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SECURITIES AND EXCHANGE COMMISSION
o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Translation of Registrant’s name into English)
(Jurisdiction of incorporation or organization)
No. 20 Shijingshan Road
Shijingshan District
Beijing 100131, People’s Republic of China
(Address of principal executive offices)
Title of each class | Name of each exchange and on which registered | |
American Depositary Shares, each representing 100 ordinary shares, par value US$0.00005 per share | Nasdaq Global Market |
NONE
(Title of Class)
NONE
(Title of Class)
Large Accelerated Filero | Accelerated Filero | Non-Accelerated Filerþ |
U.S. GAAPþ | International Financial Reporting Standards as issuedo by the International Accounting Standards Board | Othero |
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Exhibit 15.4 |
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• | “ADSs” refers to our American depositary shares, each of which represents 100 ordinary shares; |
• | “$,” “US$” and “U.S. dollars” refer to the legal currency of the United States; |
• | “China” and the “PRC” refer to the People’s Republic of China, excluding, for the purposes of this annual report on Form 20-F only, Taiwan and the special administrative regions of Hong Kong and Macau; |
• | “Hurray! Holding Co., Ltd.” refers to HURRAY! HOLDING CO., LTD. |
• | “ordinary shares” refers to our ordinary shares, par value US$0.00005 per share; |
• | “RMB” and “Renminbi” refer to the legal currency of China; |
• | “telecom operators” refer to China Mobile, China Unicom and China Telecom, the three principal telecommunication network operators in China; and |
• | “we,” “us,” “our company” and “our” refer to Hurray! Holding Co., Ltd. and its subsidiaries, affiliates and predecessor entities. |
• | our goals and strategies; |
• | our future business development, financial condition and results of operations; |
• | our projected revenues, earnings, profits and other estimated financial information; |
• | expected changes in our margins and certain costs or expenditures; |
• | expected continued acceptance of our new revenue model; |
• | our plans to expand and diversify the sources of our revenues; |
• | expected changes in the respective shares of our revenues from particular sources; |
• | our plans for staffing, research and development and regional focus; |
• | our plans to launch new products and services; |
• | our plans for strategic partnerships with other businesses; |
• | our acquisition and divestiture strategy, and our ability to successfully integrate past or future acquisitions with our existing operations and complete planned divestitures; |
• | competition in the PRC wireless value-added, music and online video industries; |
• | the outcome of ongoing, or any future, litigation or arbitration; |
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• | the outcome of our annual PFIC and Investment Company Act evaluations; |
• | the expected growth in the number of Internet and broadband users in China, growth of personal computer penetration and developments in the ways most people in China access the Internet; |
• | changes in PRC governmental preferential tax treatment and financial incentives we currently qualify for and expect to qualify for; and |
• | PRC governmental policies relating to media and the Internet and Internet content providers and to the provision of advertising over the Internet. |
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For the Year Ended December 31, | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006(1) | 2005(1),(3) | ||||||||||||||||
(in thousands of U.S. dollars, except percentages) | ||||||||||||||||||||
Historical Condensed Consolidated Statement of Operations Data | ||||||||||||||||||||
Net revenues: | ||||||||||||||||||||
Wireless value-added services | 20,169 | 42,672 | 50,038 | 62,512 | 56,063 | |||||||||||||||
Recorded music | 14,473 | 11,287 | 10,489 | 6,203 | — | |||||||||||||||
Total net revenues | 34,642 | 53,959 | 60,527 | 68,715 | 56,063 | |||||||||||||||
Cost of revenues: | ||||||||||||||||||||
Wireless value-added services | (15,332 | ) | (32,840 | ) | (36,394 | ) | (40,672 | ) | (28,635 | ) | ||||||||||
Recorded music | (12,625 | ) | (6,730 | ) | (6,233 | ) | (3,553 | ) | — | |||||||||||
Total cost of revenues | (27,957 | ) | (39,570 | ) | (42,627 | ) | (44,225 | ) | (28,635 | ) | ||||||||||
Gross profit | 6,685 | 14,389 | 17,900 | 24,490 | 27,428 | |||||||||||||||
