SEC Comment Letter for Fluent, Inc. (FLNT) (CIK 0001460329) (FLNT) — Feb 22, 2012
Fluent, Inc. (FLNT) (CIK 0001460329)
Date: Feb. 22, 2012 · CIK: 0001460329 · Accession: 0000000000-12-009337
AI Filing Summary & Sentiment
File numbers found in text: 333-158336
Referenced dates: December 23, 2011, December 23, 2011
Letter
February 22, 2012 Via E-mail Wilfred Chow Chief Financial Officer SearchMedia Holdings Limited Floor 13, Central Modern Building 468 Xinhui Road Shanghai, China 200060
Re: SearchMedia Holdings Limited Form 20-F for the fiscal year ended December 31, 2010 Filed June 30, 2011 Response dated January 26, 2012 File No. 333-158336
Dear Mr. Chow: We have reviewed your filing and have the fo llowing comments. Please provide us with the requested information so we may better understand your disclosure.
Please respond to this letter within te n business days by providing the requested information or by advising us when you will provide the requested response. If you do not believe our comments apply to your facts and circum stances, please tell us w hy in your response. After reviewing the information you provide in response to these comments, we may have additional comments. Form 20-F for the fiscal year ended December 31, 2010
Risk Factors, page 6
Risk Related to Our Business and Operations, page 6 Failures to obtain site owners’ consents or objections from site owners to the…, page 11
1. Please revise this risk factor to discuss in greater detail th e magnitude of the current risk related to the challenge in a ssuring site managers have obtained prior consent from site owners committees or site owners. Furthe r, cite the PRC laws and regulations you reference and explain the materi al issues affecting your busin ess with same. We note that you “urge” site managers to obtain proper approv als. Please discuss what percentage of your sites has a display agreement in place with site managers and what percentage of
Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 2
sites has received proper consent. Additiona lly, disclose whether any site owners have objected due to lack of consent terminating an agreement or resulting in the loss of a site. Lastly, discuss whether you are currently in the process of re solving any issues involving proper consent.
2. In a supplemental response, please provide us with an analysis as to the business arrangement and interests between all the part ies to any given building mentioned in this risk factor, aligned and conf licted interests and the business purposes behind the model, as opposed to making such arrangements with owners directly. We note your discussion on page 28.
Unauthorized use of our intellectual property by third parties, and the expenses…, page 13
3. Please revise your disclosure under this risk fact or heading to discuss in greater detail the landscape of intellectua l property protection in China. For example disclose that historically, the legal system and courts of the PRC have not protected intellectual property rights to the same extent as the le gal system and courts of the United States. Companies operating in the PRC continue to face an increased risk of intellectual property infringement. Furtherm ore, you should disclose that the validity, application, enforceability and scope of pr otection of intellectual prope rty rights for many internet- related activities, such as internet commercial methods pa tents, are uncertain and still evolving in China and abroad, which may make it more difficult for you to protect your intellectual property, and could have a material adverse effect on your business, financial condition and results of operations.
We rely on computer software and hardware systems in managing our operations…, page 13
4. In future filings, please address in greater de tail the risks associated with your computer hardware and software system including whet her there has been a ny material occurrence and what consideration you have given to the need to discuss a sp ecific incident or incidents, any known and potential costs or other consequences, and impact on MD&A. Refer to CF Disclosure Guidance: Topic N o. 2, Cybersecurity dated October 13, 2011 for further guidance. Risks Relating to Doing business in th e People’s Republic of China, page 14
If the PRC government determines that the c ontractual arrangements that establish…, page 14
5. Please revise this risk fact or to disclose the following:
Discuss in greater detail the transact ions between Jingli Shanghai Advertising Co., Ltd. and Ad-Icon Advertising (Shanghai) Co., Ltd. Specifically, you state that in 2010 Ad-Icon Shanghai acquired “som e” of Jingli Shanghai’s subsidiaries.
Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 3
Be specific as to the nature of your “ac quisition,” stating equity ownership or contractual arrangement w ithout equity ownership where appropriate. Please revise to state the specific and full na mes of these entities and describe their current status within your corporate st ructure. Revise your Organizational Structure chart on page 36 accordingly.
Revise to discuss the current status and history of Shanghai Sige Advertising and Media Co., Ltd., Shenzhen Dale Advert ising Co., Ltd. and Beijing Conghui Advertising Co., Ltd. We note that th ese entities are not reflected on your Organizational Chart found on page 36 and with the exception of Shanghai Sige Advertising and Media Co., Lt d. are not discussed elsewh ere in your Form 20-F.
