INC.
(Exact Name of Registrant as Specified in its Charter)

Delaware
87-0398271
(State or Other Jurisdiction
of Incorporation or Organization)
(I.R.S. Employer
Identification No.)

4143 Glencoe Avenue, Marina Del Rey, CA 90292
(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code:   (310) 728-1450

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.001 par value

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

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨        No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.¨

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

Large accelerated filer
¨
Accelerated filer
¨
Non-accelerated filer
¨
Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Yes o         No  x

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2009, the last business day of the registrant’s most recently completed second fiscal quarter, was approximately $3,809,080. The number of shares outstanding of the Common Stock ($.001 par value) of the Registrant as of the close of business on March 25, 2010 was 158,631,461.

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 
 

 

CHINA YOUTH MEDIA, INC.

TABLE OF CONTENTS

   
Page
 
PART I
 
     
Item 1.
Description of Business
3
     
Item 1A.
Risk Factors
8
     
Item 1B.
Unresolved Staff Comments
13
     
Item 2.
Properties
13
     
Item 3.
Legal Proceedings
14
     
Item 4.
Reserved
14
     
 
PART II
 
     
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
14
     
Item 6.
Selected Financial Data
17
     
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
17
     
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
26
     
Item 8.
Financial Statements and Supplementary Data
26
     
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
26
     
Item 9A(T).
Controls and Procedures
26
     
Item 9B.
Other Information
27
     
 
PART III
 
     
Item 10.
Directors, Executive Officers and Corporate Governance
27
     
Item 11.
Executive Compensation
29
     
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
31
     
Item 13.
Certain Relationships and Related Transactions, and Director Independence
32
     
Item 14.
Principal Accountant Fees and Services
34
     
 
PART IV
 
     
Item 15.
Exhibits and Financial Statement Schedules
34
     
 
Signatures
38

 
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PART I

ITEM 1.          Description of Business

Overview

China Youth Media, Inc.

China Youth Media, Inc. is a China focused youth marketing and media company whose business is to deliver advertising and content to one of the most sought after and fastest growing demographics in the world. We have secured exclusive rights from the Chinese government controlled corporation, China Youth Interactive Cultural Media, which position us to market to China’s student population with access online, on campus and on mobile. Our strategy is to provide advertisers and corporations with direct and centralized access to this coveted consumer group through a dedicated Intranet Television Network (ITVN) media portal called “Koobee,” campus events and advanced mobile marketing.

Content Syndication Services

China Youth Media plans to syndicate its youth oriented content to delivery platforms across China. We plan to provide our content to China's fixed line subscribers across the country through two options: on an à la carte channel subscription basis, and as part of a bundled broadband service.

Koobee

The cornerstone of our China youth marketing strategy is an advertising supported ITVN media portal called Koobee. Koobee.com is a venue designed for marketers to deliver traditional TV spots and new media advertising campaigns to a targeted demographic in one of the world’s fastest growing broadband markets estimated to total more than 30 million. The student population in China is a valuable but difficult to reach consumer group. Koobee delivers a solution for advertisers and corporations to reach the most active online community in China and a key segment of the world’s largest youth market.

Koobee offers a sports channel featuring All Sports Network (ASN) content from the NFL, NHL, and Pac 10 and Big Ten games; a music channel by BTTV, a popular youth lifestyle and music entertainment TV channel in China; a travel and leisure channel by Quest USA; and a fashion channel featuring “China’s Next Top Model,” part of the international Top Model franchise and based on the hit “America’s Next Top Model.”

On Campus

China Youth Media plans to offer marketers an opportunity to sponsor live events and showcase their brands with international touring acts. We also plan to offer coordinated Internet and campus event campaigns that will bring international touring acts and sponsors directly to China’s college students with live ITVN broadcast straight into their dorm rooms.

Mobile

Our partner China Youth Interactive has secured a national mobile video and advertising license. Our plan is to deploy an advanced mobile media and advertising delivery system catering specifically to China’s youth market.

We are organized in a single operating segment with no long-lived assets outside of the United States of America. All of our revenues to date have been generated in the United States. Revenue sources could be from distribution of content, advertising and licensing.

Organizational History

China Youth Media, Inc. was organized under the laws of the State of Utah on July 19, 1983 under the name of Digicorp. On February 22, 2007, we changed the Company’s domicile from the State of Utah to the State of Delaware effected by the merger of the Company, a Utah corporation, with and into, Digicorp, Inc., a newly formed wholly owned subsidiary of the Company that was incorporated under the Delaware General Corporation Law for the purpose of effecting the change of domicile.

 
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The Company changed its name from “Digicorp, Inc.” to “China Youth Media, Inc.” (the “Corporate Name Change”) pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware which took effect as of October 16, 2008. As a result of the Corporate Name Change, our stock symbol changed to “CHYU” with the opening of trading on October 16, 2008 on the OTCBB.

References in this document to the “Company,” “we,” “us,” and “our” refer to China Youth Media, Inc. and its direct and indirect wholly-owned subsidiaries.

Youth Media (BVI) Limited

On May 8, 2008, under the laws of the British Virgin Islands, the Company formed Youth Media (BVI) Limited ("YM BVI"). YM BVI is a wholly-owned subsidiary of the Company and was established to be the holding company for YMHK and YMBJ (as identified below).

Youth Media (Hong Kong) Limited and Youth Media (Beijing) Limited

Youth Media (Hong Kong) Limited ("YMHK"), a company organized under the laws of Hong Kong on May 19, 2008, and Youth Media (Beijing) Limited (“YMBJ”), a company organized under the laws of the People's Republic of China on December 10, 2008, are wholly-owned subsidiaries of YM BVI and were formed by the Company to take advantage of its shift in business to aggregation and distribution of international content and advertising for Internet or online consumption in China.

PerreoRadio.com

PerreoRadio.com is our wholly-owned and operated website targeted to the young, urban Latino demographic offers online radio shows, podcasts, music, and music videos.

Rebel Crew Films, Inc.

Rebel Crew Films is a wholly-owned subsidiary of the Company and was organized under the laws of the State of California on August 7, 2002. In January 2008, the Company entered into a license and distribution agreement with Westlake Entertainment, Inc. which effectively shifted all day-to-day operations related to our home video library (the "Westlake Agreement").  Effective the date of the Westlake Agreement, Rebel Crew Films ceased operations and is currently maintained as a corporation in good standing with no operations.

Significant Transactions During The Year Ended December 31, 2009

Content Aggregation for China Telecom and China Unicom in Hunan Province, China

On March 23, 2010, the Company executed a syndication agreement with a key content aggregator for China Telecom and China Unicom in Hunan Province, China. Pursuant àla carte channel subscription basis, and as part of bundled broadband service. The contract provides for payment on a per subscriber per month basis.

X Games and Footprint Worldwide

On October 5, 2009 the Company executed a Content Distribution Agreement (the "X Games Agreement") with Branded entertainment company Footprint Worldwide which whom has signed a deal with ESPN, Inc.’s action sports franchise, X Games, to license video content for exclusive distribution across the Company’s university campus network koobee.com.

 
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China Youth Interactive Cultural Media (CYI)

On June 10, 2008 our subsidiary, YMHK, entered into a Cooperation Agreement (the “Cooperation Agreement”) with China Youth Net Technology (Beijing) Co., Ltd. ("CYN"), China Youth Interactive Cultural Media (Beijing) Co., Ltd. ("CYI") and China Youth Net Advertising Co. Ltd. ("CYN Ads") to cooperate with each other to develop, build and operate a fully managed video and audio distribution network under the auspices of CYN (the “Campus Network”). In addition, CYN and CYI have agreed to exclusively grant YMHK the following rights during the term of the Cooperation Agreement: exclusive right to advertise on the Campus Network; exclusive right to sell and operate the commercial campus marketing events; right to provide foreign commercial content to the Campus Network; and enjoy the rights with respect to the setup, operation, maintenance and expansion of the Campus Network according to a separate commercial and technical services agreement.  On July 3, 2009, YMHK entered into a new Cooperation Agreement (the “2009 Cooperation Agreement”), with China Youth Interactive Cultural Media (Beijing) Co., Ltd. (“CYI”) and China Youth Net Advertising Co. Ltd. (“CYN Ads”) which replaced the Cooperation Agreement entered into on June 10, 2008 among YMHK, China Youth Net Technology (Beijing) Co., Ltd. (“CYN”), CYI and CYN Ads pursuant to which the parties agreed to cooperate with each other to develop, build and operate a fully managed video and audio distribution network based on, including but not limited to, the China Education and Research Network, the broadband network infrastructure built in schools, universities and other education institutions in China (the “Campus Network”). The 2009 Cooperation Agreement has a term of 20 years with an optional renewal term of 10 years.

WinTV and the English Premier League

In August 2009, the Company entered into an agreement (the "EPL Agreement") with WinTV, a subscription channel in China run by state-owned Guangdong Provincial Television pursuant to which the Company secured the online rights to distribute the 2009-2010 season of the English Premier League (“EPL”). The EPL Agreement is part of a licensing agreement between YMHK and WinTV.

New China Media

On June 2, 2008, the Company entered into a Content License Agreement with New China Media, YGP, LLC and TWK Holdings, LLC (New China Media, YGP and TWK collectively referred to as "Content Providers") providing for the assignment by the Content Providers and the assumption by us of certain rights of the Content Providers for the territory of the People's Republic of China ("PRC") to use, transmit and publicly display via the Internet certain content. On January 8, 2009, the Content License Agreement was extended by an additional eight (8) years for a total of ten (10) years.

Xinhua Sports and Entertainment Limited (formerly Xinhua Finance Media Limited)

On December 26, 2008, our subsidiaries YMHK and YMBJ entered into a Joint Venture Agreement (the "Joint Venture Agreement") with CYI and Xinhua Sports & Entertainment Limited (“XSEL”), formerly known as Xinhua Finance Media Limited, to develop business opportunities contemplated by the Cooperation Agreement YMHK entered into on June 10, 2008 with CYN, CYI and CYN Ads. The Joint Venture Agreement provides working capital for the purposes of deploying and marketing the Campus Network. The Joint Venture Agreement provides working capital for a minimum of twelve months ending December 31, 2009. The Joint Venture Agreement provides that YMHK and YMBJ shall be obligated on a joint and several basis, following written notice from XSEL, to return, repay or reimburse, as the case may be, all of the working capital provided by XSEL, upon demand by XSEL in the sole discretion of XSEL, together with interest accrued at an annual rate of 7 percent. As of the December 31 2009, the Joint Venture Agreement had provided working capital of $2,377,312. An additional $90,000 was provided subsequent to the 2009 fiscal year end.

Recent Developments

Although written demand for payment has not yet been made, we have been advised by XSEL that it will not provide any additional funds to YMHK under the Joint Venture Agreement. As a result, we are seeking additional financing to fund our operations. In addition, we have made overtures to XSEL to restructure the debt obligations of our subsidiaries, YMHK and YMBJ. To date, all such efforts have been unsuccessful. While we believe that the Joint Venture Agreement provides that any and all amounts due to XSEL are not due until twelve months after written demand for payment has been made which demand has not yet been provided, XSEL may claim that such amounts are immediately due and payable based upon certain other language in the Joint Venture Agreement. While we believe such is contrary to the terms of the Joint Venture Agreement, no assurance can be given that we will prevail in the event our interpretation is challenged in any legal proceeding. In addition, no assurance can be made that we will be able to obtain additional financing on acceptable terms, if at all. In this regard, unless we are able to restructure the existing debt obligations of our subsidiaries, YMHK and YMBJ, to XSEL, we believe our ability to obtain any such additional financing will be significantly impaired.

As a result of the foregoing, we have recently substantially reduced our operations and terminated various employees in our subsidiary, YMBJ. While we are trying to maintain limited operations, no assurance can be made that we will be able to continue our business operations for more than a limited period of time, including but not limited to maintaining our ITVN media portal called Koobee. Because of these recent developments, we may be forced to further scale down or possibly cease all business operations, as a result of which investors could lose their investment.

Revenues

During the year ended December 31, 2009, the Company, including its subsidiaries, generated revenue primarily from digital content distribution and website ad revenue.

During the fiscal year 2009, the Company generated almost exclusively all of its revenue through the production and distribution of digital content. In the past, the Company, through its subsidiary Rebel Crew Films, generated revenue through the direct sales of its licensed home video library and licensing agreements with third parties that distributed the Company's licensed content. The Company plans to use a significant portion of its resources going forward to the aggregation and distribution of international content and advertising for Internet consumption in China. Consequently, in January 2008 and as described above, the Company entered into a license and distribution agreement with Westlake Entertainment, Inc. which effectively shifted all manufacturing and distribution of its home video library to Westlake Entertainment along with all day-to-day operations related to its home video library. Effective the date of the Westlake Agreement, Rebel Crew Films ceased operations and is currently maintained as a corporation in good standing with no operations.

Customers

We believe that significant opportunities exist in the China Internet advertising space, and we are planning to pursue this potential source of revenue.

Our target customers are:

 
·
Advertising Agencies with China operations, including Dentsu, Ogilvy, and Universal McCann;
 
·
Media Planners, such as MindShare China and Zenith;
 
·
Large Brands, such as Nike, Proctor & Gamble, LG, Samsung, Lenovo, Starbucks, and Levi’s;

 
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·
Premium Advertisers and Content Owners, including advertising agencies like WPP, Omnicom and Interpublic; content owners with their own advertising, such as NBC, CBS, ABC and The New York Times; and infomercial creators, like QVC and Williams Group;
 
·
Independent producers, artists, designers and filmmakers who own untapped content; and
 
·
Advertising Networks, including Advertising.com, ValueClick, ClickBooth, CJ.com and Zedo.

Sales and Marketing

The goal of our sales and marketing effort is to develop sales opportunities by increasing the awareness of Koobee among students, advertisers and content owners.

A key component of our strategy is the continued building of broad acceptance of Koobee by students. We are planning a multi-faceted marketing campaign to follow the launch of Koobee and encourage users to frequent our web portal and associated services.

Competition

We operate in the market for media products, services and content development and delivery, which is a highly competitive market characterized by rapid change, converging technologies, and increasing competition from companies offering communication, video, music, on-demand information and entertainment services integrated into other products and media properties.

The principal competitive factors relating to attracting and retaining users include the quality of our video content and relevance of advertising; the effectiveness and efficiency of our marketing services; the accessibility, integration and personalization of the online services that we offer; and the creativity of the marketing solutions that we offer.

There are many popular video websites available in China: Tudou, Rox, 6Rooms, Pomoho , 56.com

 
·
Almost all of these sites are comparable to YouTube: content is mostly user generated (UGC)

Other competitors include major portals such as Baidu, Sina, Tom Online, TenCent

 
·
This group is similar to US portals such as Yahoo! and include but do not focus on video
 
·
These portals are highly popular as search engines and carry feeds from major news and entertainment sources
 
·
These sites have large advertising sales staffs with established relationships to ad agencies

China Central Television (CCTV), Shanghai Media Group, Hunan TV and other major broadcasters in mainland China offer programming that is a mix of comedy, sports and drama shows, the majority of which consists of soap operas and other Chinese content. Broadcasted international content is limited by Chinese law.

We also face competition from companies focused on markets where expertise in a particular segment of the market (e.g., radio, internet, television) may provide them a competitive advantage.

 
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Seasonality

Our performance may be affected by seasonal revenue fluctuations and variation in demand between local and national advertisers. The Company’s revenues may vary throughout the year.

Government Regulation

In the United States, we are not aware of any existing or probable governmental regulations that may have a material effect on the normal operations of our business. There also are no relevant environmental laws that require compliance by us that may have a material effect on the normal operations of the business.

The regulatory framework for the online industry in China that we and or that our partners operate under is governed and controlled by several government ministries and agencies. For the purposes of our business operations in China, the ministries and agencies which we may operate under include but are not limited to:

 
·
The China Youth League
 
·
The Ministry of Public Security
 
·
The PRC State Administration of Radio, Film and Television
 
·
The Movie and Television Network Center of China Youth League
 
·
The Telecommunication Administrative Bureau of Beijing, China

The various ministries and agencies have issued rules and regulations that regulate a number of different areas of the online business in China, which we discuss below:

Foreign Ownership Restrictions

PRC regulations currently limit foreign ownership of companies that provide Internet content and related services, including operating a content website.