Operating expenses | (33,382 | ) | (22,669 | ) | (61,462 | ) | (19,882 | ) | (14,277 | ) | ||||||||||
Operating income (loss) from continuing operations | (26,697 | ) | (8,280 | ) | (43,562 | ) | 4,608 | 13,151 | ||||||||||||
Interest income | 454 | 1,613 | 2,313 | 2,529 | 1,390 | |||||||||||||||
Interest expense | (14 | ) | — | (179 | ) | (45 | ) | (27 | ) | |||||||||||
Gain on reduction of acquisition payable | — | 5,000 | — | — | — | |||||||||||||||
Foreign exchange loss | — | (8,990 | ) | — | — | — | ||||||||||||||
Other income, net | 342 | 247 | 466 | 315 | 330 | |||||||||||||||
Income (loss) before income tax credit (expense), equity in (loss) earning of affiliated company, impairment for investment in affiliated company and discontinued operations | (25,915 | ) | (10,410 | ) | (40,962 | ) | 7,407 | 14,844 | ||||||||||||
Income tax credit (expenses) | (234 | ) | (486 | ) | 182 | (205 | ) | (323 | ) | |||||||||||
Equity in (loss) earning of affiliated company | (914 | ) | 64 | (63 | ) | — | — | |||||||||||||
Impairment for Investment in affiliated company | — | (1,871 | ) | — | — | — | ||||||||||||||
Net (loss) income from continuing operations | (27,063 | ) | (12,703 | ) | (40,843 | ) | 7,202 | 14,521 | ||||||||||||
Discontinued operations: | ||||||||||||||||||||
Net (loss) income from discontinued operations, net of tax | — | — | (612 | ) | (836 | ) | 4,098 | |||||||||||||
Gain from disposal of discontinued operations | 222 | 413 | 193 | — | — | |||||||||||||||
Net income (loss) from discontinued operations, net of tax | 222 | 413 | (419 | ) | (836 | ) | 4,098 | |||||||||||||
Net income (loss) | (26,841 | ) | (12,290 | ) | (41,262 | ) | 6,366 | 18,619 | ||||||||||||
Less: Net income (loss) attributable to the non-controlling interests and redeemable non-controlling interest(2) | 4,183 | 337 | (688 | ) | (562 | ) | — | |||||||||||||
Net (loss) income attributable to Hurray! Holding Co., Ltd. | (22,658 | ) | (11,953 | ) | (41,950 | ) | 5,804 | 18,619 | ||||||||||||
Loss attributable to Hurray! Holding Co., Ltd. ordinary shareholders per share, basic and diluted | (0.01 | ) | (0.01 | ) | (0.02 | ) | — | 0.01 | ||||||||||||
Shares used in calculating basic (loss) income per share | 2,196,291,947 | 2,185,615,129 | 2,172,208,190 | 2,189,748,563 | 2,092,089,848 | |||||||||||||||
Shares used in calculating diluted (loss) income per share | 2,196,291,947 | 2,185,615,129 | 2,172,208,190 | 2,208,758,636 | 2,129,228,961 | |||||||||||||||
(1) | The statements of operation data for the years ended December 31, 2005 and 2006 have been adjusted to show the financial results of our software and system integration business (which was described in Item 4.A. “Information on the Company—History and Development of the Company”) as discontinued operations. That business segment was terminated in the third quarter of 2007. | |
(2) | Reflects implementation of ASC 810 (formerly referred to as SFAS No.160, “Non-controlling Interests in Consolidated Financial Statements-an amendment of ARB No.51.”) |
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(3) | The amounts of share-based compensation included in operating expenses for 2006, 2007, 2008 and 2009 reflect the adoption of ASC 718 “Stock Compensation” (formerly referred to as Statement of Financial Accounting Standard 123(R) (“SFAS 123(R)”) effective January 1, 2006. |
As of and for the Years Ended December 31, 2009 | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(in thousands of U.S. dollars, except percentages) | ||||||||||||||||||||
Historical Condensed Consolidated Balance Sheet Data | ||||||||||||||||||||
Cash and cash equivalents | 48,489 | 59,473 | 65,979 | 74,597 | 75,959 | |||||||||||||||
Short term investments | 10,000 | — | — | — | — | |||||||||||||||
Accounts receivable, net | 3,192 | 12,658 | 14,691 | 13,449 | 18,089 | |||||||||||||||
Other current assets | 2,094 | 5,580 | 8,777 | 3,342 | 2,297 | |||||||||||||||
Property and equipment, net | 880 | 980 | 1,636 | 1,954 | 2,536 | |||||||||||||||
Goodwill | 2,099 | 3,157 | 5,621 | 39,621 | 23,869 | |||||||||||||||
Other assets | 1,414 | 6,476 | 8,890 | 7,027 | 4,953 | |||||||||||||||
Total assets | 68,168 | 88,324 | 105,594 | 139,990 | 127,703 | |||||||||||||||
Current liabilities | 11,327 | 6,316 | 14,467 | 12,960 | 7,636 | |||||||||||||||
Non-current liabilities | 280 | 316 | 877 | 851 | 843 | |||||||||||||||
Total liabilities | 11,607 | 6,632 | 15,344 | 13,811 | 8,479 | |||||||||||||||
Redeemable non-controlling interests | 371 | — | — | — | — | |||||||||||||||