You state in the final sentence that you ha ve entered into agreements with Jingli Shanghai and each of the shareholders of Ji ngli Shanghai to gain control over this entity. Please revise to discuss the speci fic agreements in place and the effect and purpose of each agreement. File these agreements as exhibits.
We note your statement that you may “not be able to renew th ese contracts with Jingli Shanghai and/or its shareholders.” Please disclose the kick-out rights of these agreements, meaning who has the ri ght to renew or not on which dates.
Disclose whether Ad-Icon Advertising (Shanghai) Co., Ltd. holds the proper license to operate in th e advertising industry and discuss th e related risks. We note your statement on page 19, under th e currency risk factor, that your subsidiary in Hong Kong, “Ad-Ic on Company Limited, on December 11, 2009, established Ad-Icon Advertising (Shanghai) Co. Ltd., a wholly-owned subsidiary in China, which is permitted to operate business in China.” You state that through Ad-Icon Shanghai, you can “enter into advertis ing contracts directly with clients.” Please disclose whether the permitting of Ad-Icon Shanghai is complete and provides this wholly owned subsidiary w ith the complete set of rights for an advertising business in China.
We rely on contractual arrangem ents with Jingli Shanghai and its shareholders for…, page 15
6. Similarly, in the second sentence of this se ction you state that in 2010 Ad-Icon Shanghai acquired “most” of the subsidiaries of Jingli Sh anghai, but as of the date of the Form 20- F Ad-Icon Shanghai has “not acquired all” rema ining subsidiaries of Jingli Shanghai. Please revise to include the specific names of the acquired subsidiaries and the names of the subsidiaries that have not been acquired. Also, please ex plain why you have acquired some, but not all of the subsid iaries and whether you plan to acquire the remaining Jingli Shanghai subsidiaries.
Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 4
7. Revise your Risk Factor sect ion to provide a separate ri sk factor discussing the agreements you have in place to assure cont rol over Ad-Icon Advertising (Shanghai) Co., Ltd. and its subsidiaries. In clude in your discussion the or ganizational structure you have in place regarding these en tities identifying each as a WF OE, VIE or other ownership structure. File any material agreements such as equity pledge agreements and advisory fee agreements, for example, as exhibits. We may be subject to, and may expend significant resources in defending against… page 18
8. Disclose, if material, quantif ication of any known or poten tial consequences regarding your failure to “strictly abide” by the requi rements regarding content and confirmation that the advertisers obtained requisite govern ment pre-approval for the contents of the advertisement and filings with the local aut horities. Please discuss any indications you may have received regarding the potential for being penalized for the past noncompliance, you reference.
Item 4. Information on the Company, page 24
History and Development, page 24
9. Please amend your filing to discuss the origin and timing of your business and business entities falling under Ad-Icon Company Limited (HK) and Ad-Icon Advertising (Shanghai) Co., Ltd. You state that in April 2008 you acquired 100% of the equity interest in Ad-Icon Company Limited (HK). Specifically, explain whether Ad-Icon (HK) and Ad-Icon (Shanghai) were acquired as pa rt of the Share Exchange Agreement and Business Combination involving predecessor Ideation Acquisition Corp., ID Arizona Corp. and SearchMedia International. Please explain the consideration paid and to whom in connection with Share Exchange Agreemen t including both cash and stock. We note that subsequent to the peri od covered by this Form 20-F, you reached a settlement with several original shareholders of Shanghai Jingli Advertising Co. Ltd. and as a result repurchased or cancelled stoc k consideration paid to th ese parties under the Share Exchange Agreement. However, the origin of and consideration paid for the Ad-Icon branch of business is unclear.
10. Additionally, in the last para graph of this section on page 25, you list three entities that Jingli Shanghai holds 100% equity intere st in namely, Tianjin Shengshitongda, Qing Kaixiang and Wenzhou Rigao. However, on page 36 three additional en tities are listed under these first three. Please revise this s ection to explain the re lationship, history and equity ownership interest or other interest you hold in Shanghai Jincheng Advertising Co., Ltd., Shaanxi Xinshichuang Advertisi ng Planning Co., Ltd. and Changsha Lingli Advertising Co., Ltd.
Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 5
11. Revise your discussion to account for the hi story and development of Great Talent Holdings Ltd. We note that in footnote 16 to the Organization Stru cture chart on page 36 that this entity is described as “inactive.”
Our Business, page 26
General
12. We note that on page 27, for example, you state that your in-e levator advertising network consists of about 150,000 poster frames. In addition, in 2010 you began managing a network of approximately 5,000 buses for bus-body advertising in Beijing. We note on page 62 you state that you had a pproximately 300 total employees, including 70 maintenance personnel, as of March 31, 2011. Please tell us more about how you manage and account for your advertising poste r frames, illuminated and paper, transit large sticker formats, light boxes and digi tal poster frames including maintenance and advertisement installation processes and procedures. We note that on page 28 you disclose that you are responsible for period ic monitoring, maintenance and repair of frames.
Regulatory Matters, page 30
Regulation of Advertising Services, page 31
13. Please amend your disclosure to update the list of principal regulations governing advertising businesses in China revising this and other sections as appropriate. Specifically, we note the signi ficance of the following:
The catalogue for Guiding Foreign Investment in Industry (2007); and
The Administrative Regulations on Forei gn-invested Advertising Enterprises (2008). Organizational Structure, page 35
14. Please revise your organizati onal structure chart on page 36 to reflect the specific contract, pledges, loans or ag reements in place between various entities. A footnote may be appropriate. Additionally, revise your footnotes to indica te whether each entity is a WFOE, VIE or other contractua lly obligated subsidiary.
15. Expand footnote (2) disclosing the purpose, business operations and status of Jieli Network Technology Development (Shanghai) Co., Ltd.
Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 6
Agreements that Transfer Economic Benefit to Jieli Consulting, page 39
16. Page 40 contains several bullet points indicati ng business and assets of several entities were transferred from Jingli Shanghai into newly incorporated Chinese companies. Please revise each bullet point as applicable to include the date the respective business and related assets were transferred to the newly incorporated entity.
Liquidity and Capital Resources, page 54
17. We note your response to comment 11 from our letter dated December 23, 2011. Please amend your table to include two columns, one indicating the amount of contingent consideration paid up to December 31, 2010 in cash and the second representing consideration paid in stock. Revise your disclo sure to include this ta ble here and in your Financial Statements as appropriate.
18. Revise your disclosure to st ate whether the earn-out agreem ents with the 12 different entities are each in writing.
19. Amend your disclosure to discuss the range of multiples used to determine contingent consideration payments and the underlying metr ic applied to the multiple, for example, net income.
20. Please tell us more about the remaining con tingent consideration payments associated with your 2008 acquisitions. Sp ecifically, explain which partie s or individuals continue to receive these payments and whether there we re any changes in recipients as a result of your litigation against the former management , board and shareholders of SearchMedia International. Disclose whether any of the pa rties to that continuing matter received or will receive cash or stock contingent consider ation payments indentifying the individual and acquisition entity together. Related Party Transactions, page 64
Transactions with SearchMedia International’ s Shareholders, Senior Management…, page 64
21. We note your response to comment 13 from our letter dated December 23, 2011. Please tell us more about the business and operations of Shanghai Botang. We note that you paid over $32 million in contingent consider ation from the acquisition date of April 2008 through December 31, 2010, or the second highest earn-out amount after Zhejiang Continental. We also note that you rec ognized significant goodwill impairment on the value of this entity. Please explain.
22. Revise your disclosure to di scuss the individuals or ent ities from whom you purchased Zhejiang Continental in June 2010. We note that this purchase date wa s after the date of
Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 7
the Share Exchange Agreement in Oct ober 2009. Additionally, please revise your disclosure, where appropriate, to explain the purpose for th is acquisition in cluding how it fits within your three categories of business and overall operations.