License Requirements

There are a number of aspects to the operation of Koobee and the operations of our wholly owned subsidiaries Youth Media (Hong Kong) Limited and Youth Media (Beijing) Limited, which require licenses from various PRC regulatory authorities. The ability to operate in China is dependent on our partners complying with PRC regulations related to licensing requirements and maintaining good standing status with the associated PRC government ministries.

Regulation of Internet Content

The PRC government has in place rules and regulations that govern Internet content that are supervised by a number of ministries and agencies. These rules and regulations specifically prohibit Internet activities such as the operation of content websites that result in the publication of content that is found to, among other things, propagate obscenity, violence, instigate crime, undermine the cultural traditions of the PRC, or compromise State security. If any website violates these rules and regulations, the PRC government may shut down their website.

Regulation of Information Security

Internet content in China is regulated and restricted by several ministries and agencies of the PRC government. According to PRC regulations, the following actions are subject to criminal punishment in China: (1) improper entry into a computer or system of strategic importance; (2) dissemination of politically disruptive information; (3) leaking State secrets; (4) spreading of false commercial information or information deemed to be destabilizing to the State; or (5) infringing on intellectual property rights. In particular, the Ministry of Public Security has direct supervision and inspection rights, with respect to the aforementioned, over all Internet websites in China and thus we may be subject to their jurisdiction. Any entity that operates a website in China that violates these rules and regulations may result in the PRC government shutting down their website.

 
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Regulation of Content Import

Importing content from abroad and into China is regulated by several ministries and agencies of the PRC government, some of which require that copyright license content agreements be approved and registered with a government agency. Our ability to operate in China is dependent on our partners complying with PRC regulations related to the import of content, registration, if necessary, with the proper PRC government ministries, and maintaining good standing status with the associated PRC government ministries.

Regulation of Advertising

According to PRC laws and regulations, in order to conduct an advertising business, a company must have an approved business scope that covers such businesses. We source our advertising business through our strategic partnerships, including our partnership with Xintai Huade Advertising Company, which to our knowledge, is licensed to conduct such business.

Regulation of Privacy

PRC law does not prohibit Internet content providers from collecting and analyzing personal information from their users. PRC law prohibits Internet content providers from disclosing to any third parties any information transmitted by users through their networks unless otherwise permitted by law. If any such Internet content provider violates these regulations, penalties may be imposed and the Internet content provider may be liable for damages caused to its users.

Employees

As of December 31, 2009, we had 13 full time employees in the United States and China. None of our employees are covered by a collective bargaining agreement. We believe that relations with our employees are good.

Available Information

We file with or submit to the SEC annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet website that contains reports, proxy and information statements and other information filed electronically by us with the SEC which are available on the SEC’s website at www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC’s Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.

ITEM 1A.        Risk Factors

Our business involves a high degree of risk. In addition to other information in the Form 10-K, potential investors should carefully consider the risks and uncertainties described below and the other information in this report before deciding whether to invest in shares of our common stock. Each of the following risks may materially and adversely affect our business, results of operations and financial condition. These risks may cause the market price of our common stock to decline, which may cause you to lose all or a part of the money you paid to buy our common stock.

RISKS RELATED TO OUR BUSINESS

We have a history of losses which may continue and which may negatively impact our ability to achieve our business objective and our financial results.

For the year ended December 31, 2009 and 2008, we generated revenues of $7,000 and $107,000, respectively, and incurred net losses of $9.3 million and $3 million, respectively. At December 31, 2009, we had a working capital deficit of $836,000 and an accumulated deficit of $20.1 million. Our failure to increase our revenues significantly or improve our gross margins will harm our business. Even if we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis in the future. If our revenues grow more slowly than we anticipate, our gross margins fail to improve, or our operating expenses exceed our expectations, our operating results will suffer.

Various conditions raise substantial doubt about our ability to continue as a going concern; Need For Additional Financing.

At December 31, 2009, we had an accumulated deficit of approximately $20.1 million and a working capital deficit of $836,000. During the year ended December 31, 2009, we incurred a loss of $9.3 million. During the year ended December 31, 2009, we primarily relied upon debt investments to fund our operations. These conditions raise substantial doubt about our ability to continue as a going concern.

 
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We are actively seeking sources of additional financing in order to maintain and potentially expand our operations and to fund our debt repayment obligations. Even if we are able to obtain funding, there can be no assurance that a sufficient level of sales will be attained to fund such operations or that unbudgeted costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could make the net proceeds of any new funding and cash flow from operations insufficient to fund our capital requirements. There can be no assurances that we will be able to obtain such additional funding from management or other investors on terms acceptable to us, if at all. Additional financings, or the possible conversion of any of our debt obligations into equity, will result in dilution for then current stockholders. In addition, see Part I, Item 1 “Recent Developments” for information on certain matters which may jeopardize our ability to continue operations.

The reliance of our network connectivity and interoperability services and content services on third-party communications infrastructure, hardware and software exposes us to a variety of risks we cannot control.

The success of our network connectivity and interoperability services and content services depends on our network infrastructure, including the capacity leased from telecommunications suppliers. In particular, we rely on telecommunications providers for leased long-haul and local loop transmission capacity. Our business also depends upon the capacity, reliability and security of the infrastructure owned by third parties that is used to connect telephone calls.

We have no control over the operation, quality or maintenance of a significant portion of that infrastructure or whether or not those third parties will upgrade or improve their equipment. We depend on these companies to maintain the operational integrity of our connections. If one or more of these companies is unable or unwilling to supply or expand its levels of service to us in the future, our operations could be severely interrupted. In addition, rapid changes in the telecommunications industry have led to the merging of many companies. These mergers may cause the availability, pricing and quality of the services we use to vary and could cause the length of time it takes to deliver the services that we use to increase significantly.

Undetected or unknown defects in our services could harm our business and future operating results.

Services as complex as those we offer or develop frequently contain undetected defects or errors. Despite testing, defects or errors may occur in our existing or new services, which could result in loss of or delay in revenues, loss of market share, failure to achieve market acceptance, diversion of development resources, and injury to our reputation, any of which could harm our business. The performance of our services could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our services, which could result in legal claims against us, harming our business. Furthermore, we often provide implementation, customization, consulting and other technical services in connection with the implementation and ongoing maintenance of our services, which typically involves working with sophisticated software, computing and communications systems. Our failure or inability to meet customer expectations in a timely manner could also result in loss of or delay in revenues, loss of market share, failure to achieve market acceptance, injury to our reputation and increased costs.

If we encounter system interruptions, we could be exposed to liability and our reputation and business could suffer.

We depend on the uninterrupted operation of various systems, secure data centers and other computer and communication networks. Our systems and operations are vulnerable to damage or interruption from:

 
·
Power loss, transmission cable cuts and other telecommunication failures;
 
·
Damage or interruption caused by fire, earthquake, and other natural disasters;
 
·
Computer viruses or software defects;
 
·
Physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.

Most of our systems are located at our facilities in Marina Del Rey, California, Downtown Los Angeles, California, and Beijing, China, all of which are susceptible to earthquakes. Any damage or failure that causes interruptions in any of these facilities or our other computer and communications systems could materially harm our business. Although we carry insurance for property damage and business interruption, we do not carry insurance or financial reserves for interruptions or potential losses arising from earthquakes or acts of terrorism.

In addition, our ability to provide our services depend on the efficient operation of the Internet connections from customers to our data centers. These connections depend upon the efficient operation of Internet service providers and Internet backbone service providers, all of which have had periodic operational problems or experienced outages in the past.

We rely on our intellectual property, and any failure by us to protect, or any misappropriation of, our intellectual property could harm our business.

Our success depends on our internally developed technologies, patents and other intellectual property. Despite our precautions, it may be possible for a third party to copy or otherwise obtain and use our trade secrets or other forms of our intellectual property without authorization. Furthermore, the laws of foreign countries may not protect our proprietary rights in those countries to the same extent U.S. law protects these rights in the United States. In addition, it is possible that others may independently develop substantially equivalent intellectual property. If we do not effectively protect our intellectual property, our business could suffer. Additionally, we have filed patent applications with respect to certain of our technology in the U.S. Patent and Trademark Office. Patents may not be awarded with respect to these applications and even if such patents are awarded, such patents may not provide us with sufficient protection of our intellectual property. In the future, we may have to resort to litigation to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. This type of litigation, regardless of its outcome, could result in substantial costs and diversion of management and technical resources.

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The Ad-Support Content business environment is highly competitive, and if we do not compete effectively, we may not be able to gain market acceptance and market share.

The market for ad-supported content services is extremely competitive. Competitors include developers of content and entertainment companies that service a variety of domestic and international markets. If we do not compete effectively it may affect our ability to gain market acceptance and grow and retain our customer base.

Our inability to react to changes in our industry and successfully introduce new products and services could harm our business.

The Internet and communications network services industry are characterized by rapid technological change and frequent new product and service announcements which require us continually to improve the performance, features and reliability of our services, particularly in response to competitive offerings. In order to remain competitive and gain market share, we must continually improve our access technology and software, support the latest transmission technologies, and adapt our products and services to changing market conditions and customer preferences. We cannot assure you that we will be able to adapt to these challenges or respond successfully or in a cost-effective way to adequately meet them. Our failure to do so would adversely affect our ability to compete and retain customers or market share.

If we do not maintain the continued service of our chief executive officer, we may not develop business operations.

Our success is dependent upon the continued service of Jay Rifkin, our current Chief Executive Officer. Although we have entered into a written employment agreement with him, we do not have key man life insurance on Mr. Rifkin. While our Chief Executive Officer currently does not, to our knowledge, have any definitive plans to retire or leave our company in the near future, he could decide to leave us at any time to pursue other opportunities. The loss of services of Mr. Rifkin would pose a significant risk to our ability to develop business opportunities.

The current global financial crises and deteriorating economic conditions may have a material adverse impact on our business and financial condition that we currently cannot predict.

The economic conditions in the United States and throughout the world have been deteriorating. Global financial markets have been experiencing a period of unprecedented turmoil and upheaval characterized by extreme volatility and declines in prices of securities, diminished liquidity and credit availability, inability to access capital markets, the bankruptcy, failure, collapse or sale of financial institutions and an unprecedented level of intervention from the United States federal government and other governments. Although we cannot predict the impacts on us of the deteriorating economic conditions, they could materially adversely affect our business and financial condition, including our ability to raise any equity or debt financing in the future.

RISKS RELATED TO OUR SUBSIDIARIES

Our operating subsidiaries, Youth Media (Beijing) Limited, Youth Media (Hong Kong) Limited, and Rebel Crew Films all have limited operating histories and therefore we cannot ensure the long-term successful operation of our business or the execution of our business plan.

Our operating subsidiaries Youth Media (Beijing) Limited organized under the laws of the People's Republic of China on December 10, 2008, Youth Media (Hong Kong) Limited organized under the laws of Hong Kong on May 19, 2008, and Rebel Crew Films organized under the laws of the State of California on August 7, 2002. Because our operating subsidiaries have limited operating history, our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by growing companies in evolving markets in which we operate. While to date we have not experienced these problems, we must meet many challenges including:

 
·
Establishing and maintaining broad market acceptance of our products and converting that acceptance into direct and indirect sources of revenue;
 
·
Establishing and maintaining our brand name;
 
·
Timely and successfully developing new products;
 
·
Developing and maintaining strategic relationships to enhance the distribution of our products.

 
10

 

Our business strategy may be unsuccessful and we may be unable to address the risks we face in a cost-effective manner, if at all. If we are unable to successfully address these risks our business will be harmed and we may experience a decrease in revenues.

We face significant competition which could reduce our market share and materially and adversely affect our business, financial condition and results of operations.

The Internet content market in China is increasingly competitive. Our results of operations to date may be a result, in part, of our close affiliation with the Government of China which may not continue to be available to us. A number of competitors have entered the Internet content business in China. We expect more companies to enter the market and we expect a wider range of websites that offer content to be introduced to the China market. Competition from other Internet content operators, both based in China as well as overseas, is likely to increase in the future. Other Internet content operators, such as Tudou, Rox, 6Rooms, Pomoho, 56.com, are current, or potential future, competitors. As the Internet content industry in China is relatively new and constantly evolving, our current or future competitors may compete more successfully as the industry matures. In particular, any of these competitors may offer products and services that provide significant performance, creativity or other advantages over those offered by us. These products and services may weaken the market strength of our brand name and achieve greater market acceptance than ours. Furthermore, any of our current or future competitors may be acquired by, receive investments from or enter into other commercial relationships with, larger, well-established and well-financed companies and therefore obtain significantly greater financial, marketing and development resources than we have. In addition, increased competition in the Internet content industry in China could make it difficult for us to retain existing users and attract new users. We also compete with other forms of entertainment, such as television and movies. If we are unable to compete effectively in the Internet content market in China, our business, financial condition and results of operations could be materially and adversely affected.

The limited use of personal computers in China and the relatively high cost of Internet access with respect to per capita gross domestic product may limit the development of the Internet in China and impede our growth.

Although the use of personal computers in China has increased in recent years, the penetration rate for personal computers in China is much lower than in the United States. In addition, despite a decrease in the cost of Internet access in China due to a decrease in the cost of personal computers and the introduction and expansion of broadband access, the cost of personal Internet access, in contrast with Internet access through Internet cafes, remains relatively high in comparison to the average per capita income in China. The limited use of personal computers in China and the relatively high cost of personal Internet access may limit the growth of our business.

We have limited business insurance coverage in China.

The insurance industry in China is still at an early stage of development. In particular, PRC insurance companies do not offer extensive business insurance products. As a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in our incurring substantial costs and the diversion of resources.

The PRC’s economic, political and social conditions, as well as government policies, could affect our business.

The PRC economy differs from the economies of most developed countries in many respects, including in the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While the PRC economy has experienced significant growth since the late 1970s, growth has been uneven, both geographically and among various sectors of the economy. The PRC government has implemented numerous measures to encourage economic growth and to guide the allocation of resources. Some of these measures may benefit the overall PRC economy, but also have a negative effect on us.

The PRC economy has been transitioning from a planned economy to a more market-oriented economy. Although the PRC government has implemented measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance in business enterprises, a substantial portion of productive assets in China is still owned by the PRC government. In addition, the PRC government continues to play a significant role in regulating industry development by imposing industrial policies. The PRC government also exercises significant control over China’s economic growth through the allocation of resources, controlling payment of foreign currency denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. These actions, as well as future actions and policies of the PRC government, could materially affect general economic conditions in China and could have a material adverse effect on our business and results of operations.

 
11

 

If we are unable to license or acquire compelling content at reasonable costs or if we do not develop compelling content, the number of users of our services may not grow as anticipated, or may decline, which could harm our operating results.

Our future success depends in part upon our ability to aggregate compelling content and deliver that content through our online and other multi-media properties and programming and delivery technologies. We distribute some of the content that we license on our online properties, such as audio and video content from third parties. We have been providing increasing amounts of audio and video content to our users as reflected in the increase in direct sales of our content, and we believe that users will increasingly demand high-quality audio and video content, such as music, film, and other special events. Such content may require us to make substantial payments to third parties from whom we license or acquire such content. For example, our entertainment properties rely on film producers and distributors, and other organizations for a large portion of the content available on our properties. Our ability to maintain and build relationships with third-party content providers will be critical to our success. In addition, as new methods for accessing and delivering content through media formats becomes available, including through alternative devices, we may need to enter into amended content agreements with existing third-party content providers to cover the new devices. We may be unable to enter into new, or preserve existing, relationships with the third parties whose content we seek to obtain. In addition, as competition for compelling content increases both domestically and internationally, our content providers may increase the prices at which they offer their content to us, and potential content providers may not offer their content on terms agreeable to us. An increase in the prices charged to us by third-party content providers could harm our operating results and financial condition. Further, some of our content licenses with third parties may be non-exclusive. Accordingly, content providers and other media sources such as radio or television may be able to offer similar or identical content and technologies. This increases the importance of our ability to deliver compelling content and media technologies in order to differentiate from other businesses. If we are unable to license or acquire compelling content at reasonable prices, if other companies acquire develop and/or distribute content that is similar to or the same as that provided by us, or if we do not develop compelling content or media technologies, the number of users of our services may not grow as anticipated, or may decline, which could harm our operating results.

We may incur substantial costs enforcing our intellectual property rights and any difficulty with enforcing such rights may cause our results of operations and financial condition to suffer.