Ordinary shares (2,200,194,040, 2,193,343,740, 2,174,784,440, 2,163,031,740 and 2,229,754,340 shares issued and outstanding as of December 31, 2009, 2008, 2007, 2006 and 2005, respectively) | 110 | 110 | 109 | 108 | 111 | |||||||||||||||
Other Hurray! Holding Co., Ltd. shareholders’ equity | 54,286 | 76,799 | 85,474 | 122,712 | 118,508 | |||||||||||||||
Non-controlling interests | 1,794 | 4,783 | 4,667 | 3,359 | 605 | |||||||||||||||
Total liabilities, redeemable non-controlling interests and shareholders’ equity | 68,168 | 88,324 | 105,594 | 139,990 | 127,703 | |||||||||||||||
Other Historical Condensed Consolidated Financial Data | ||||||||||||||||||||
Gross profit margin | ||||||||||||||||||||
Wireless value-added services | 24.0 | % | 23.0 | % | 27.3 | % | 34.9 | % | 48.9 | % | ||||||||||
Recorded music | 12.8 | % | 40.4 | % | 40.6 | % | 42.7 | % | — | |||||||||||
Total gross profit margin | 19.3 | % | 26.7 | % | 29.6 | % | 35.6 | % | 48.9 | % | ||||||||||
Operating income (loss) from continuing operations margin(1) | (77.1 | %) | (15.3 | %) | (72.0 | %) | 6.7 | % | 23.5 | % | ||||||||||
Net (loss) income from continuing operations margin(1) | (78.1 | %) | (23.5 | %) | (67.5 | %) | 10.5 | % | 25.9 | % | ||||||||||
Net (loss) income attributable to Hurray! Holding Co., Ltd. margin(1) | (65.4 | %) | (22.2 | %) | (69.3 | %) | 8.4 | % | 33.2 | % | ||||||||||
Depreciation | 837 | 990 | 1,269 | 1,580 | 1,461 | |||||||||||||||
Amortization | 862 | 2,338 | 2,375 | 1,901 | 478 | |||||||||||||||
Capital expenditure | 678 | 349 | 864 | 957 | 1,289 |
(1) | Operating income (loss) from continuing operations margin, net (loss) income from continuing operations margin and net (loss) income attributable to Hurray! Holding Co., Ltd. margin are the operating income (loss) from continuing operations, net (loss) income from continuing operations and net (loss) income attributable to Hurray! Holding Co., Ltd. as a percentage of our total revenues. |
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Noon Buying Rate | ||||||||
RMB per US$1.00 | ||||||||
High | Low | |||||||
November 2009 | 6.8300 | 6.8255 | ||||||
December 2009 | 6.8299 | 6.8244 | ||||||
January 2010 | 6.8295 | 6.8258 | ||||||
February 2010 | 6.8330 | 6.8258 | ||||||
March 2010 | 6.8270 | 6.8254 | ||||||
April 2010 (through April 23) | 6.8275 | 6.8229 |
Average Noon Buying Rate | ||||
RMB per US$1.00 | ||||
2005 | 8.1826 | |||
2006 | 7.9579 | |||
2007 | 7.5806 | |||
2008 | 6.9193 | |||
2009 | 6.8307 | |||
2010 (through April 23) | 6.8270 |
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• | the delivery of our service to a customer is prevented because his or her phone is turned off for an extended period of time, the customer’s prepaid phone card has run out of value or the customer has ceased to be a customer of the applicable mobile operator; |
• | any telecom operator experiences technical problems with its network, thus preventing the delivery of our services to the customer; |
• | we experience technical problems with our technology platform that prevents delivery of our services; or |
• | the customer refuses to pay for our services due to quality or other problems. |
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• | technical expertise of their production and recording staff; |
• | popularity of the artists represented by our affiliated music companies; |
• | access to songs or songwriters; and |
• | effectiveness of online and offline marketing and promotional activities. |
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• | the online advertising market is new and rapidly evolving, particularly in China. As a result, many of our online video business’ current and potential advertising clients have limited experience using the Internet for advertising purposes and historically have not devoted a significant portion of their advertising budget to Internet-based advertising; |
• | changes in government policy could restrict or curtail our online video business’ online advertising services. For example, in 2006 and 2007, the PRC government enacted a series of regulations, administrative instructions and policies to restrict online medical advertising. As a result of these regulations, our online video business may lose some of its existing medical advertising clients; |
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• | advertising clients that have invested substantial resources in other methods of conducting business may be reluctant to adopt a new strategy that may limit or compete with their existing efforts; and |