23. Please tell us more about the “advances” ma de by SearchMedia International in 2010 to the senior management personnel of certa in companies acquired by Shanghai Jingli including the purpose of these advances and wh ether they have been repaid or services rendered. Tell us whether you continue to make similar advances. 4. Acquisitions, page F-18
I. 2010 acquisitions, page F-18
24. We note your response to comment nine a nd ten from our letter dated December 23, 2011. Addressing ASC 805-30-25-5 to 25-7 tell us:
a. how you determined the fair value of the contingent consideration. Refer to ASC 820-10-30-1 to 30-6. b. whether you have classified your obligati on to pay contingent consideration as a liability or equity. In this regard we note that some of the contingent consideration is payable in shares. 25. It appears to us that the pre-determined formula used to calculate the contingent consideration in the acquisition of Xhejiang Continental provides relevant i
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February 22, 2012 Via E-mail Wilfred Chow Chief Financial Officer SearchMedia Holdings Limited Floor 13, Central Modern Building 468 Xinhui Road Shanghai, China 200060 Re: SearchMedia Holdings Limited Form 20-F for the fiscal year ended December 31, 2010 Filed June 30, 2011 Response dated January 26, 2012 File No. 333-158336 Dear Mr. Chow: We have reviewed your filing and have the fo llowing comments. Please provide us with the requested information so we may better understand your disclosure. Please respond to this letter within te n business days by providing the requested information or by advising us when you will provide the requested response. If you do not believe our comments apply to your facts and circum stances, please tell us w hy in your response. After reviewing the information you provide in response to these comments, we may have additional comments. Form 20-F for the fiscal year ended December 31, 2010 Risk Factors, page 6 Risk Related to Our Business and Operations, page 6 Failures to obtain site owners’ consents or objections from site owners to the…, page 11 1. Please revise this risk factor to discuss in greater detail th e magnitude of the current risk related to the challenge in a ssuring site managers have obtained prior consent from site owners committees or site owners. Furthe r, cite the PRC laws and regulations you reference and explain the materi al issues affecting your busin ess with same. We note that you “urge” site managers to obtain proper approv als. Please discuss what percentage of your sites has a display agreement in place with site managers and what percentage of Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 2 sites has received proper consent. Additiona lly, disclose whether any site owners have objected due to lack of consent terminating an agreement or resulting in the loss of a site. Lastly, discuss whether you are currently in the process of re solving any issues involving proper consent. 2. In a supplemental response, please provide us with an analysis as to the business arrangement and interests between all the part ies to any given building mentioned in this risk factor, aligned and conf licted interests and the business purposes behind the model, as opposed to making such arrangements with owners directly. We note your discussion on page 28. Unauthorized use of our intellectual property by third parties, and the expenses…, page 13 3. Please revise your disclosure under this risk fact or heading to discuss in greater detail the landscape of intellectua l property protection in China. For example disclose that historically, the legal system and courts of the PRC have not protected intellectual property rights to the same extent as the le gal system and courts of the United States. Companies operating in the PRC continue to face an increased risk of intellectual property infringement. Furtherm ore, you should disclose that the validity, application, enforceability and scope of pr otection of intellectual prope rty rights for many internet- related activities, such as internet commercial methods pa tents, are uncertain and still evolving in China and abroad, which may make it more difficult for you to protect your intellectual property, and could have a material adverse effect on your business, financial condition and results of operations. We rely on computer software and hardware systems in managing our operations…, page 13 4. In future filings, please address in greater de tail the risks associated with your computer hardware and software system including whet her there has been a ny material occurrence and what consideration you have given to the need to discuss a sp ecific incident or incidents, any known and potential costs or other consequences, and impact on MD&A. Refer to CF Disclosure Guidance: Topic N o. 2, Cybersecurity dated October 13, 2011 for further guidance. Risks Relating to Doing business in th e People’s Republic of China, page 14 If the PRC government determines that the c ontractual arrangements that establish…, page 14 5. Please revise this risk fact or to disclose the following: Discuss in greater detail the transact ions between Jingli Shanghai Advertising Co., Ltd. and Ad-Icon Advertising (Shanghai) Co., Ltd. Specifically, you state that in 2010 Ad-Icon Shanghai acquired “som e” of Jingli Shanghai’s subsidiaries. Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 3 Be specific as to the nature of your “ac quisition,” stating equity ownership or contractual arrangement w ithout equity ownership where appropriate. Please revise to state the specific and full na mes of these entities and describe their current status within your corporate st ructure. Revise your Organizational Structure chart on page 36 accordingly. Revise to discuss the current status and history of Shanghai Sige Advertising and Media Co., Ltd., Shenzhen Dale Advert ising Co., Ltd. and Beijing Conghui Advertising Co., Ltd. We note that th ese entities are not reflected on your Organizational Chart found on page 36 and with the exception of Shanghai Sige Advertising and Media Co., Lt d. are not discussed elsewh ere in your Form 20-F. You state in the final sentence that you ha ve entered into agreements with Jingli Shanghai and each of the shareholders of Ji ngli Shanghai to gain control over this entity. Please revise to discuss the speci fic agreements in place and the effect and purpose of each agreement. File these agreements as exhibits. We note your statement that you may “not be able to renew th ese contracts with Jingli Shanghai and/or its shareholders.” Please disclose the kick-out rights of these agreements, meaning who has the ri ght to renew or not on which dates. Disclose whether Ad-Icon Advertising (Shanghai) Co., Ltd. holds the proper license to operate in th e advertising industry and discuss th e related risks. We note your statement on page 19, under th e currency risk factor, that your subsidiary in Hong Kong, “Ad-Ic on Company Limited, on December 11, 2009, established Ad-Icon Advertising (Shanghai) Co. Ltd., a wholly-owned subsidiary in China, which is permitted to operate business in China.” You state that through Ad-Icon Shanghai, you can “enter into advertis ing contracts directly with clients.” Please disclose whether the permitting of Ad-Icon Shanghai is complete and provides this wholly owned subsidiary w ith the complete set of rights for an advertising business in China. We rely on contractual arrangem ents with Jingli Shanghai and its shareholders for…, page 15 6. Similarly, in the second sentence of this se ction you state that in 2010 Ad-Icon Shanghai acquired “most” of the subsidiaries of Jingli Sh anghai, but as of the date of the Form 20- F Ad-Icon Shanghai has “not acquired all” rema ining subsidiaries of Jingli Shanghai. Please revise to include the specific names of the acquired subsidiaries and the names of the subsidiaries that have not been acquired. Also, please ex plain why you have acquired some, but not all of the subsid iaries and whether you plan to acquire the remaining Jingli Shanghai subsidiaries. Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 4 7. Revise your Risk Factor sect ion to provide a separate ri sk factor discussing the agreements you have in place to assure cont rol over Ad-Icon Advertising (Shanghai) Co., Ltd. and its subsidiaries. In clude in your discussion the or ganizational structure you have in place regarding these en tities identifying each as a WF OE, VIE or other ownership structure. File any material agreements such as equity pledge agreements and advisory fee agreements, for example, as exhibits. We may be subject to, and may expend significant resources in defending against… page 18 8. Disclose, if material, quantif ication of any known or poten tial consequences regarding your failure to “strictly abide” by the requi rements regarding content and confirmation that the advertisers obtained requisite govern ment pre-approval for the contents of the advertisement and filings with the local aut horities. Please discuss any indications you may have received regarding the potential for being penalized for the past noncompliance, you reference. Item 4. Information on the Company, page 24 History and Development, page 24 9. Please amend your filing to discuss the origin and timing of your business and business entities falling under Ad-Icon Company Limited (HK) and Ad-Icon Advertising (Shanghai) Co., Ltd. You state that in April 2008 you acquired 100% of the equity interest in Ad-Icon Company Limited (HK). Specifically, explain whether Ad-Icon (HK) and Ad-Icon (Shanghai) were acquired as pa rt of the Share Exchange Agreement and Business Combination involving predecessor Ideation Acquisition Corp., ID Arizona Corp. and SearchMedia International. Please explain the consideration paid and to whom in connection with Share Exchange Agreemen t including both cash and stock. We note that subsequent to the peri od covered by this Form 20-F, you reached a settlement with several original shareholders of Shanghai Jingli Advertising Co. Ltd. and as a result repurchased or cancelled stoc k consideration paid to th ese parties under the Share Exchange Agreement. However, the origin of and consideration paid for the Ad-Icon branch of business is unclear. 10. Additionally, in the last para graph of this section on page 25, you list three entities that Jingli Shanghai holds 100% equity intere st in namely, Tianjin Shengshitongda, Qing Kaixiang and Wenzhou Rigao. However, on page 36 three additional en tities are listed under these first three. Please revise this s ection to explain the re lationship, history and equity ownership interest or other interest you hold in Shanghai Jincheng Advertising Co., Ltd., Shaanxi Xinshichuang Advertisi ng Planning Co., Ltd. and Changsha Lingli Advertising Co., Ltd. Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 5 11. Revise your discussion to account for the hi story and development of Great Talent Holdings Ltd. We note that in footnote 16 to the Organization Stru cture chart on page 36 that this entity is described as “inactive.” Our Business, page 26 General 12. We note that on page 27, for example, you state that your in-e levator advertising network consists of about 150,000 poster frames. In addition, in 2010 you began managing a network of approximately 5,000 buses for bus-body advertising in Beijing. We note on page 62 you state that you had a pproximately 300 total employees, including 70 maintenance personnel, as of March 31, 2011. Please tell us more about how you manage and account for your advertising poste r frames, illuminated and paper, transit large sticker formats, light boxes and digi tal poster frames including maintenance and advertisement installation processes and procedures. We note that on page 28 you disclose that you are responsible for period ic monitoring, maintenance and repair of frames. Regulatory Matters, page 30 Regulation of Advertising Services, page 31 13. Please amend your disclosure to update the list of principal regulations governing advertising businesses in China revising this and other sections as appropriate. Specifically, we note the signi ficance of the following: The catalogue for Guiding Foreign Investment in Industry (2007); and The Administrative Regulations on Forei gn-invested Advertising Enterprises (2008). Organizational Structure, page 35 14. Please revise your organizati onal structure chart on page 36 to reflect the specific contract, pledges, loans or ag reements in place between various entities. A footnote may be appropriate. Additionally, revise your footnotes to indica te whether each entity is a WFOE, VIE or other contractua lly obligated subsidiary. 15. Expand footnote (2) disclosing the purpose, business operations and status of Jieli Network Technology Development (Shanghai) Co., Ltd. Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 6 Agreements that Transfer Economic Benefit to Jieli Consulting, page 39 16. Page 40 contains several bullet points indicati ng business and assets of several entities were transferred from Jingli Shanghai into newly incorporated Chinese companies. Please revise each bullet point as applicable to include the date the respective business and related assets were transferred to the newly incorporated entity. Liquidity and Capital Resources, page 54 17. We note your response to comment 11 from our letter dated December 23, 2011. Please amend your table to include two columns, one indicating the amount of contingent consideration paid up to December 31, 2010 in cash and the second representing consideration paid in stock. Revise your disclo sure to include this ta ble here and in your Financial Statements as appropriate. 18. Revise your disclosure to st ate whether the earn-out agreem ents with the 12 different entities are each in writing. 19. Amend your disclosure to discuss the range of multiples used to determine contingent consideration payments and the underlying metr ic applied to the multiple, for example, net income. 20. Please tell us more about the remaining con tingent consideration payments associated with your 2008 acquisitions. Sp ecifically, explain which partie s or individuals continue to receive these payments and whether there we re any changes in recipients as a result of your litigation against the former management , board and shareholders of SearchMedia International. Disclose whether any of the pa rties to that continuing matter received or will receive cash or stock contingent consider ation payments indentifying the individual and acquisition entity together. Related Party Transactions, page 64 Transactions with SearchMedia International’ s Shareholders, Senior Management…, page 64 21. We note your response to comment 13 from our letter dated December 23, 2011. Please tell us more about the business and operations of Shanghai Botang. We note that you paid over $32 million in contingent consider ation from the acquisition date of April 2008 through December 31, 2010, or the second highest earn-out amount after Zhejiang Continental. We also note that you rec ognized significant goodwill impairment on the value of this entity. Please explain. 22. Revise your disclosure to di scuss the individuals or ent ities from whom you purchased Zhejiang Continental in June 2010. We note that this purchase date wa s after the date of Wilfred Chow SearchMedia Holdings Limited February 22, 2012 Page 7 the Share Exchange Agreement in Oct ober 2009. Additionally, please revise your disclosure, where appropriate, to explain the purpose for th is acquisition in cluding how it fits within your three categories of business and overall operations. 23. Please tell us more about the “advances” ma de by SearchMedia International in 2010 to the senior management personnel of certa in companies acquired by Shanghai Jingli including the purpose of these advances and wh ether they have been repaid or services rendered. Tell us whether you continue to make similar advances. 4. Acquisitions, page F-18 I. 2010 acquisitions, page F-18 24. We note your response to comment nine a nd ten from our letter dated December 23, 2011. Addressing ASC 805-30-25-5 to 25-7 tell us: a. how you determined the fair value of the contingent consideration. Refer to ASC 820-10-30-1 to 30-6. b. whether you have classified your obligati on to pay contingent consideration as a liability or equity. In this regard we note that some of the contingent consideration is payable in shares. 25. It appears to us that the pre-determined formula used to calculate the contingent consideration in the acquisition of Xhejiang Continental provides relevant i