The decreasing cost of electronic and computer equipment and related technology has made it easier to create unauthorized versions of audio and audiovisual products such as compact discs, videotapes and DVDs. Similarly, advances in Internet technology have increasingly made it possible for computer users to share audio and audiovisual information without the permission of the copyright owners and without paying royalties to holders of applicable intellectual property or other rights. Unauthorized copies and piracy of these products compete against legitimate sales of these products. Our revenues are derived from our licensed video content that is potentially subject to unauthorized copying and widespread, uncompensated dissemination on the Internet. If our proprietary video content is copied and distributed without authorization we may incur substantial costs enforcing our intellectual property rights. If we fail to obtain appropriate relief or enforcement through the judicial process, or if we fail to develop effective means of protecting our intellectual property, our results of operations and financial condition may suffer.

Failure to properly manage our potential growth would be detrimental to holders of our securities.

Since we have limited operating history and our total assets at December 31, 2009 consisted of $182,000 in cash and total current assets of $339,000, any significant growth will place considerable strain on our financial resources and increase demands on our management and on our operational and administrative systems, controls and other resources. There can be no assurance that our existing personnel, systems, procedures or controls will be adequate to support our operations in the future or that we will be able to successfully implement appropriate measures consistent with our growth strategy. As part of this growth, we may have to implement new operational and financial systems, procedures and controls to expand, train and manage our employees and maintain close coordination among our technical, accounting, finance, marketing, sales and editorial staff. We cannot guarantee that we will be able to do so, or that if we are able to do so, we will be able to effectively integrate them into our existing staff and systems. We may fail to adequately manage our anticipated future growth. We will also need to continue to attract, retain and integrate personnel in all aspects of our operations. Failure to manage our growth effectively could hurt our business.

RISKS RELATED TO OUR COMMON STOCK

Our historic stock price has been volatile and the future market price for our common stock is likely to continue to be volatile. Further, the limited market for our shares will make our price more volatile. This may make it difficult for you to sell our common stock for a positive return on your investment.

The public market for our common stock has historically been very volatile. Over the past two fiscal years, the market price for our common stock as quoted on the OTC Bulletin Board has ranged from $0.01 to $0.25. The closing sale price for our common stock on March 29, 2009 was $0.06 per share. Any future market price for our shares is likely to continue to be very volatile. This price volatility may make it more difficult for you to sell shares when you want at prices you find attractive. We do not know of any one particular factor that has caused volatility in our stock price. However, the stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies. Broad market factors and the investing public’s negative perception of our business may reduce our stock price, regardless of our operating performance. Further, the market for our common stock is limited and we cannot assure you that a larger market will ever be developed or maintained. The average daily trading volume of our common stock has historically been insignificant. Market fluctuations and volatility, as well as general economic, market and political conditions, could reduce our market price. As a result, this may make it difficult or impossible for you to sell our common stock or to sell our common stock for a positive return on your investment.

 
12

 

Our common stock is subject to the "Penny Stock" rules of the SEC and the trading market in our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock.

The SEC has adopted Rule 3a51-1 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires:

 
·
That a broker or dealer approve a person’s account for transactions in penny stocks; and
 
·
The broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in penny stocks, the broker or dealer must:

 
·
Obtain financial information and investment experience objectives of the person; and
 
·
Make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

 
·
Sets forth the basis on which the broker or dealer made the suitability determination; and
 
·
That the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent, disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

Generally, brokers may be less willing to execute transactions in securities subject to the "penny stock" rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

ITEM 1B.       Unresolved Staff Comments

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 2.          Properties

The Company currently has the following buildings under operating leases:

The Company leases approximately 3,800 square feet of space in Marina Del Rey, California. The operating lease expires September 30, 2012. At year end December 31, 2009, the monthly lease payment, including CAM fees, was $7,700. The monthly lease payment is subject to a customary 3% percent escalation per annum. The Company Corporate headquarters are located at this location.

The Company leases approximately 10,000 square feet of additional space in Marina Del Rey, California. The operating lease expires December 31, 2010. At year end December 31, 2009, the monthly lease payment was $13,600. The monthly lease payment is subject to a customary 3% percent escalation per annum. During February 2008 and April 2008, the Company entered into commercial sublease agreements with two non-related parties. It is expected that the future lease payment obligation of the Company related to this lease will be completely offset by the subleases and it is anticipated that they will remain subleased for the remaining term of the lease. For the year ended December 31, 2009, the sublease agreements resulted in $198,000 in gross revenues.

On July 15, 2008, the Company entered into a commercial lease agreement for approximately 50m2 of office space in Beijing, China. The lease expired on June 30, 2009 and required monthly payments of $1,500.

At year end December 31, 2009, the Company is confident that these buildings provide more than adequate space to meet our needs and provide for future growth.

13

 
ITEM 3.          Legal Proceedings

We are not a party to any pending legal proceeding, nor are our properties the subject of a pending legal proceeding, that is not in the ordinary course of business or otherwise material to the financial condition of our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

ITEM 4.          Reserved


PART II

ITEM 5.          Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The Company common stock is quoted on the Over-the-Counter Bulletin Board (OTCBB) under the symbol CHYU.OB. The table below delineates on a quarterly basis the high and low sales prices per share of our common stock as reported by the OTCBB. The prices set forth in the table below may not be an accurate indicator of the value of the Company shares. These prices represent inter-dealer quotations and do not reflect retail markup, markdown or commissions and may not necessarily represent actual transactions.

   
Common Stock Price
 
   
High
   
Low
 
2009
               
First Quarter Ended
March 31
 
$
0.13
   
$
0.12
 
Second Quarter Ended
June 30
 
$
0.19
   
$
0.19
 
Third Quarter Ended
September 30
 
$
0.07
   
$
0.07
 
Fourth Quarter Ended
December 31
 
$
0.08
   
$
0.08
 
                   
2008
               
First Quarter Ended
March 31
 
$
0.06
   
$
0.06
 
Second Quarter Ended
June 30
 
$
0.10
   
$
0.10
 
Third Quarter Ended
September 30
 
$
0.09
   
$
0.09
 
Fourth Quarter Ended
December 31
 
$
0.15
   
$
0.15
 

Holders of Record

As of March 29, 2010, there were approximately 287 holders of record of the Company common stock.

Dividend Policy

We have not declared any dividends to date. We have no present intention of paying any cash dividends on our common stock in the foreseeable future, as we intend to use earnings, if any, to generate growth. The payment by us of dividends, if any, in the future, rests within the discretion of our Board of Directors and will depend, among other things, upon our earnings, our capital requirements and our financial condition, as well as other relevant factors. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends.

 
14

 

Recent Sales of Unregistered Securities

Capitalization Amendment

Pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware which took effect as of October 16, 2008, the number of our authorized shares of Common Stock, par value $.001 per share, of the Company has been increased from 60,000,000 to 500,000,000 and the number of our authorized shares of Preferred Stock, par value $.001 per share, has been increased from 1,000,000 to 2,000,000 (the "Capitalization Amendment").

Recent Sales of Unregistered Securities

We sold the following equity securities during the fiscal years ended December 31, 2009 and December 31, 2008 that were not registered under the Securities Act of 1933, as amended (the "Securities Act").

Preferred Stock - Series A

On May 23, 2008, the Company filed with the State of Delaware a Certificate of Designation authorizing its Series A Convertible Preferred Stock consisting of 500,000 shares, each of $0.001 par value and convertible into shares of Common Stock at a rate of one thousand (1,000) shares of Common Stock for every one share of Series A Convertible Preferred Stock at the option of the holder at any time subsequent to the filing of an amendment to the Company’s certificate of incorporation with the Secretary of State of the State of Delaware whereby the authorized Common Stock is increased to a minimum of 200,000,000 shares. In addition, the Series A Convertible Preferred Stock (i) has no voting rights prior to conversion except as otherwise provided under Delaware law, (ii) has no mandatory or optional redemption rights, (iii) has no preemptive rights, and (iv) shall pay cash dividends only in the event cash dividends have been declared on the Company’s Common Stock.

On June 2, 2008, the Company entered into a Content License Agreement (the "Content License Agreement") with New China Media, LLC (“New China Media”), YGP, LLC (“YGP”) and TWK Holdings, LLC (“TWK”) (New China Media, YGP and TWK collectively referred to as “Content Providers”) providing for (i) the assignment by Content Providers and the assumption by the Company of certain rights of Content Providers for the territory of the People’s Republic of China to use, transmit and publicly display via the Internet certain content; and (ii) the purchase by YGP, New China Media and TWK of 16,200 shares, 3,000 shares and 12,000 shares of Series A Convertible Preferred Stock of the Company for $16,200, $3,000 and $12,000, respectively. On May 14, 2009 the Company issued 12,000,000 shares of common stock to TWK, pursuant to a notice of conversion, in which TWK agreed to convert the entire amount of their shares of Series A Convertible Preferred Stock of the Company into 12,000,000 shares of common stock.

On June 10, 2008, the Company’s subsidiary, Youth Media (Hong Kong) Limited (“YMHK”), entered into a Cooperation Agreement with China Youth Net Technology (Beijing) Co., Ltd. (“CYN”), China Youth Interactive Cultural Media (Beijing) Co., Ltd. (“CYI”) and China Youth Net Advertising Co. Ltd. (“CYN Ads”). In conjunction with the Cooperation Agreement, on June 10, 2008, the Company agreed to issue an aggregate of 71,020 shares of its Series A Convertible Preferred Stock to designees of CYN.

On November 3, 2009, the Company agreed to issue an aggregate of 19,000,000 shares of its common stock, in conjunction with, a new Cooperation Agreement (the “2009 Cooperation Agreement”) entered into by YMHK, on July 3, 2009, with China Youth Interactive Cultural Media (Beijing) Co., Ltd. (“CYI”) and China Youth Net Advertising Co. Ltd. (“CYN Ads”) which replaced the Cooperation Agreement entered into on June 10, 2008 among YMHK, China Youth Net Technology (Beijing) Co., Ltd. (“CYN”), CYI and CYN Ads pursuant to which the parties agreed to cooperate with each other to develop, build and operate a fully managed video and audio distribution network based on, including but not limited to, the China Education and Research Network, the broadband network infrastructure built in schools, universities and other education institutions in China (the “Campus Network”). In consideration of the rights granted to YMHK under the 2009 Cooperation Agreement, YMHK agreed to pay CYI an amount equal to 20% of YMBJ's annual after-tax profits and dividends, if any, as audited by YMBJ's independent auditor and which YMHK will obtain from YMBJ for each financial year of YMBJ during the term of the 2009 Cooperation Agreement.

The 19,000,000 shares of common stock agreed to be issued under the 2009 Cooperation Agreement replace and are in lieu of the 71,020 shares of the Company's Series A Convertible Preferred Stock (convertible into 71,020,000 shares of common stock) which were agreed to be issued to designees of CYN under the Cooperation Agreement entered into on June 10, 2008. At December 31, 2009, the 19,000,000 shares of common stock agreed to be issued under the 2009 Cooperation Agreement had not yet been issued.

All of the foregoing securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and/or Rule 506 thereunder.

Common Stock

During March 2008, the Company sold 10,000,000 shares of its common stock to an unaffiliated accredited investor at a price of $0.03 per share, resulting in gross proceeds of $300,000.

During June 2008, the Company entered into a subscription agreement with several accredited investors in a private placement exempt from the registration requirements of the Securities Act of 1933, as amended.  The Company issued and sold to the accredited investors an aggregate of 1,583,335 shares of its common stock.  These issuances resulted in aggregate gross proceeds to the Company of $47,500.

15

 
On August 29, 2008, the Company entered into a subscription agreement with Year of the Golden Pig, LLC ("YGP, LLC"), pursuant to which the Company sold 2.5 Units, with each Unit consisting of a $100,000 principal amount of a 12% Convertible Promissory Note (the "YGP, LLC Note") due three years from its issuance and 350,000 Common Stock Purchase Warrants, with each Warrant entitling the holder thereof to purchase at any time beginning from the date of issuance through five years thereafter one share of Common Stock at a price of $0.09 per share subject to the Company's filing of a certificate of amendment to its certificate of incorporation increasing the number of its available shares for issuance.  The subscription agreement with YGP, LLC provided the Company with $250,000 in gross proceeds.  Pursuant to the subscription agreement with YGP, LLC, the Company issued 875,000 Purchase Warrants.

On September 30, 2008, the Company entered into a subscription agreement with Mojo Music, Inc. ("Mojo Music"), of which Jay Rifkin, the Company's President and Chief Executive Officer, is the sole managing member, in which the Company sold 1.5 Units, with each Unit consisting of a $100,000 principal amount of a 12% Convertible Promissory Note due three years from its issuance and 350,000 Common Stock Purchase Warrants, with each Warrant entitling the holder thereof to purchase at any time beginning from the date of issuance through five years thereafter one share of Common Stock at a price of $0.09 per share.  The subscription agreement with Mojo Music provided the Company with $150,000 in gross proceeds.  Pursuant to the subscription agreement with Mojo Music, the Company issued 525,000 Purchase Warrants.

See Note 3 Other Current Assets for information on the Consulting Agreement between the Company and American Capital Ventures, Inc. (“ACV”) and the issuance of shares thereunder. On February 6, 2009, pursuant to a letter of agreement with ACV, notwithstanding anything to the contrary to the Consulting Agreement between ACV and the Company, the Company agreed to issue in advance of the thirteenth month of the Consulting Agreement 250,000 shares of the Company's common stock that will be deducted from the 1,000,000 (one million) shares of the Company's common stock that were scheduled to be issued on the thirteenth month of the Consulting Agreement so that the remaining shares of the Company's common stock to be issued to ACV on such date are 750,000, unless the Consulting Agreement is earlier terminated pursuant to the terms thereof. On September 29, 2009, pursuant to the Consulting Agreement between the Company and ACV, the 750,000 shares of the Company's common stock were issued.

On January 8, 2009, the Content License Agreement was further extended by an additional eight (8) years for a total of ten (10) years. In consideration for the increase in the term of the agreement, New China Media received 4,000,000 shares of the Company's common stock. The Content License Agreement extension was valued at $600,000 based on the fair value of the associated underlying shares of the Company’s common stock on the date of the extension agreement. See Note 5 Intangible Assets.

On October 22, 2009, the Company issued 234,789 shares of the Company’s common to one of the directors of the Company stock pursuant to a Conversion and Note Termination Agreement dated July 1, 2008 pursuant to which the entire principal amount outstanding and all interest accrued from inception of a certain promissory note through the date of the Conversion Note would be converted into 234,789 shares of the Company's common stock. See Note 10 Note Payable - Related Party.

On October 22, 2009, the Company issued 200,000 shares of the Company's common stock to another director pursuant to a Reimbursement Termination Agreement pursuant to which amounts owed to such director of the Company, as fees for services as the Audit Committee Chairwoman, totaling $6,000, with a conversion price of $0.03 per share, would be converted into 200,000 shares of the Company's common stock.

On December 31, 2009, the Company issued 100,000 shares of the Company's common stock pursuant to a Consulting Agreement ("Consulting Agreement") with ROAR, LLC ("ROAR") pursuant to the terms of which, ROAR will receive 300,000 shares of the Company's common stock. The Consulting Agreement was valued at $30,000 based on the value of the underlying shares of the company's common stock on the effective date of the Consulting Agreement. At December 31, 2009, 200,000 shares of the Company's common stock remained to be issued.

See Note 11 Convertible Note Payable–Related Party in the Notes to the Consolidated Financial Statements for information on the conversion of the Rebel Holdings Convertible Note into shares of the Company's common stock.

All of the foregoing securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and/or Rule 506 thereunder.
 
Recent Stock Option Grants and Other Grants of Warrants

On May 6, 2009, the Board of Directors adopted, subject to stockholder approval which was obtained at the annual stockholders meeting held on June 19, 2009, an amendment to the 2005 Plan that increased the number of shares subject to the Stock Plan from 15,000,000 shares to 50,000,000 shares.

16

 
On May 11, 2009, with the consent of Jay Rifkin, the Company’s President and Chief Executive Officer, the Company canceled options held by him to purchase 4,400,000 shares of common stock, exercisable at $0.85 per share. Further, on May 11, 2009, the Company granted Mr. Rifkin options to purchase 3,750,000 shares of common stock with an exercise price of $0.13 per share, which equals the closing price of the Company’s common stock on the date of grant, which stock options vest fully on the date of grant. In addition, on May 11, 2009, the Company granted Mr. Rifkin options to purchase 20,000,000 shares of the Company's common stock with an exercise price of $0.13 per share, which stock options shall vest annually over a period of four years from the date of grant.