• | the acceptance of the Internet as a medium for advertising depends on the development of a measurement standard. No standards have been widely accepted for the measurement of the effectiveness of online advertising. Industry-wide standards may not develop sufficiently to support the Internet as an effective advertising medium. If these standards do not develop, advertisers may choose not to advertise on the Internet in general or through Ku6.com. |
• | the development of a large base of users possessing demographic characteristics attractive to advertising clients; |
• | the acceptance of online advertisement as an effective way for business marketing by advertising clients; |
• | the effectiveness of its advertising delivery, tracking and reporting systems; and |
• | the resistance pressure on online advertising prices and limitations on inventory. |
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• | attract and retain users for our WVAS; |
• | expand the services that we offer; |
• | respond effectively to rapidly evolving competitive and market dynamics and address the effects of mergers and acquisitions among our competitors; |
• | effectively manage our new music businesses and leverage our music library; |
• | achieve synergies and capture opportunities in the Internet and media markets; |
• | enhance the efficiency of our online video business’ operations and leverage our online video business’ resources; |
• | maintain, expand and enhance our relationships with telecom operators; and |
• | increase awareness of our brands and user loyalty. |
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• | develop and quickly introduce new WVAS, adapt our existing services and maintain and improve the quality of all of our services, particularly as the market for 2.5G and 3G services evolves and matures; |
• | effectively maintain our relationships with China Mobile and China Unicom, enhance our relationships with China Telecom and establish new relationships with any other recipients of mobile licenses in China so that we are able to offer WVAS over their networks; |
• | attract and retain popular artists for our music and artist agency businesses; |
• | attract viewers by webcasting licensed video content; |
• | offer a user-friendly platform for online video sharing; |
• | derive more revenue from our online video business; |
• | continue training, motivating and retaining our existing employees, including our senior management, and attract and integrate new employees; |
• | develop and improve our operational, financial, accounting and other internal systems and controls; and |
• | maintain adequate controls and procedures to ensure that our periodic public disclosure under applicable laws, including U.S. securities laws, is complete and accurate. |
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• | levying fines, |
• | confiscating the incomes of any of our company, Beijing Hurray! Times or our VIEs, |
• | revoking the business licenses of any of our company, Beijing Hurray! Times or our VIEs, |
• | shutting down servers or blocking websites maintained by any of our company, Beijing Hurray! Times or our VIEs, |
• | restricting or prohibiting our use of our financial assets to finance our business and operations in China, |
• | requiring any of us, Beijing Hurray! Times or our VIEs to restructure our ownership structure or operations, and/or |
• | requiring any of us, Beijing Hurray! Times or our VIEs to discontinue any portion of or all of their WVAS. |
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• | attract and retain users in the increasingly competitive WVAS market in China; |
• | maintain and grow our 2G and 2.5G market share and revenues, and successfully offer 3G services; |
• | successfully implement our business strategies, including integrating our recent strategic acquisitions with our existing core business; and |
• | update and develop our services, technologies and content, which is highly complex. |
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• | levy fines; |
• | confiscate our income or the income of our affiliates; |
• | revoke our business license or the business license of our affiliates; |
• | shut down our servers or the servers of our affiliates and/or blocking any Web or WAP sites that we operate; and |
• | require us to discontinue any portion or all of our WVAS services business. |