On May 11, 2009, with the consent of each of the Company’s four non-employee directors, the Company cancelled options held by such directors to purchase an aggregate of 1,450,000 shares of common stock, exercisable at prices ranging from $0.25 to $1.50 per share. On the same date, the Company granted options to such four directors to purchase an aggregate of 1,200,000 shares of common stock, with an exercise price of $0.13 per share, which stock options vest fully on the date of grant. In addition, on May 11, 2009, the Company granted each of the four directors options to purchase 2,000,000 shares each with an exercise price of $0.13 per share, which stock options shall vest annually over a period of four years from the date of grant.

On May 11, 2009, the Company granted to three employees options to purchase an aggregate of 7,000,000 shares of common stock with an exercise price of $0.13 per share. These stock options vest annually over four years from the date of grant.

On May 11, 2009, the Company granted a consultant, as consideration for services on behalf of the Company, a vested warrant with a term of seven years to purchase 1,250,000 shares of common stock with an exercise price of $0.03 per share.

ITEM 6.          Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 7.          Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and all associated notes hereto contained in this Form 10-K. The discussion and analysis and results of operations thereto contain historical information and forward-looking statements based on current assumptions that involve risks and uncertainties. This Form 10-K contains forward-looking statements attributed to third parties that also involve risks and uncertainties. All statements regarding future events, our future financial performance and operating results, our business strategy and our financing plans are forward-looking statements. In many cases, you can identify forward-looking statements by terminology, such as "may," "should," "expects," "intends," "plans," "anticipates," "believes," "estimates," "predicts," "potential," or "continue" or the negative of such terms and other comparable terminology. These statements are only predictions. Known and unknown risks, uncertainties and other factors could cause our actual results to differ materially from those projected in any forward-looking statements. In evaluating these statements, you should specifically consider various factors, including but not limited to, those set forth under "Risk Factors" appearing under "Item 1A. Risk Factors" and elsewhere in this report on Form 10-K. This Form 10-K contains forward-looking statements as defined by Section 21E Application of Safe Harbor for Forward-Looking Statements of the Securities Exchange Act of 1934 and as such are entitled to the protection provisions of these laws.

The Company is confident that the expectations implied in the forward-looking statements are based upon reasonable assumptions. However, no assurance can be given that they will be attained or that any divergence will be immaterial. Given the uncertainty and assumptions in the forward-looking statements discussed in this Form 10-K, the forward-looking events may not occur and actual results may differ materially and adversely from those expressed or implied by the forward-looking statements. Consequently, the Company disclaims any obligation to publicize or undertake any updates or revisions to any forward-looking statements contained herein with respect to any change in the Company expectation of any such forward-looking statement or assumptions they may be based on.

The following "Overview" section is a brief summary of the significant issues addressed in this MD&A. Investors should read the relevant associated sections of the MD&A for a complete discussion of the issues summarized below. The entire MD&A should be read in conjunction with ITEM 8. Financial Statements and Supplementary Data.

Overview

China Youth Media, Inc.

China Youth Media, Inc. is a China focused youth marketing and media company whose business is to provide advertisers and corporations with direct and centralized access to China’s massive but difficult to reach student population. The cornerstone of the Company’s China youth marketing strategy is Koobee, a large scale, advertising supported Intranet Television Network (ITVN) media portal that is initially targeting China’s campus-based college students, estimated to total more than 30 million young people.

References in this document to the “Company,” “we,” “us,” and “our” refer to China Youth Media, Inc. and its direct and indirect wholly-owned subsidiaries.

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Koobee

Koobee is a venue designed for marketers to deliver traditional TV spots and new media advertising campaigns to a highly targeted demographic in the world’s fastest growing broadband market. Koobee plans offer delivery of TV-style entertainment primarily to the computers of these students, providing a solution for advertisers and corporations to reach the most active online community in China and a key segment of the world’s largest youth market.

Koobee offers a sports channel featuring All Sports Network (ASN) content from the NFL, NHL, and Pac 10 and Big Ten games; a music channel by BTTV, a popular youth lifestyle and music entertainment TV channel in China; a travel and leisure channel by Quest USA; and a fashion channel featuring “China’s Next Top Model,” part of the international Top Model franchise and based on the hit U.S. TV show “America’s Next Top Model.”

With Koobee, we intend to provide advertisers the impact of TV with the ROI of the Internet. We expect this combination to be competitive and sufficiently appealing to capture market share in China’s fast growth online advertising industry.

Content Syndication Services

China Youth Media plans to deliver premium content to this targeted demographic through its online video portal, www.koobee.com, and will syndicate its youth oriented content to complimentary delivery platforms across China. We plan to provide our content to China Telecom and China Unicom subscribers through two options: on an à la carte channel subscription basis, and as part of a bundled broadband service.

Online

We plan to strategically position Koobee, the advertising supported ITVN media portal, to be the engine that drives multiple revenue streams, including brand sponsorships, interactive advertising and eCommerce. Koobee is a venue designed for marketers to deliver traditional TV spots and new media advertising campaigns to a highly targeted ’s fastest growing broadband market.

On Campus

China Youth Media plans to offer marketers an opportunity to sponsor live events and showcase their brands. We also plan to offer coordinated Internet and campus event campaigns that will bring international touring acts and sponsors directly to China’s college students with live ITVN broadcast straight into their dorm rooms.

On Mobile

Our strategic partner China Youth Interactive Cultural Media secured a national mobile video and advertising license. Our plan is to deploy an advanced mobile media and advertising delivery system catering specifically to China’s youth market. We anticipate offering opt-in surveys and data collection, as well as coordinated Internet, campus event and mobile campaigns.

Advertising Services

China Youth Media seeks to enable brands to achieve their media objective by providing tailor-made advertising services and niche-targeted media campaigns.

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Significant Transactions During The Year Ended December 31, 2009

Content Aggregation for China Telecom and China Unicom in Hunan Province, China

On March 23, 2010, the Company executed a syndication agreement with a key content aggregator for China Telecom and China Unicom in Hunan Province, China. Pursuant to the terms of the syndication agreement, the Company will provide its youth focused content to China Telecom and Unicom subscribers in Hunan Province through two options: on an à la carte channel subscription basis, and as part of a bundled broadband service. The contract provides for payment on a per subscriber per month basis.

X Games and Footprint Worldwide

On October 5, 2009 the Company executed a Content Distribution Agreement (the "X Games Agreement") with Branded entertainment company Footprint Worldwide which whom has signed a deal with ESPN, Inc.’s action sports franchise, X Games, to license video content for exclusive distribution across  the Company's university campus network koobee.com.

China Youth Interactive Cultural Media (CYI)

On June 10, 2008 our subsidiary, YMHK, entered into a Cooperation Agreement (the “Cooperation Agreement”) with China Youth Net Technology (Beijing) Co., Ltd. ("CYN"), China Youth Interactive Cultural Media (Beijing) Co., Ltd. ("CYI") and China Youth Net Advertising Co. Ltd. ("CYN Ads") to cooperate with each other to develop, build and operate a fully managed video and audio distribution network under the auspices of CYN (the “Campus Network”). In addition, CYN and CYI have agreed to exclusively grant YMHK the following rights during the term of the Cooperation Agreement: exclusive right to advertise on the Campus Network; exclusive right to sell and operate the commercial campus marketing events; right to provide foreign commercial content to the Campus Network; and enjoy the rights with respect to the setup, operation, maintenance and expansion of the Campus Network according to a separate commercial and technical services agreement.  On July 3, 2009, YMHK entered into a new Cooperation Agreement (the “2009 Cooperation Agreement”), with China Youth Interactive Cultural Media (Beijing) Co., Ltd. (“CYI”) and China Youth Net Advertising Co. Ltd. (“CYN Ads”) which replaced the Cooperation Agreement entered into on June 10, 2008 among YMHK, China Youth Net Technology (Beijing) Co., Ltd. (“CYN”), CYI and CYN Ads pursuant to which the parties agreed to cooperate with each other to develop, build and operate a fully managed video and audio distribution network based on, including but not limited to, the China Education and Research Network, the broadband network infrastructure built in schools, universities and other education institutions in China (the “Campus Network”). The 2009 Cooperation Agreement has a term of 20 years with an optional renewal term of 10 years.

WinTV and the English Premier League

In August 2009, the Company entered into an agreement (the "EPL Agreement") with WinTV, a subscription channel in China run by state-owned Guangdong Provincial Television pursuant to which the Company secured the online rights to distribute the 2009-2010 season of the English Premier League (“EPL”). The EPL Agreement is part of a licensing agreement between YMHK and WinTV.

New China Media

On June 2, 2008, the Company entered into a Content License Agreement with New China Media, YGP, LLC and TWK Holdings, LLC (New China Media, YGP and TWK collectively referred to as "Content Providers") providing for the assignment by the Content Providers and the assumption by us of certain rights of the Content Providers for the territory of the People's Republic of China ("PRC") to use, transmit and publicly display via the Internet certain content. On January 8, 2009, the Content License Agreement was extended by an additional eight (8) years for a total of ten (10) years.

Xinhua Sports and Entertainment Limited (formerly Xinhua Finance Media Limited)

On December 26, 2008, our subsidiaries YMHK and YMBJ entered into a Joint Venture Agreement (the "Joint Venture Agreement") with CYI and Xinhua Sports & Entertainment Limited (“XSEL”), formerly known as Xinhua Finance Media Limited, to develop business opportunities contemplated by the Cooperation Agreement YMHK entered into on June 10, 2008 with CYN, CYI and CYN Ads. The Joint Venture Agreement provides working capital for the purposes of deploying and marketing the Campus Network. The Joint Venture Agreement provides working capital for a minimum of twelve months ending December 31, 2009. The Joint Venture Agreement provides that YMHK and YMBJ shall be obligated on a joint and several basis, following written notice from XSEL, to return, repay or reimburse, as the case may be, all of the working capital provided by XSEL, upon demand by XSEL in the sole discretion of XSEL, together with interest accrued at an annual rate of 7 percent. As of the December 31 2009, the Joint Venture Agreement had provided working capital of $2,377,312. An additional $90,000 was provided subsequent to the 2009 fiscal year end.

Recent Developments

Although written demand for payment has not yet been made, we have been advised by XSEL that it will not provide any additional funds to YMHK under the Joint Venture Agreement. As a result, we are seeking additional financing to fund our operations. In addition, we have made overtures to XSEL to restructure the debt obligations of our subsidiaries, YMHK and YMBJ. To date, all such efforts have been unsuccessful. While we believe that the Joint Venture Agreement provides that any and all amounts due to XSEL are not due until twelve months after written demand for payment has been made which demand has not yet been provided, XSEL may claim that such amounts are immediately due and payable based upon certain other language in the Joint Venture Agreement. While we believe such is contrary to the terms of the Joint Venture Agreement, no assurance can be given that we will prevail in the event our interpretation is challenged in any legal proceeding. In addition, no assurance can be made that we will be able to obtain additional financing on acceptable terms, if at all. In this regard, unless we are able to restructure the existing debt obligations of our subsidiaries, YMHK and YMBJ, to XSEL, we believe our ability to obtain any such additional financing will be significantly impaired.

As a result of the foregoing, we have recently substantially reduced our operations and terminated various employees in our subsidiary, YMBJ. While we are trying to maintain limited operations, no assurance can be made that we will be able to continue our business operations for more than a limited period of time, including but not limited to maintaining our ITVN media portal called Koobee. Because of these recent developments, we may be forced to further scale down or possibly cease all business operations, as a result of which investors could lose their investment.


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Our Wholly-Owned Subsidiaries

Youth Media (BVI) Limited

On May 8, 2008, under the laws of the British Virgin Islands, the Company formed Youth Media (BVI) Limited ("YM BVI"). YM BVI is a wholly-owned subsidiary of the Company and was established for the purpose of incorporating the Company's wholly-owned subsidiary in Hong Kong.

Youth Media (Hong Kong) Limited and Youth Media (Beijing) Limited

Youth Media (Hong Kong) Limited ("YMHK"), a company organized under the laws of Hong Kong on May 19, 2008, and Youth Media (Beijing) Limited (“YMBJ”), a company organized under the laws of the People's Republic of China on December 10, 2008, are wholly-owned subsidiaries of YM BVI and were formed by the Company to take advantage of its shift in business to aggregation and distribution of international content and advertising for Internet or online consumption in China.

Rebel Crew Films, Inc.

Rebel Crew Films is a wholly-owned subsidiary of the Company and was organized under the laws of the State of California on August 7, 2002. In January 2008, the Company entered into a license and distribution agreement with Westlake Entertainment, Inc. which effectively shifted all day-to-day operations related to our home video library (the "Westlake Agreement").  Effective the date of the Westlake Agreement, Rebel Crew Films ceased operations and is currently maintained as a corporation in good standing with no operations.

PerreoRadio.com

PerreoRadio.com is our wholly-owned and operated website targeted to the young, urban Latino demographic offers online radio shows, podcasts, music, and music videos.

Company History

China Youth Media, Inc. was organized under the laws of the State of Utah on July 19, 1983 under the name of Digicorp. On February 22, 2007, we changed the Company’s domicile from the State of Utah to the State of Delaware effected by the merger of the Company, a Utah corporation, with and into, Digicorp, Inc., a newly formed wholly owned subsidiary of the Company that was incorporated under the Delaware General Corporation Law for the purpose of effecting the change of domicile.

The Company changed its name from “Digicorp, Inc.” to “China Youth Media, Inc.” (the “Corporate Name Change”) pursuant to a Certificate of Amendment to our Certificate of Incorporation filed with the State of Delaware which took effect as of October 16, 2008. The Corporate Name Change was approved and authorized by the Board of Directors of the Company and by the holders of shares representing a majority of our voting securities which holders have given their written consent. As a result of the Corporate Name Change, our stock symbol changed to “CHYU” with the opening of trading on October 16, 2008 on the OTCBB.

The Company is organized in a single operating segment with no long-lived assets outside of the United States of America. All of our revenues to date have been generated in the United States, but with the development of our China ITVN media portal, we expect that a portion of our future revenues will be from other countries.

Revenue Sources

During the year ended December 31, 2009, the Company, including its subsidiaries, generated revenue primarily from digital content distribution and website ad revenue.

Advertising Supported Intranet Television Network Media Website - Koobee is a large scale, advertising supported Intranet Television Network (ITVN) media portal that is initially targeting China’s campus based college students, estimated to total more than 30 million young people. Koobee is a venue for marketers to deliver traditional TV spots and new media advertising campaigns to a vast, upwardly mobile, targeted demographic. Advertisers and channel owners will have available to them multiple touch points ranging from interstitial interactive ads to banners within social networking clubs and sponsored competitions, all with accurate ad tracking that ensures clients realize value from unique and fully licensed content. We expect this combination to be competitive and sufficiently appealing to capture market share in China’s fast growth online advertising industry. We believe that significant opportunities exist in the China Internet advertising space, and we will actively pursue this potential source of revenue during the year ending December 31, 2010.

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Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operation are based upon the accompanying financial statements which have been prepared in accordance with the generally accepted accounting principles in the United States of America. The preparation of the financial statements requires that we make estimates and assumptions that affect the amounts reported in assets, liabilities, revenues and expenses. Management evaluates on an on-going basis our estimates with respect to the valuation allowances for accounts receivable, income taxes, accrued expenses and equity instrument valuation, for example. We base these estimates on various assumptions and experience that we believe to be reasonable. The following critical accounting policies are those that are important to the presentation of our financial condition and results of operations and require management’s most difficult, complex, or subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.

The following critical accounting policies affect our more significant estimates used in the preparation of our financial statements and, in particular, our most critical accounting policy relates to the valuation of our intangible assets and stock based compensation.

Allowance for Doubtful Account - Our allowance for doubtful accounts relates to accounts receivable. The allowance for doubtful accounts is an estimate prepared by management that identifies a certain portion of receivables that may go uncollected. In determining adequacy of the allowance for doubtful account, we consider customer balances in receivables, historical bad debts, customer concentrations, current economic trends and changes in customer payment patterns. Changes in the financial condition of our customer may change, which would require additional allowances. The allowance for doubtful account is reviewed quarterly, and adjustments are made as deemed necessary.

Beneficial Conversion Feature of Convertible Notes Payable - The Beneficial Conversion Feature ("BCF") of a convertible note, is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company accounts for BCF in accordance with the guidelines established by Emerging Issues Task Force ("EITF") 98-5, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios. The Company records a BCF related to the issuance of a convertible note when issued and also records the estimated fair value of the warrants issued with those convertible notes. The BCF of a convertible note is measured by allocating a portion of the note's proceeds to the warrants and as a reduction of the carrying amount of the convertible note equal to the intrinsic value of the conversion feature, both of which are credited to additional paid-in-capital. The Company calculates the fair value of warrants issued with the convertible note using the Black-Scholes valuation model and uses the same assumptions for valuing employee options in accordance with SFAS No. 123R. The only difference is that the contractual life of the warrants is used. The value of the proceeds received from a convertible note is then allocated between the conversion feature and warrants on a relative fair value basis. The allocated fair value is recorded in the consolidated financial statements as a debt discount (premium) from the face amount of the note and such discount is amortized over the expected term of the convertible note (or to the conversion date of the note, if sooner) and is credited to interest expense.

Goodwill and Other Intangible Assets - Goodwill and Intangible Assets correspond to the excess cost over fair value of certain assets during acquisition. In accordance with the provisions of FASB Statement No. 142, Goodwill and Other Intangible Assets, goodwill and intangible assets acquired that are determined to have an indefinite useful life are not subject to amortization, but instead are tested for impairment at periodic intervals. Intangible assets with a useful life that can be estimated are amortized over their respective estimated useful lives to their estimated residual values and are reviewed periodically for impairment in accordance with FASB Statement No. 144, Accounting for Impairment or Disposal of Long-Lived Assets. Certain events or changes in circumstances may occur that indicate that goodwill or assets are impaired and consequently require testing on a periodic basis. Determining the fair value of goodwill or assets is subjective in nature and involves using estimates and assumptions. We base our fair value estimates on assumptions we believe to be reasonable but that are inherently uncertain. To date we have not recognized impairments on any of our goodwill and other intangible assets.

Stock-Based Compensation - We have adopted the provisions of SFAS No. 123(R), Share-Based Payment, which requires that share-based payments be reflected as an expense based upon the grant-date fair value of those grants. Accordingly, the fair value of each option grant, non-vested stock award and shares issued under our employee stock purchase plan, were estimated on the date of grant. We estimate the fair value of these grants using the Black-Scholes model which requires us to make certain estimates in the assumptions used in this model, including the expected term the award will be held, the volatility of the underlying common stock, the discount rate, dividends and the forfeiture rate. The expected term represents the period of time that grants and awards are expected to be outstanding. Expected volatilities were based on historical volatility of our stock. The risk-free interest rate approximates the U.S. treasury rate corresponding to the expected term of the option. Dividends were assumed to be zero. Forfeiture estimates are based on historical data. These inputs are based on our assumptions, which we believe to be reasonable but that include complex and subjective variables. Other reasonable assumptions could result in different fair values for our stock-based awards. Stock-based compensation expense, as determined using the Black-Scholes option pricing model, is recognized on a straight line basis over the service period, net of estimated forfeitures. To the extent that actual results or revised estimates differ from the estimates used, those amounts will be recorded as a cumulative adjustment in the period that estimates are revised.

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Results of Operations

Comparison of Year End December 31, 2009 to 2008

Revenues

Sales - We generated revenues of $7,000 and $107,000 for the years ended December 31, 2009 and December 31, 2008, respectively. During the fiscal year 2009, the Company generated almost exclusively all of its revenue through the production and distribution of digital content. In the past, the Company, through its subsidiary Rebel Crew Films, generated revenue through the direct sales of its licensed home video library and licensing agreements with third parties that distributed the Company's licensed content. The Company plans to use a significant portion of its resources going forward to the aggregation and distribution of international content and advertising for Internet consumption in China. Consequently, in January 2008, the Company entered into a license and distribution agreement with Westlake Entertainment, Inc. which effectively shifted all manufacturing and distribution of its home video library to Westlake Entertainment along with all day-to-day operations related to its home video library. Effective the date of the Westlake Agreement, Rebel Crew Films ceased operations and is currently maintained as a corporation in good standing with no operations.

Other Income - In March 2006, the Company entered into a commercial lease agreement for additional office space (the "Hollman Lease"). The Hollman Lease requires monthly payments of base rent which increase from $12,475 in September 2006 to $14,041 in December 2010. During February 2008 and April 2008, the Company entered into commercial sublease agreements with two non-related parties. For the year ended December 31, 2009, the sublease agreements resulted in $198,000 in gross revenues.

Operating Expenses

Operating expenses were $5.4 million and $2.6 million during the years ended December 31, 2009 and 2008, respectively. A decrease in the cost of sales, depreciation expense and legal expense partially offset the increase in the component that was almost exclusively responsible for the increase in operating expenses during the twelve months ended December 31, 2009 which was stock based compensation expense from grants of nonqualified stock options to our employees and non-employee directors.

Stock based compensation expense from grants of nonqualified stock options to our employees and non-employee directors increased significantly to $2,236,000 during the year ended December 31, 2009 from $163,000 during the year ended December 31, 2008. The increase in stock based compensation expense from grants of nonqualified stock options during the year ended December 31, 2009 resulted primarily from issuances of nonqualified stock options to employees with the Company.

Cost of sales during the twelve months ended December 31, 2009 was zero which represents a significant decrease from $55,000 during the twelve months ended December 31, 2008 . The decrease in cost of sales can be attributed to the shift in Company strategy to the aggregation and distribution of international content and advertising for Internet consumption in China.

Salaries and employee benefits, excluding stock based compensation expense, reflected an increase to $556,000 during the year ended December 31, 2009 from $443,000 during the year ended December 31, 2008. The increase in costs reflect a shift in our Company strategy which resulted in part in a targeted hiring of employees that are related to the normal operations of the Company's subsidiary in Beijing.

The remaining operating expenses consisted of professional fees, rent expense, amortization expense and general and administrative expenses. Professional fees were $14,000 less during the year ended December 31, 2009 compared to the year ended December 31, 2008. The decrease in professional fees are in large part due to significant decreases in amounts paid for legal and accounting fees related to our operations in China and the establishment of our subsidiaries in Hong Kong and Beijing.

Legal expense decreased from the previous year. Legal fees decreased by $71,000 during the year ended December 31, 2009. During the year ended December 31, 2009 and 2008, legal fees were $171,000 and $241,000, respectively. For the year ended December 31, 2009 the majority of legal fees were related to the development of contracts and review of major company transactions. In addition, legal fees during this period were composed of fees paid for S.E.C. filing related matters, private placement agreements and in preparation for financing activities. During the year ended December 31, 2008, legal fees were almost exclusively related to the establishment of our subsidiaries in Hong Kong and Beijing along with S.E.C. filing related expenses.

Consulting fees increase by $69,000 during the year ended December 31, 2009. At December 31, 2009 and 2008, consulting fees were $255,000 and $187,000, respectively. During the year ended December 31, 2009, the majority of consulting expense was related to business development, investor relations and merger and acquisition consulting along with other development costs associated with our operations in China. During the year ended December 31, 2008, consulting expense was related to sales contracting work and the development of our operations in China.

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Rent expense increased by approximately $44,000 during the year ended December 31, 2009 compared to the year ended December 31, 2008 due to the Company’s leases and the associated customary 3% increase in the base rent and to a lesser extent because of additional commercial office space leased by the Company in Beijing, China in July 2008, with base rent of $1,500 per month.

General and administrative expense increased by approximately $611,000 during the year ended December 31, 2009 compared to the year ended December 31, 2008 and is primarily attributed to the costs associated with the development, building of and operation of our fully managed video and audio distribution network and, to a lesser extent, the strategic overall expansion of the business to the aggregation and distribution of international content and advertising for Internet consumption in China.

Net Loss

For the years ended December 31, 2009 and 2008 the Company had a net loss of approximately $9.3 million and $3 million, respectively and is primarily attributed to a significant decrease in revenues generated. The Company increased its operating expenses during the year ended 2009 as compared to 2008 primarily due to the expansion of normal operations and other development efforts in the Company's subsidiary in Beijing.

Interest Income and Other, Net

Given the financials constraints of the Company and its reliance on financing activities, interest expense related to the financing of capital increase to $283,000 during the year ended December 31, 2009 from $274,000 during the year ended December 31, 2008.

Taxes

At December 31, 2009, we had a net operating loss carryforward of approximately $7.76 million to offset future taxable income for federal income tax purposes. The utilization of the loss carryforward to reduce any future income taxes will depend on our ability to generate sufficient taxable income prior to the expiration of the net operating loss carryforwards. The carryforward expires beginning in 2021.

A change in the ownership of a majority of the fair market value of our common stock can delay or limit the utilization of existing net operating loss carryforwards pursuant to Internal Revenue Code Section 382. The Company believes that such a change occurred on December 29, 2005 and again during the year ended December 31, 2008. The Company is evaluating the net operating loss carryforward limitation imposed by Internal Revenue Code Section 382 for net operating losses incurred before the change dates.

Liquidity and Capital Resources

Our principal sources of liquidity are cash generated from financing activities and, to date and to a lesser extent, cash from current operations. As of December 31, 2009, our cash and cash equivalents were $182,000. We had a working capital deficit of approximately $836,000 at December 31, 2009 and we continue to have recurring losses. In the past we have primarily relied upon financing activities and loans from related parties to fund our operations. These conditions raise substantial doubt about our ability to continue as a going concern. We are actively seeking sources of additional financing in order to maintain and potentially expand our operations and to fund our debt repayment obligations. Even if we are able to obtain funding, there can be no assurance that a sufficient level of sales will be attained to fund such operations or that unbudgeted costs will not be incurred. Future events, including the problems, delays, expenses and difficulties frequently encountered by similarly situated companies, as well as changes in economic, regulatory or competitive conditions, may lead to cost increases that could make the net proceeds of any new funding and cash flow from operations insufficient to fund our capital requirements. There can be no assurances that we will be able to obtain such additional funding from “Recent Developments” above for information on certain matters which may jeopardize our ability to continue operations.

Total assets were $5,094,000 at December 31, 2009 versus $8,962,000 at December 31, 2008. The change in total assets is primarily attributable to several major transactions conducted by the Company resulting in a significant decrease in Intangible Assets during the year ended December 31, 2009. See Note 5 Intangible Asset.

Accounts receivable decreased by $162,000 during the twelve months ended December 31, 2009 as compared to the year ended December 31, 2008. The decrease in accounts receivable resulted primarily from the change in strategy of the Company to focus on developing an Internet media portal in China. The Company will continue to focus Company resources to the development and operation of our Internet media portal and to the aggregation and distribution of international content and advertising for Internet consumption in China.

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Intangible Assets net for the twelve months ended December 31, 2009 and 2008 was $4,665,000 and $8,537,000, respectively. This significant decrease in the Company's intangible assets was almost exclusively as a result of the capitalization of a new Cooperation Agreement entered into by the Company as described in Note 5 Intangible Assets, China IPTV and Mobile License, which resulted in the recording of a one-time non-cash impairment loss that was partially offset by the capitalization of the Content License Agreement extension entered into by the Company on January 8, 2009 as described in Note 5 Intangible Assets, Content License Agreement.

Operating activities used $2,060,000 of cash during the year ended December 31, 2009 compared to $926,000 during the year ended December 31, 2008. The change in cash used for operating activities resulted primarily from a shift in Company strategy to focus on the development and operation of our Internet media portal and to the aggregation and distribution of international content and advertising for Internet consumption in China.

 During the year ended December 31, 2009, there was no sales revenue related to the sale of our licensed content which resulted in an associated decrease in cost of sales. As we continue to focus Company resources to the development and operation of our Internet media portal and to the aggregation and distribution of international content and advertising for Internet consumption in China, the Company anticipates that all revenues henceforth will be generated from our operations in China.

Cash used in investing activities for the year ended December 31, 2009 of $74,000 resulted primarily from the purchase of computer hardware and to securing the online rights to distribute certain content and other licensing agreements which were offset by the expiration of the licensed content of our Spanish language home video library. Cash used in investing activities for the year ended December 31, 2008 of $5,500, resulted from the purchase of computer hardware.

Contractual Obligations as of December 31, 2009

Operating Leases - Set forth below is a summary of our current obligations as of December 31, 2009 comprised exclusively of rental lease obligations to make future payments due by the period indicated below.

Operating Lease Payments
 
Minimum
Payments
 
2010
  239,566  
2011
    82,757  
2012
    63,508  
Total
  $ 385,831  

In August 2005 the Company entered into a commercial lease agreement for office space. The lease requires monthly payments of base rent in the amount of $5,890 from August 21, 2005 through September 30, 2012. Further, on each anniversary date the base rent is subject to a 3% increase over the previous year. In March 2006 the Company entered into a commercial lease agreement for additional office space. The additional lease requires monthly payments of base rent which increase from $12,475 in September 2006 to $14,041 in December 2010. On July 15, 2008, the Company entered into a commercial lease agreement for office space in Beijing, China. The lease requires monthly payments of $1,500 for twelve months.

Off-Balance Sheet Arrangements

We do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, results of operations, liquidity or capital expenditures.

Recently Issued Accounting Pronouncements

In September 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Update No. 2009-09 “Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non-Employees”. This update represents a correction to Section 323-10-S99-4, Accounting by an Investor for Stock-Based Compensation Granted to Employees of an Equity Method Investee. Additionally, it adds observer comment Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees to the Codification. The Company does not expect the adoption to have a material impact on its consolidated financial position, results of operations or cash flows.

In September 2009, the FASB issued the FASB Accounting Standards Update No. 2009-08 “Earnings Per Share - Amendments to Section 260-10-S99”, which represents technical corrections to topic 260-10-S99, Earnings per share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.

In August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-05 “Fair Value Measurement and Disclosures Topic 820 - Measuring Liabilities at Fair Value”, which provides amendments to subtopic 820-10, Fair Value Measurements and Disclosures - Overall, for the fair value measurement of liabilities. This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1. A valuation technique that uses: a. The quoted price of the identical liability when traded as an asset b. Quoted prices for similar liabilities or similar liabilities when traded as assets. 2. Another valuation technique that is consistent with the principles of topic 820; two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The amendments in this update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendments in this update also clarify that both a quoted price in an active market for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.

24

 
In August 2009, the FASB issued the FASB Accounting Standards Update No. 2009-04 “Accounting for Redeemable Equity Instruments - Amendment to Section 480-10-S99” which represents an update to section 480-10-S99, distinguishing liabilities from equity, per EITF Topic D-98, Classification and Measurement of Redeemable Securities. The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.

In June 2009, the FASB issued standards that establishes only two levels of U.S. generally accepted accounting principles (“GAAP”), authoritative and nonauthoritative. The FASB Accounting Standards Codification (the “Codification”) became the source of authoritative, nongovernmental GAAP, except for rules and interpretive releases of the Securities and Exchange Commission (“SEC”), which are sources of authoritative GAAP for SEC registrants. All other non-grandfathered, non-SEC accounting literature not included in the Codification became nonauthoritative. This standard is effective for financial statements for interim or annual reporting periods ending after September 15, 2009. We have begun to use the new guidelines and numbering system prescribed by the Codification when referring to GAAP in the third quarter of fiscal 2010. As the Codification was not intended to change or alter existing GAAP, it will not have a material impact on our consolidated financial statements.

In June 2009, the FASB issued standards that responds to concerns about the application of certain key provisions of FASB Interpretation (FIN) 46(R), including those regarding the transparency of the involvement with variable interest entities. Specifically, the standards require a qualitative approach to identifying a controlling financial interest in a variable interest entity (“VIE”) and requires ongoing assessment of whether an entity is a VIE and whether an interest in a VIE makes the holder the primary beneficiary of the VIE. In addition, the standard requires additional disclosures about the involvement with a VIE and any significant changes in risk exposure due to that involvement and is effective for fiscal years beginning after November 15, 2009. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations.

In June 2009, the FASB issued standards that eliminate the concept of a “qualifying special-purpose entity,” changes the requirements for derecognizing financial assets, and requires additional disclosures in order to enhance information reported to users of financial statements by providing greater transparency about transfers of financial assets, including securitization transactions, and an entity’s continuing involvement in and exposure to the risks related to transferred financial assets. This standard is effective for fiscal years beginning after November 15, 2009. The Company does not expect the adoption of this standard to have a material effect on its financial position or results of operations.