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• | We only have contractual control over our websites. We do not own the websites due to the restriction of foreign investment in businesses providing value-added telecommunication services in China, including online information services. |
• | There are uncertainties relating to the regulation of the Internet business in China, including evolving licensing practices. This means that permits, licenses or operations at some of our companies may be subject to challenge, or we may not be able to obtain or renew certain permits or licenses, including without limitation an Internet news license, which is issued by the State Council News Office, an Internet culture business permit, which is issued by the Ministry of Culture, an audio/video program transmission license, which is issued by the State Administration of Radio, Film and Television, an Internet publication business license, which is issued by the General Administration of Press and Publication, an online game virtual currency issuance or trading license, which is issued by the Ministry of Culture, and a surveying and mapping qualification certificate for Internet map services, which is issued by the State Bureau of Surveying and Mapping. This may significantly disrupt our business, or subject us to sanctions, requirements to increase capital or other conditions or enforcement, or compromise enforceability of related contractual arrangements, or have other harmful effects on us. |
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• | quarantines or closures of some of our offices which would severely disrupt our operations, |
• | the sickness or death of our key officers and employees, and |
• | a general slowdown in the Chinese economy. |
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• | economic structure; |
• | level of government involvement in the economy; |
• | level of development; |
• | level of capital reinvestment; |
• | control of foreign exchange; |
• | methods of allocating resources; and |
• | balance of payments position. |
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• | announcements of technological or competitive developments; |
• | regulatory developments in our target markets affecting us, our customers or our competitors; |
• | announcements regarding intellectual property rights litigation; |
• | actual or anticipated fluctuations in our quarterly operating results; |
• | changes in financial estimates by securities research analysts; |
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• | changes in the economic performance or market valuations of our products; |
• | addition or departure of our executive officers and key research personnel; and |
• | sales or perceived sales of additional ordinary shares or ADSs. |
• | our board of directors be comprised of a majority of independent directors; |
• | our directors be selected or nominated by a majority of the independent directors or a nomination committee comprised solely of independent directors; |
• | our board adopt a formal written charter or board resolution addressing the director nominations process and such related matters as may be required under the U.S. federal securities laws; |
• | the compensation of our executive officers be determined or recommended by a majority of the independent directors or a compensation committee comprised solely of independent directors; and |
• | issuances of securities in connection with equity-based compensation of officers, directors, employees or consultants be approved by shareholders. |
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• | Media Information Channel Services (Short Video Services): Leveraging off its abundant video content, large user base and strong relationships with content providers, our online video business plans to further expand its coverage of video news reports and to establish itself as a mainstream media outlet in China. |
• | Film/Television Program Services (Long Video Services): Our online video business plans to build an independent brand center for film and television programs, providing users with high-quality programs purchased by our online video business or developed in cooperation with third parties. |
• | Wireless Video Services: With the growing accessibility of 3G technology, our online video business plans to take advantage of its leading position in the online video market and the rich resources of Hurray!’s wireless business to develop a wireless video business. |
• | Online Music Services: Our online video business recently established a music division which will have access to our music business’ digital and mobile music production and distribution expertise and capabilities. |