In May 2009, the FASB issued standards that requires management to evaluate subsequent events through the date the financial statements are either issued, or available to be issued. Companies are required to disclose the date through which subsequent events have been evaluated. This standard is effective for interim or annual financial periods ending after June 15, 2009. The Company evaluated its December 31, 2009 financial statements for subsequent events through March 29, 2010, the date the financial statements were available to be issued. Other than the agreements and events in Note 19, the Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements.

In April 2009, the FASB issued standards that require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This standard also requires those disclosures in summarized financial information at interim reporting periods. This standard applies to all financial instruments within the scope of Statement 107 held by publicly traded companies, as defined by APB 28, and requires that a publicly traded company shall include disclosures about the fair value of its financial instruments whenever it issues summarized financial information for interim reporting periods. This standard is effective for interim reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. We do not expect the adoption of this standard to have a material impact on the Company’s income statement, financial position or cash flows.

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In April 2009, the FASB issued standards that provide additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This standard is effective for interim and annual periods ending after June 15, 2009. We do not expect the adoption of this standard to have a material impact on the Company’s income statement, financial position or cash flows.

In May 2008, the FASB issued standards that identify the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). We do not expect the adoption of this standard to have a material impact on the Company’s income statement, financial position or cash flows.

In May 2008, the FASB issued standards that require the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. This standard became effective for the Company on January 1, 2009 and requires retroactive application. The adoption of this standard is not expected to have a material impact on the Company’s consolidated financial position, cash flows, or results of operations.

In April 2008, the FASB issued standards that amend the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset and was effective for fiscal years beginning after November 15, 2008. This standard was effective for the Company beginning January 1, 2009. We do not expect the adoption of this to have a material impact on the Company’s income statement, financial position or cash flows.

In March 2008, the FASB issued standards that amends and expand the disclosure requirements and with the intent to provide users of financial statements with an enhanced understanding of: a) How and why an entity uses derivative instruments; b) How derivative instruments and related hedged items are accounted for and its related interpretations; and c) How derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows and was effective for fiscal years beginning after November 15, 2008. This standard was effective for the Company beginning in the first quarter of fiscal 2009. We do not expect the adoption of this standard to have a material effect on the Company’s consolidated results of operations and financial condition.

In December 2007, the FASB issued standards that requires the acquiring entity in a business combination to record all assets acquired and liabilities assumed at their respective acquisition-date fair values, changes the recognition of assets acquired and liabilities assumed arising from contingencies, changes the recognition and measurement of contingent consideration, and requires the expensing of acquisition-related costs as incurred. This standard also requires additional disclosure of information surrounding a business combination, such that users of the entity's financial statements can fully understand the nature and financial impact of the business combination. This standard was effective for the Company beginning January 1, 2009 and we will apply it prospectively to business combinations completed on or after that date.

ITEM 7A.           Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

ITEM 8.              Financial Statements and Supplementary Data

See Financials Statements on Page 40 of this Annual Report on Form 10-K.

ITEM 9.              Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

ITEM 9A (T).     Controls and Procedures

As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our chief executive officer and chief financial officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our chief executive officer and chief financial officer concluded that, as of December 31, 2009, our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (1) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure; and (2) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms. There was no change to our internal controls or in other factors that could affect these controls during our last fiscal year that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the chief executive officer and chief financial officer and effected by our 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.

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Our evaluation of internal control over financial reporting includes using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control environment.

Based on our evaluation under the frameworks described above, our management has concluded that our internal control over financial reporting was effective as of December 31, 2009.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation requirements by the company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

ITEM 9B.          Other Information

Not applicable.

PART III

ITEM 10.           Directors, Executive Officers and Corporate Governance

The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each.

Name
 
Age
 
Position
Jay Rifkin
 
54
 
Chief Executive Officer, Director
William B. Horne
 
41
 
Director
Alice M. Campbell
 
59
 
Director
Alan Morelli
 
48
 
Director
David M. Kaye
 
55
 
Director

Officers are elected annually by the Board of Directors (subject to the terms of any employment agreement), to hold such office until an officer’s successor has been duly appointed and qualified, unless an officer sooner dies, resigns or is removed by the Board. Some of our directors, director nominees and executive officers also serve in various capacities with our subsidiary Rebel Crew Films. There are no family relationships among any of our directors and executive officers.

Below is a brief description of the above persons’ business experience during the past five years based on information supplied by each of them.

Jay Rifkin, Chief Executive Officer, Principal Financial Officer and Director. Mr. Rifkin has been our Chief Executive Officer since September 30, 2005 and has been a member of our Board of Directors since March 26, 2006. From 2004 to Present, Mr. Rifkin has been the sole Managing Member of Rebel Holdings, LLC. In 1995, Mr. Rifkin founded Mojo Music, Inc., a music publishing company, and he has been President of Mojo Music, Inc. since it was founded. Mr. Rifkin has served as Producer and Executive Producer on various motion pictures and is also a music producer, engineer and songwriter. Mr. Rifkin received a Grammy Award for Best Children’s Album and an American Music Award for Favorite Pop/Rock Album for his work on Disney’s "The Lion King," and received a Tony nomination for "The Lion King" on Broadway. From 1988 to 2004, Mr. Rifkin, through Mojo Music, Inc., served as a Managing Member of Media Ventures, LLC, an entertainment cooperative founded by Mr. Rifkin and composer Hans Zimmer. In 1995, Mr. Rifkin founded Mojo Records, LLC, which in 1996 became a joint venture with Universal Records, and was subsequently sold to Zomba/BMG Records in 2001.

William B. Horne, Director. Mr. Horne has been a member of our Board of Directors since July 20, 2005. From July 20, 2005 to April 20, 2007, Mr. Horne was our Chief Financial Officer. From September 30, 2005 until December 29, 2005, Mr. Horne also served as our Chief Executive Officer and Chairman of our Board of Directors. Mr. Horne is currently the Cheif Financial Officer of Physical Therapy Holdings, Inc. From July 2005 until October 2008, Mr. Horne was Chief Financial Officer of Patient Safety Technologies, Inc., a public company quoted on the OTC Bulletin Board, and was Chief Executive Officer from January 2007 until May 2008. From May 2002 to April 2005, Mr. Horne held the position of Chief Financial Officer of Alaska Wireless Communications, a privately held advanced cellular communications company, which was subsequently sold to General Communications, Inc. (Nasdaq: GNCMA). Since January 2002, Mr. Horne has also provided strategic financial consulting services to both private and public companies. From November 1996 to December 2001, Mr. Horne held the position of Chief Financial Officer of The Phoenix Partners, a venture capital limited partnership

27

 
Alice M. Campbell, Director. Ms. Campbell has been a member of our Board of Directors since July 16, 2005. From June 23, 2005 until January 30, 2006, Ms. Campbell served as a director of IPEX, Inc., a public company quoted on the OTC Bulletin Board. Ms. Campbell served as a director of Patient Safety Technologies, Inc., a public company quoted on the OTC Bulletin Board, from October 22, 2004 until January 26, 2007. Since 2001, Ms. Campbell has been, and is currently, an investigator and consultant specializing in research and litigation services, financial investigations and computer forensics for major companies and law firms throughout the United States. Ms. Campbell is a certified fraud specialist, as well as a certified instructor for the Regional Training Center of the United States Internal Revenue Service and for the National Business Institute. From 1979 to 2001, Ms. Campbell served as a special agent for the United States Treasury Department where she conducted criminal investigations and worked closely with the United States Attorney’s Office and with several federal agencies, including the Internal Revenue Service, Federal Bureau of Investigation, Secret Service, Customs Service, State Department, Drug Enforcement Agency, Bureau of Alcohol, Tobacco and Firearms and U.S. Postal Service.

Alan Morelli, Director. Mr. Morelli has been one of our directors since March 26, 2006. Mr. Morelli is a consultant who has served as Managing Director of Analog Ventures, LLC, a consulting firm located in Pacific Palisades, California, since 1997. Mr. Morelli is also currently serving as a director of Physical Therapy Holdings, Inc. and Precise Exercise Equipment. Physical Therapy Holdings, Inc. develops tools for outpatient clinics. Precise developed innovative commercial fitness or rehabilitation technology used in health clubs and consumer equipment since 1994. Mr. Morelli received a B.S. from Rutgers University (1983) and a J.D. from Georgetown University Law Center (1986).

David M. Kaye, Director. Mr. Kaye has been one of our directors since March 26, 2006. Mr. Kaye is an attorney and has been a partner in the law firm of Kaye Cooper Fiore Kay & Rosenberg, LLP, located in Florham Park, New Jersey, since the firm’s inception in February 1996. Since 1980, Mr. Kaye has been a practicing attorney in the New York City metropolitan area specializing in corporate and securities matters. Mr. Kaye received his B.A. from George Washington University (1976) and his J.D. from the Benjamin N. Cardozo School of Law, Yeshiva University (1979).

Audit Committee

The Audit Committee is appointed by the Board of Directors in fulfilling its responsibilities to oversee: (1) the integrity of our financial statements and disclosure controls; (2) the qualifications and independence of our independent accountants; (3) the performance of our independent accountants; and (4) compliance with legal and regulatory requirements. The Audit Committee presently consists of Alice M. Campbell and William B. Horne. Ms. Campbell is Chairwoman of the Audit Committee. The Board has determined that Ms. Campbell and Mr. Horne are each an "audit committee financial expert" as defined under Item 407(d)(5) of Regulation S-K promulgated pursuant to the Securities Exchange Act of 1934, as amended.

Compensation Committee

The Compensation Committee is appointed by the Board of Directors to discharge the responsibilities of the Board relating to compensation of our executive officers. The Compensation Committee presently consists of Alice M. Campbell, William B. Horne, Alan Morelli and David M. Kaye. Ms. Campbell is Chairwoman of the Compensation Committee.

Code of Ethics

We have adopted a Code of Ethics and Business Conduct that applies to our Chief Executive Officer and Chief Financial Officer, which is filed as Exhibit 14.1 to our annual report on Form 10-KSB for the fiscal year ended June 30, 2005. Upon request, we will provide to any person without charge a copy of our Code of Ethics. Any such request should be made to Attn: Secretary, China Youth Media, Inc., 4143 Glencoe Avenue, Marina Del Rey, CA 90292. We are in the process of building a website where our Code of Ethics will be available to investors.

Section 16(A) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other of our equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file.

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Based solely on our review of the copies of any Section 16(a) forms received by us or written representations from the reporting persons, we believe that with respect to the fiscal year ended December 31, 2009, all the reporting persons complied with all applicable filing requirements, except that William B. Horne filed one report late relating to one transaction, Alice M. Campbell filed one report late relating to one transaction and Dennis Pelino filed one report late relating to one transaction.

Item 11.             Executive Compensation

The following summary compensation tables set forth information concerning the annual and long-term compensation for services in all capacities to the Company for the years ended December 31, 2009 and, December 31, 2008, of those persons who were, at December 31, 2009 (i) the chief executive officer and (ii) the other most highly compensated executive officers of the Company, whose total compensation was in excess of $100,000 (the named executive officers):

Summary Compensation Table

Name and Principal Position
 
Year
 
Salary($)
(2)
   
Bonus
($)
   
Stock
Awards
($)
   
Option Awards
($) (3)
   
Non-Equity
Incentive Plan
Compensation
($)
   
Nonqualified
Deferred
Compensation
Earnings ($)
   
All Other
Compensation
($)
   
Total
 
                                                     
Jay Rifkin, (1)
 
2009
  $ 165,000     $ 0     $ 0     $ 2,771,683     $ 0     $ 0     $ 0     $ 2,936,683  
President and
 
2008
  $ 165,000     $ 0     $ 0     $ 0     $ 0     $ 0     $ 0     $ 165,000  
Chief Executive Officer
                                                                   

(1)
Mr. Rifkin was appointed President on September 30, 2005, and Chief Executive Officer and director nominee on December 29, 2005.

(2)
Consists of salary for 2009.  Consists of accrued salary for 2008, none of which has been paid as of December 31, 2009.

(3)
Represents the dollar amount recognized for financial reporting purposes of stock options awarded in 2009 computed in accordance with SFAS 123(R).

Equity Awards

The following table provides certain information concerning equity awards held by the named executive officers as of December 31, 2009.

Outstanding Equity Awards at December 31, 2009

   
Options Awards
   
No. of Securities
Underlying
Unexercised
Options (#)
   
No. of Securities
Underlying
Unexercised
Options (#)
   
Option
Exercise
 
Option
Expiration
Name
 
Exercisable
   
Unexercisable
   
Price ($)
 
Date
                           
Jay Rifkin
    112,500       37,500     $ 0.20  
11/8/2016
      3,750,000       0     $ 0.13  
5/11/2019
      0       20,000,000     $ 0.13  
5/11/2019

 
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Benefit Plans

Effective July 20, 2005, the Board of Directors approved our Stock Option and Restricted Stock Plan. Under the Stock Option and Restricted Stock Plan, we can issue restricted shares of common stock, options to purchase shares of common stock (both incentive stock options and non-incentive stock options) and warrants to purchase shares of common stock to employees, directors and consultants. The number of shares subject to the Stock Option and Restricted Stock Plan may not exceed 15,000,000 shares. The Stock Option and Restricted Stock Plan is administered by our Compensation Committee. On July 14, 2006, the stockholders approved our Stock Option and Restricted Stock Plan. On May 6, 2009, the Board of Directors adopted, subject to stockholder approval which was obtained at the annual stockholders meeting held on June 19, 2009, an amendment to the 2005 Plan that increased the number of shares subject to the Stock Plan from 15,000,000 shares to 50,000,000 shares.

Compensation of Directors

During 2009, the Company did not compensate any of its directors in cash. The Chairperson of the Audit Committee is entitled to receive $6,000 annually paid in cash. During 2009, the Company did not pay this amount. All directors are reimbursed for their reasonable out-of-pocket expenses incurred in connection with their duties to the Company. In addition, directors are eligible to receive restricted shares of common stock and stock options pursuant to our Stock Option Restricted Stock Plan described above.

The following table provides certain summary information concerning the compensation paid to directors, other than Jay Rifkin (our Chief Executive Officer), during 2009. All compensation paid to Mr. Rifkin is set forth in the table under "Executive Compensation."

Director Compensation

Name
 
Fees Earned or
Paid in Cash ($)
   
Stock
Awards
($)
   
Option
Awards ($)
(1)
   
All Other
Compensation ($)
   
Total ($)
 
Alan Morelli
    0       0     $ 265,498       0     $ 265,498  
Alice M. Campbell
    0       0     $ 268,416       0     $ 268,416  
David M. Kaye
    0       0     $ 265,498       0     $ 265,498  
William B. Horne
    0       0     $ 274,251       0     $ 274,251  
 
(1) 
Represents the dollar amount recognized for financial reporting purposes of stock options awarded in 2009 computed in accordance with Financial Accounting Standards 123R.

Employment Agreements with Executive Officers

Jay Rifkin, Chief Executive Officer of the Company, is employed pursuant to an employment agreement entered into as of November 2, 2009, and effective as of July 1, 2009, at an initial annual base salary of $200,000. The term of the employment agreement is three years and will automatically renew for successive one-year terms unless either party delivers to the other party written notice of termination at least 30 days before the end of the then current term. The annual base salary will increase at least 10% in the second year of the term and at least 10% more in the third year of the employment term. The agreement also contains customary provisions for disability, death, confidentiality, indemnification and non-competition. If Mr. Rifkin voluntarily terminates the agreement without good reason or if we terminate the agreement for cause, we must pay Mr. Rifkin all accrued compensation through the date of termination and provide life, accident and disability insurance, and health, dental and vision benefits to Mr. Rifkin and his dependents for a period of three months after termination. If we terminate the agreement without cause, if Mr. Rifkin terminates the agreement for good reason or if the agreement is terminated upon the death or disability of Mr. Rifkin, then we must pay Mr. Rifkin or his estate all unpaid compensation through the duration of the three-year employment term and must provide insurance and health benefits through the duration of such term. “Good Reason” is defined in the agreement as: (i) material breach of the agreement by us including, without limitation, any diminution in title, office, rights and privileges of Mr. Rifkin or failure to receive base salary payments on a timely basis; (ii) relocation of the principal place for Mr. Rifkin to provide his services to any location more than 20 miles away from 4143 Glencoe Ave, Marina Del Rey, Ca 90292; (iii) failure to maintain in effect directors’ and officers’ liability insurance covering Mr. Rifkin; (iv) any assignment or transfer of any of our rights or obligations under the agreement; or (v) any change in control of our company including, without limitation, if Mr. Rifkin shall cease to own a majority of our outstanding voting securities. The foregoing agreement replaced an employment agreement entered into with Mr. Rifkin effective as of September 30, 2005.

Mr. Rifkin was previously granted options to purchase 4,400,000 shares of common stock with an exercise price equal to the FMV of the common stock on September 30, 2005 and vesting annually over a period of three years from December 29, 2005. On May 11, 2009, with the consent of Jay Rifkin, the Company canceled options held by him to purchase 4,400,000 shares of common stock, exercisable at $0.85 per share. Further, on May 11, 2009, the Company granted Mr. Rifkin options to purchase 3,750,000 shares of common stock with an exercise price of $0.13 per share, which equals the closing price of the Company’s common stock on the date of grant, which stock options vest fully on the date of grant. In addition, on May 11, 2009, the Company granted Mr. Rifkin options to purchase 20,000,000 shares of the Company’s common stock with an exercise price of $0.13 per share, which stock options shall vest annually over a period of four years from the date of grant. Under the current employment agreement, Mr. Rifkin is also eligible to receive shares of common stock and stock options from time to time and an annual bonus as determined by the Board of Directors.

 
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ITEM 12. 
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information, as of March 29, 2010 with respect to the beneficial ownership of the outstanding common stock by (i) any holder of more than five (5%) percent; (ii) each of the named executive officers and directors; and (iii) our directors and named executive officers as a group. Except as otherwise indicated, each of the stockholders listed below has sole voting and investment power over the shares beneficially owned.

Name of Beneficial Owner (1)
 
Common Stock
Beneficially Owned (2)
   
Percentage of
Common Stock (2)
 
Jay Rifkin
    96,830,063
(3)
    58.80 %
William B. Horne
    747,289
(4)
    1.73 %
Alice M. Campbell
    612,500
(5)
    1.65 %
Alan Morelli
    400,000
(6)
    1.57 %
David M. Kaye
    462,500
(7)
    1.57 %
Dennis Pelino
    34,977,778
(8)
    21.67 %
TWK Holdings, LLC
    12,000,000
(9)
    7.56 %
                 
All named executive officers and directors as a group (5 persons)
    99,052,352       56.70 %

(1)
Except as otherwise indicated, the address of each beneficial owner is c/o China Youth Media, Inc., 4143 Glencoe Avenue, Marina Del Rey, CA 90292.

(2)
Applicable percentage ownership is based on 158,631,461 shares of common stock outstanding as of March 29, 2010 plus, for each stockholder, any securities that stockholder has the right to acquire within 60 days of March 29, 2010 pursuant to options, warrants, conversion privileges or other rights. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that a person has the right to acquire beneficial ownership of upon the exercise or conversion of options, convertible stock, warrants or other securities that are currently exercisable or convertible or that will become exercisable or convertible within 60 days of March 29, 2010 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.

(3)
Includes: (a) 88,354,605 shares held by Rebel Holdings, LLC ("Rebel Holdings") of which Mr. Rifkin is the sole managing member; (b) 2,421,292 shares which are directly held by Mr. Rifkin; (c) 1,666,666 shares issuable upon conversion of a $150,000 principal amount convertible note held by Mojo Music, Inc. of which Mr. Rifkin is the sole managing member, with a conversion price of $0.09 per share; (d) 525,000 shares issuable upon exercise of stock warrants with an exercise price of $0.09 per share; (e) 3,750,000 shares issuable upon exercise of stock options with an exercise price of $0.13 per share, which stock options are fully vested as of May 11, 2009; (f) 20,000,000 shares issuable upon exercise of stock options with an exercise price of $0.13, which stock options vest annually over a period of four years from May 11, 2010; and (g) 150,000 shares issuable upon exercise of stock options with an exercise price of $0.20 per share, which stock options vest annually over a period of three years from November 8, 2007. For the purposes of the applicable percentage of beneficial ownership, included are only those shares beneficially owned, plus any securities that Mr. Rifkin has the right to acquire within 60 days of March 29, 2010 pursuant to options, warrants, conversion privileges or other rights and does not include 20,037,500 shares issuable upon exercise of stock options which are not exercisable within such 60 day period. Mr. Rifkin’s reported beneficial ownership does not include certain shares of common stock issued and issuable for which certain shareholders have granted Mr. Rifkin an irrevocable proxy to vote for certain directors.

(4)
Includes (a) 284,789 shares owned by Mr. Horne; (b) 350,000 shares issuable upon exercise of stock options with an exercise price of $0.13 per share, which stock options are fully vested as of May 11, 2009; (c) 150,000 shares issuable upon exercise of stock options with an exercise price of $0.20 per share which stock options vest annually over a period of four years from November 8, 2007; and (d) 2,000,000 shares issuable upon exercise of stock options with an exercise price of $0.13, which stock options vest annually over a period of four years from May 11, 2010. For the purposes of the applicable percentage of beneficial ownership, included are only those shares beneficially owned, plus any securities that Mr. Horne has the right to acquire within 60 days of March 29, 2010 pursuant to options, warrants, conversion privileges or other rights and does not include 2,037,500 shares issuable upon exercise of stock options which are not exercisable within such 60 day period. Mr. Horne has granted Mr. Rifkin an irrevocable proxy to vote the shares of common stock issuable upon exercise of such stock options for certain directors.

 
31

 

(5)
Represents (a) 200,00 shares owned by Ms. Campbell; (b) 300,000 shares issuable upon exercise of stock options with an exercise price of $0.13 per share, which stock options are fully vested as of May 11, 2009; (c) 150,000 shares issuable upon exercise of stock options with an exercise price of $0.20 per share which stock options vest annually over a period of four years from November 8, 2007; and (d) 2,000,000 shares issuable upon exercise of stock options with an exercise price of $0.13, which stock options vest annually over a period of four years from May 11, 2010. For the purposes of the applicable percentage of beneficial ownership, included are only those shares beneficially owned, plus any securities that Ms. Campbell has the right to acquire within 60 days of March 29, 2010 pursuant to options, warrants, conversion privileges or other rights and does not include 2,037,500 shares issuable upon exercise of stock options which are not exercisable within such 60 day period. Ms. Campbell has granted Mr. Rifkin an irrevocable proxy to vote the shares of common stock issuable upon exercise of such stock options for certain directors.

(6)
Includes: (a) 275,000 shares issuable upon exercise of stock options with an exercise price of $0.13 per share, which stock options are fully vested as of May 11, 2009;  (b) 2,000,000 shares issuable upon exercise of stock options with an exercise price of $0.13, which stock options vest annually over a period of four years from May 11, 2010; and (c) options to purchase 250,000 shares of common stock with an exercise price of $0.14 per share, which stock options vest annually over a period of four years from August 29, 2007. For the purposes of the applicable percentage of beneficial ownership, included are only those shares beneficially owned, plus any securities that Mr. Morelli has the right to acquire within 60 days of March 29, 2010 pursuant to options, warrants, conversion privileges or other rights and does not include 2,125,000 shares issuable upon exercise of stock options which are not exercisable within such 60 day period.

(7)
Includes (a) 275,000 shares issuable upon exercise of stock options with an exercise price of $0.13 per share, which stock options are fully vested as of May 11, 2009; (b) options to purchase 250,000 shares issuable upon exercise of stock options with an exercise price of $0.20 per share which stock options vest annually over a period of four years from November 8, 2007; and (c) 2,000,000 shares issuable upon exercise of stock options with an exercise price of $0.13, which stock options vest annually over a period of four years from May 11, 2010. For the purposes of the applicable percentage of beneficial ownership, included are only those shares beneficially owned, plus any securities that Mr. Kaye has the right to acquire within 60 days of March 29, 2010 pursuant to options, warrants, conversion privileges or other rights and does not include 2,062,500 shares issuable upon exercise of stock options which are not exercisable within such 60 day period.

(8)
Includes (a) 9,000,000 shares which are directly held by Mr. Pelino; (b) 7,000,000 shares which are held by New China Media LLC of which Mr. Pelino is the sole managing member; (c) 16,200,000 shares which are held by Year of the Golden Pig LLC (“YGP”) of which Mr. Pelino is the sole managing member; (d) 2,777,777 shares issuable upon conversion of a $250,000 principal amount of a convertible note held by YGP; and (e) 875,000 shares issuable upon exercise of stock warrants with an exercise price of $0.09 per share. The address for Dennis Pelino is 400 Alton Road Suite 3107, Miami Beach, FL 33129.

(9)
Includes 12,000,000 shares which are directly held by TWK Holdings, LLC. The address for TWK Holdings, LLC is 3 Lorong Bukit Candan 3, Taman Impian Batu 4 1/2, Jalan IPOH, 51100 KL, Malaysia.


Securities Authorized for Issuance Under Equity Compensation Plans

The following table shows information with respect to each equity compensation plan under which the Company’s common stock is authorized for issuance as of the fiscal year ended December 31, 2009.

Equity Compensation Plan Information

   
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
   
Weighted average
exercise price of
outstanding options,
warrants and rights
   
Number of securities
remaining available for
future issuance under equity
compensation plans
(excluding securities
reflected in column (a))
 
Plan category
 
(a)
   
(b)
   
(c)
 
Equity compensation plans approved by security holders
    40,958,333     $ 0.13       9,041,667  
                         
Equity compensation plans not approved by security holders
    550,000     $ 0.42       -0-  
Total
    41,508,333     $ 0.14       9,041,667  

ITEM 13.
Certain Relationships and Related Transactions, and Director Independence

Since January 1, 2009, there has not been, nor is there currently proposed, any transaction or series of similar transactions to which we were or will be a party: (i) in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last three completed fiscal years; and (ii) in which any director, executive officer, shareholder who beneficially owns 5% or more of our common stock or any member of their immediate family had or will have a direct or indirect material interest, except as follows:

 
32

 

Our management believes that all of the below transactions were on terms at least as favorable as could have been obtained from unrelated third parties.

On June 2, 2008, the Company entered into a Content License Agreement with New China Media, YGP, LLC and TWK Holdings, LLC (“TWK”) (New China Media, YGP and TWK collectively referred to as “Content Providers”) providing for (i) the assignment by Content Providers and the assumption by the Company of certain rights of Content Providers for the territory of the People’s Republic of China to use, transmit and publicly display via the Internet certain content; and (ii) the purchase by YGP, New China Media and TWK of 16,200 shares, 3,000 shares and 12,000 shares of Series A Convertible Preferred Stock of the Company for $16,200, $3,000 and $12,000, respectively. On December 16, 2008, pursuant to a notice of conversion, New China Media and YGP agreed to convert the entire amount of their respective shares of Series A Convertible Preferred Stock of the Company into 3,000,000 and 16,200,000 shares of Common Stock, respectively. On January 8, 2009, the Content License Agreement was extended by an additional eight years for a total of ten years. In connection with such extension, the Company agreed to issue to New China Media 4,000,000 shares of the Company’s Common Stock for $4,000. On May 14, 2009 the Company issued 12,000,000 shares of common stock to TWK, pursuant to a notice of conversion, in which TWK agreed to convert the entire amount of their shares of Series A Convertible Preferred Stock of the Company into 12,000,000 shares of common stock.

Effective on June 10, 2008, the Company’s subsidiary, Youth Media (Hong Kong) Limited, entered into a Cooperation Agreement (the “Cooperation Agreement”) with China Youth Net Technology (Beijing) Co., Ltd. (“CYN”), China Youth Interactive Cultural Media (Beijing) Co., Ltd. and China Youth Net Advertising Co. Ltd. pursuant to which the parties agreed to cooperate with each other to develop, build and operate a fully managed video and audio distribution network based on, including but not limited to, the China Education and Research Network, the broadband network infrastructure built in schools, universities and other education institutions. In conjunction with Cooperation Agreement, the Company issued an aggregate of 71,020 shares of its Series A Convertible Preferred Stock to three designees of CYN. On November 3, 2009, the Company agreed to issue an aggregate of 19,000,000 shares of its common stock, in conjunction with, a new Cooperation Agreement (the “2009 Cooperation Agreement”) entered into by YMHK, on July 3, 2009, with China Youth Interactive Cultural Media (Beijing) Co., Ltd. (“CYI”) and China Youth Net Advertising Co. Ltd. (“CYN Ads”) which replaced the Cooperation Agreement entered into on June 10, 2008 among YMHK, China Youth Net Technology (Beijing) Co., Ltd. (“CYN”), CYI and CYN Ads pursuant to which the parties agreed to cooperate with each other to develop, build and operate a fully managed video and audio distribution network based on, including but not limited to, the China Education and Research Network, the broadband network infrastructure built in schools, universities and other education institutions in China (the “Campus Network”). In consideration of the rights granted to YMHK under the 2009 Cooperation Agreement, YMHK agreed to pay CYI an amount equal to 20% of YMBJ's annual after-tax profits and dividends, if any, as audited by YMBJ's independent auditor and which YMHK will obtain from YMBJ for each financial year of YMBJ during the term of the 2009 Cooperation Agreement. The 19,000,000 shares of common stock agreed to be issued under the 2009 Cooperation Agreement replace and are in lieu of the 71,020 shares of the Company's Series A Convertible Preferred Stock (convertible into 71,020,000 shares of common stock) which were agreed to be issued to designees of CYN under the Cooperation Agreement entered into on June 10, 2008. At December 31, 2009, 3,000 of the 71,020 shares of the Company's Series A Convertible Preferred Stock (convertible in 3,000,000 share of common stock) remained outstanding. At December 31, 2009, the 19,000,000 shares of common stock agreed to be issued under the 2009 Cooperation Agreement had not yet been issued.

On September 10, 2008, the Company, on the one hand, and Jay Rifkin, the Company’s President and Chief Executive Officer, and Rebel Holdings, LLC (“Rebel Holdings”), of which Mr. Rifkin is the sole managing member, on the other hand, entered into a Loan Consolidation and Amendment to Security Agreement (the “Loan Consolidation Agreement”), effective as of July 1, 2008. Pursuant to the Loan Consolidation Agreement, the parties agreed to consolidate various outstanding loans made to the Company by Jay Rifkin and Rebel Holdings and other amounts incurred by or due to Mr. Rifkin, in each case through June 30, 2008, into one convertible promissory note payable to Rebel Holdings in the principal amount of $2,078,047, with a maturity date of July 1, 2010 and interest at the prime rate (the “Consolidated Note”).  The Consolidated Note provided that the principal amount thereof shall, at the option of Rebel Holdings, be convertible at a conversion price equal to the lesser of, or more favorable to Rebel Holdings, of the following (i) $0.03 per share of Common Stock (which represents the offering price of the Company’s Common Stock in its most recently completed equity financing transaction) provided a notice of conversion is submitted no later than 45 days after September 10, 2008, or (ii) the then current offering terms for any bona fide pending offering of the Company, provided a notice of conversion pursuant thereto is submitted no later than 30 days following the completion of the offering, and contains such other terms and conditions as set forth therein. On May 14, 2009 the Company issued Rebel Holdings 69,268,233, pursuant to a notice of conversion provided within the allowable time period, in which Rebel Holdings elected to convert the entire principal amount outstanding under the Consolidated Note into 69,268,233 shares of common stock at $0.03 per share.

On May 11, 2009, with the consent of Jay Rifkin, the Company’s President and Chief Executive Officer, the Company canceled options held by him to purchase 4,400,000 shares of common stock, exercisable at $0.85 per share.  Further, on May 11, 2009, the Company granted Mr. Rifkin options to purchase 3,750,000 shares of common stock with an exercise price of $0.13 per share, which equals the closing price of the Company’s common stock on the date of grant, which stock options vest fully on the date of grant.   In addition, on May 11, 2009, the Company granted Mr. Rifkin options to purchase 20,000,000 shares of the Company's common stock with an exercise price of $0.13 per share, which stock options shall vest annually over a period of four years from the date of grant.

33

 
The securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

On May 11, 2009, with the consent of each of the Company’s four non-employee directors, the Company cancelled options held by such directors to purchase an aggregate of 1,450,000 shares of common stock, exercisable at prices ranging from $0.25 to $1.50 per share.  On the same date, the Company granted options to such four directors to purchase an aggregate of 1,200,000 shares of common stock, with an exercise price of $0.13 per share, which stock options vest fully on the date of grant.  In addition, on May 11, 2009, the Company granted each of the four directors options to purchase 2,000,000 shares each with an exercise price of $0.13 per share, which stock options shall vest annually over a period of four years from the date of grant.

On October 22, 2009, the Company issued 234,789 shares of the Company’s common stock to William B. Horne, a director, pursuant to a Conversion and Note Termination Agreement dated July 1, 2008 pursuant to which the entire principal amount outstanding and all interest accrued from inception of a certain promissory note through the date of the Conversion Note would be converted into 234,789 shares of the Company's common stock. See Note 10 Note Payable - Related Party.

On October 22, 2009, the Company issued 200,000 shares of the Company’s common stock to Alice M. Campbell, a director, pursuant to a Reimbursement Termination Agreement pursuant to which amounts owed to a director of the Company, as fees for services as the Audit Committee Chairwoman, totaling $6,000, with a conversion price of $0.03 per share, would be converted into 200,000 shares of the Company's common stock.

Director Independence

Our board of directors currently consists of five members. They are Jay Rifkin, William B. Horne, Alice M. Campbell, Alan Morelli and David M. Kaye. Morelli and Kaye are independent directors. We have determined their independence using the general independence criteria set forth in the Nasdaq Marketplace Rules.

Item 14.
Principal Accountant Fees and Services.

Audit Fees

The aggregate fees billed for professional services rendered by our principal accountants for the audit of our financial statements, for the reviews of the financial statements included in our annual report on Form 10-K, and for other services normally provided in connection with statutory filings were $40,000 and $40,000 for the years ended December 31, 2009 and December 31, 2008, respectively.

Audit-Related Fees

We did not incur any fees for the years ended December 31, 2009 and December 31, 2008, respectively, for professional services rendered by our principal accountants that are reasonably related to the performance of the audit or review of our financial statements and not included in "Audit Fees."

All Other Fees

During the year ended 2009, we received additional professional services in the amount of $5,250 rendered by our principal accountants in connection with the preparation of our tax returns and other tax compliance services.

Audit Committee Pre-Approval Policies and Procedures

Our Audit Committee was formed during the year ended December 31, 2005. The fees for audit services were approved by our chief executive officer and the full board approved the financial statements filed on Forms 10-Q and 10-K. Management is required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditor.

PART IV

Item 15.
Exhibits and Financial Statement Schedules

The following documents are filed as part of this report:

(1)
Financial Statements

Financial Statements are listed in the Table of Contents to the Financial Statements on page 40 of this report.

(2)
Financial Statement Schedules

No financial statement schedules are included because such schedules are not applicable, are not required, or because required information is included in the financial statements or notes thereto.

 
34

 

(3)
Exhibits

Exhibit
Number
 
Description
     
2.1
 
Stock Purchase Agreement dated as of December 20, 2005 among Digicorp, Rebel Crew Films, Inc., Rebel Holdings, LLC and Cesar Chatel (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 21, 2005)
     
2.2
 
Letter Agreement dated December 20, 2005 among Digicorp, Rebel Crew Films, Inc., Rebel Holdings, LLC and Cesar Chatel (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on December 21, 2005)
     
2.3
 
Purchaser and Company Disclosure Schedules to Stock Purchase Agreement dated as of December 20, 2005 among Digicorp, Rebel Crew Films, Inc., Rebel Holdings, LLC and Cesar Chatel (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 5, 2006)
     
3.1
 
Articles of Incorporation (Utah) (Incorporated by reference to the Company’s registration statement on Form 10-SB (File No. 000-33067) filed with the Securities and Exchange Commission on August 9, 2001)
     
3.2
 
Certificate of Incorporation of Digicorp, Inc. (Delaware) (Incorporated by reference to the Company’s quarterly report on Form 10-QSB for the quarter ended September 30, 2006, filed with the Securities and Exchange Commission on December 13, 2006)
     
3.3
 
State of Utah Articles of Merger of Digicorp, a Utah corporation, into Digicorp, Inc., a Delaware corporation (Incorporated by reference to the Company’s quarterly report on Form 10-QSB for the quarter ended September 30, 2006, filed with the Securities and Exchange Commission on December 13, 2006)
     
3.4
 
State of Delaware Articles of Merger of Digicorp, a Utah corporation, into Digicorp, Inc., a Delaware corporation (Incorporated by reference to the Company’s quarterly report on Form 10-QSB for the quarter ended September 30, 2006, filed with the Securities and Exchange Commission on December 13, 2006)
     
3.5
 
Certificate of Designation filed with the State of Delaware on May 23, 2008, authorizing our Series A Convertible Preferred Stock consisting of 500,000 shares, each of $.001 par value (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on June 4, 2008)
     
3.6
 
Certificate of Amendment to our Certificate of Incorporation filed with the Secretary of State of Delaware effective as of October 16, 2008 authorizing the increase of the number of our authorized shares of Common Stock, par value $.001 per share, from 60,000,000 to 500,000,000 and the number of our authorized shares of Preferred Stock, par value $.001 per share, from 1,000,000 to 2,000,000, and our name change from “Digicorp, Inc.” to “China Youth Media, Inc.” (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on October 16, 2008)
 
3.7
 
Bylaws (Incorporated by reference to the Company’s registration statement on Form 10-SB (File No. 000-33067) filed with the Securities and Exchange Commission on August 9, 2001)
     
3.8
 
Amendment No. 1 to Bylaws (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on July 21, 2005)
     
 
 
35

 

     
     
9.1
 
Voting Agreement dated December 29, 2005 by and among Jay Rifkin and the stockholders of Digicorp listed on the signature pages thereto (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 5, 2006)
     
10.1*
 
China Youth Media, Inc. Stock Option and Restricted Stock Plan as Amended*
     
10.2*
 
Employment Agreement dated as of November 2, 2009, and effective as of July 1, 2009 by and between China Youth Media, Inc. and Jay Rifkin
     
10.3
 
Standard Industrial/Commercial Multi-Tenant Lease dated July 18, 2005 between The Welk Group, Inc. and Rebel Crew Films, Inc. (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 5, 2006)
     
10.4
 
Content License Agreement dated June 2, 2008 by and between Digicorp, Inc. and New China Media, LLC, YGP, LLC and TWK Holdings, LLC (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on June 4, 2008)
     
10.5
 
Supply Agreement for Content dated May 31, 2008 by and between Youth Media (Hong Kong) Limited, a subsidiary of the Company, Yes Television (Hong Kong) Limited, and New China Media LLC (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on June 4, 2008)
     
10.6
 
Cooperation Agreement dated July 3, 2009 among China Youth Interactive Cultural Media (Beijing) Co., Ltd., China Youth Net Advertising Co. Ltd. and Youth Media (Hong Kong) Limited (Incorporated by reference to the Company’s quarterly report on Form 10-Q for the quarter ended September 30, 2009, filed with the Securities and Exchange Commission on November 16, 2009)
 
36

 

10.7
 
Loan Consolidation and Amendment to Security Agreement dated as of September 10, 2008 among Digicorp, Inc., Rebel Holdings, LLC and Jay Rifkin (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on September 19, 2008)
     
10.8
 
Secured Convertible Consolidated Promissory Note between Digicorp, Inc. and Rebel Holdings, LLC, dated September 10, 2008 (Incorporated by reference to the Company's Form 8-K filed with the Securities and Exchange Commission on September 19, 2008).
     
14.1
 
Code of Ethics (Incorporated by reference to the Company’s annual report on Form 10-KSB for the fiscal year ended June 30, 2005, filed with the Securities and Exchange Commission on September 28, 2005)
     
21.1*
 
Subsidiaries of the Registrant
     
31.1*
 
Certification by Chief Executive Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
     
31.2*
 
Certification by Chief Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
     
32.1*
 
Certification by Chief Executive Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code
     
32.2*
 
Certification by Chief Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

* Filed herewith

 
37

 
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

   
CHINA YOUTH MEDIA, INC.
     
Date: April 13, 2010
By:  
/s/ Jay Rifkin
 
   
Jay Rifkin
   
Chief Executive Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacity and on the dates indicated.

Signature
 
Title
 
Date
         
/s/ Jay Rifkin
       
Jay Rifkin
 
Chief Executive Officer and Director
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)
 
April 13, 2010
         
/s/ William B. Horne
       
William B. Horne
 
Director
 
April 13, 2010
         
/s/ Alice M. Campbell
       
Alice M. Campbell
 
Director
 
April 13, 2010
         
/s/ Alan Morelli
       
Alan Morelli
 
Director
 
April 13, 2010
         
/s/ David M. Kaye
       
David M. Kaye
 
Director
 
April 13, 2010
 
 
38

 
 
China Youth Media, Inc.
Consolidated Financial Statements

Table of Contents
 
   
Page
Report of Independent Registered Public Accounting Firm
 
40
     
Consolidated Balance Sheets
 
41
Consolidated Statements of Operations
 
42
Consolidated Statements of Cash Flows
 
43
Consolidated Statements of Stockholders’ Equity
 
44
     
Notes to the Consolidated Financial Statements
  
45-63

 
39

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Of China Youth Media, Inc.

We have audited the accompanying consolidated balance sheets of China Youth Media, Inc. (Company) as of December 31, 2009 and 2008, and the related consolidated statements of income, stockholders’ equity (deficit), and cash flows for the two years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements 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 the consolidated financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of China Youth Media, Inc. as of December 31, 2009 and 2008 and the results of their operations and their cash flows for the two years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed further in Note 2, the Company has incurred significant losses. The Company’s viability is dependent upon its ability to obtain future financing and the success of its future operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plan in regard to these matters is also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Tarvaran Askelson & Company, LLP

Laguna Niguel, California
April 13, 2010

 
40

 
 
CHINA YOUTH MEDIA, INC.
             
Consolidated Balance Sheet (Audited)
 
             
             
   
December 31,
   
December 31,
 
   
2009
   
2008
 
ASSETS
           
CURRENT ASSETS
           
Cash and cash equivalents
  $ 181,723     $ 34,425  
Accounts receivable, net
          161,604  
Other current assets
    157,432       112,500  
TOTAL CURRENT ASSETS
    339,155       308,529  
                 
Property and equipment, net
    65,457       16,778  
Intangible assets, net
    4,664,879       8,537,503  
Other Assets
    24,916       98,968  
                 
TOTAL ASSETS
  $ 5,094,407     $ 8,961,778  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
CURRENT LIABILITIES
               
                 
Accounts payable
  $ 106,382     $ 197,582  
Accrued liabilities
    1,068,293       848,006  
Note payable - related party
          5,000  
                 
TOTAL CURRENT LIABILITIES
    1,174,675       1,050,588  
                 
LONG TERM LIABILITIES
               
                 
Convertible notes payable - related party
    150,000       2,228,047  
Convertible note payable
    250,000       250,000  
Note payable
    2,377,312       100,000  
Beneficial conversion feature
    (277,128 )     (207,489 )
                 
TOTAL LONG TERM LIABILITIES
    2,500,184       2,370,558  
                 
TOTAL LIABILITIES
  $ 3,674,859     $ 3,421,146  
                 
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
                 
Preferred stock, $0.001 par value: 2,000,000 shares authorized;
               
Series A Preferred Stock, $0.001 par value; 500,000 shares authorized;
               
3,000 shares issued and outstanding at December 31, 2009;
               
83,020 shares issued and outstanding at December 31, 2008;
    3       83  
Common stock, $0.001 par value: 500,000,000 shares authorized;
               
    158,631,461 shares issued and outstanding at December 31, 2009;
               
    71,828,439 shares issued and outstanding at December 31, 2008;
    158,631       71,828  
Paid-in capital
    21,420,227       16,313,219  
Accumulated other comprehensive income
    (213 )      
Accumulated deficit
    (20,159,100 )     (10,844,498 )
                 
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
    1,419,548       5,540,632  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 5,094,407     $ 8,961,778  

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

 
41

 
 
CHINA YOUTH MEDIA, INC.
             
Consolidated Statements of Operations and Comprehensive Income (Audited)
 
       
       
   
Years Ended
 
   
December 31,
   
December 31,
 
   
2009
   
2008
 
REVENUE
           
Sales
  $ 7,000     $ 106,898  
                 
Total revenue
    7,000       106,898  
                 
OPERATING EXPENSES
               
    Cost of sales
          54,678  
Selling, general and administrative expenses
    5,389,363       2,533,725  
                 
Total operating expenses
    5,389,363       2,588,403  
                 
Operating loss
    (5,382,363 )     (2,481,505 )
                 
Other Income (expense)
               
Interest income (expense)
    (281,044 )     (274,332 )
Rental Income
    198,049       148,103  
Loss on Abandonment
          (130,317 )
Loss on Impairment Goodwill
    (27,800 )     (132,200 )
Loss on Impairment IP Holdings
    (3,821,444 )     (106,861 )
                 
Total other income (expense)
    (3,932,239 )     (495,607 )
                 
NET LOSS
  $ (9,314,602 )   $ (2,977,112 )
                 
BASIC AND DILUTED NET LOSS PER COMMON SHARE
  $ (0.07 )   $ (0.08 )
                 
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
    127,263,088       38,573,023  
                 
Other Comprehensive Income
               
Foreign currency translation adjustment
    (213 )      
Net income
    (9,314,602 )     (2,977,112 )
COMPREHENSIVE INCOME
  $ (9,314,815 )   $ (2,977,112 )

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

 
42

 
 
CHINA YOUTH MEDIA, INC.
             
Consolidated Statements of Cash Flows (Audited)
       
             
             
   
Years Ended
 
   
December 31,
   
December 31,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net loss
  $ (9,314,602 )   $ (2,977,112 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Loss on Abandonment
          130,317  
Loss on Impairment of Goodwill
    27,800       132,200  
Loss on Impairment of IP Holdings
    4,325,054       106,861  
Depreciation
    16,809       27,202  
Amortization of licenses
    128,243       820,182  
Amortization of beneficial conversion feature
    92,861       135,078  
Stock-based compensation to employees and directors
    2,236,141       162,654  
Changes in operating assets and liabilities:
               
Accounts receivable
    161,604       143,237  
Inventories
          15,436  
Other assets
    29,120       33,397  
Accounts payable and accrued liabilities
    237,131       413,885  
Deferred revenue
          (69,672 )
                 
          Net cash used in operating activities
    (2,059,839 )     (926,335 )
                 
Cash flows from investing activities:
               
Purchases of licenses and developed content
    (262,500 )      
Purchases of property and equipment
    (65,488 )     (3,530 )
Purchases of intangible assets
    254,026       (2,010 )
                 
          Net cash used in investing activities
    (73,962 )     (5,540 )
                 
Cash flows from financing activities:
               
Proceeds from issuance of common stock
    4,000       347,500  
Proceeds from issuance of preferred stock
          31,200  
Proceeds from issuance of convertible notes
          250,000  
Proceeds from issuance of convertible note related party
          232,000  
Proceeds from note
    2,277,312       100,000  
                 
          Net cash provided by financing activities
    2,281,312       960,700  
                 
                 
Effect of exchange rate
    (213 )      
                 
Net increase (decrease) in cash and cash equivalents
    147,298       28,825  
                 
Cash and cash equivalents at beginning of period
    34,425       5,600  
                 
Cash and cash equivalents at end of period
  $ 181,723     $ 34,425  
                 
Supplemental disclosures of cash flow information:
               
                 
Cash paid for income taxes
  $     $  
Interest paid
  $     $  
                 
Non-cash investing and financing activity:
               
                 
Beneficial conversion feature
    162,500       226,352  
Shares issued pursuant to consulting agreement
  $ 100,000     $  
Acquisition of intangible assets for stock
  $ 600,000     $ 9,199,800  

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

 
43

 
 
CHINA YOUTH MEDIA, INC.
                                                                 
Consolidated Statements of Stockholders' Equity (Deficit)
                                 
                                                                 
                                                               
                                                     
Accumulated
       
                                   
Additional
             
Other
 
Total
 
   
Preferred Stock
 
Common Stock
   
Paid-In
   
Accumulated
     
Comprehensive
 
Shareholders’
 
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
     
Income
 
Equity (Deficit)
 
                                                                 
BALANCES, December 31, 2007
   
         —
     
     —
     
        39,545,104
   
 $
        39,545
   
 $
6,243,079
   
 $
(7,867,386
   
   
 $
(1,584,762
                                                                 
Issuance of preferred stock
   
   83,020
     
83