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• | Handset Manufacturers Partnerships. We partner with major handset manufacturers to embed our services and service links into mobile handsets, which enables mobile users to directly access our services without having to go through the service portals operated by the telecom operators. We work with major global and domestic handset manufacturers such as Motorola, Sony Ericsson, TCL and Konka. |
• | Bundling of Products. We bundle certain of our products, primarily 2.5G products, together for a single fixed fee that is lower than what would be payable if the user had ordered those products separately. We often use bundled products together with a free trial period to attract new users by giving them a free or low-cost 2.5G experience. We also use bundled products to attract users that are price sensitive. In addition, bundling can be an effective way to maintain user interest in our services because they can choose from a number of services without incurring additional incremental cost and also to expose users to the wide range of quality services that we offer. Because the content coverage and product quality of individual products are better than those of the bundled products, we have not experienced migration of high-use customers from individual services to the bundled products. |
• | Cross-selling. We cross-sell among our various 2G and 2.5G services. Specific cross-selling activities include placing a tool bar on the first page of all our games. This enables users to easily try our other games without needing to return to the main China Unicom WAP portal, as well as promoting our website to potential users as a fun, easy-to-access place to learn about and request our wireless content and applications. We also focus on cross-selling to users of our 2G services to migrate them to our subscription-based, premium 2.5G services. |
• | Direct Advertising. We engage in direct advertising in print, radio and TV media to market and promote our WVAS and music-related products. We believe that direct advertising is one of the most effective ways to market and promote our services to mobile users. |
• | Promotional Events.We maintain important marketing relationships with China Mobile, China Unicom and China Telecom, including hosting promotional events throughout China featuring our pop singers or latest releases with the telecom operators. At these events, we create brand awareness by interacting with consumers to educate them about our mobile music services. In addition, our promotion of our innovative services, such as our “mobile novels” which feature various popular PRC titles in electronic format that are delivered to the mobile phones of subscribers in installments, which service we believe was the first of its kind in China, has resulted in significant media attention. |
• | Sales Co-promotion.We develop integrated sales campaigns with traditional media companies and multinational corporations. |
• | Retail Promotion.We enter into partnerships with retailers of mobile handsets in certain provinces, whereby the retailers’ sales personnel recommend our services to customers and, in certain instances, offer free trials to these customers. In certain cases, we share the revenues generated through such promotions with the retailer. |
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• | Online and mobile distribution.Our affiliated music companies have built dedicated teams to focus on licensing music rights to Internet and mobile services providers. Such licensing agreements typically involve an upfront minimum license fee, plus royalties paid to the record companies by the services provider based on usage. With the recent significant growth in the distribution of music via the Internet and WVAS and the increased attention by the Chinese government and business community to intellectual property protection, we believe that this new sales channel represents the largest growth potential for our affiliated music companies. |
• | Concert tours.We organize concert tours for our artists through our well-known concert promotion company, Fly Songs, and our other affiliated music companies. This is not only an effective way to raise the profile of our artists nationwide, but also to generate revenues from concert ticket sales and corporate sponsorship. |
• | Corporate sponsorship.Frequently, the artists of our affiliated music companies appear in commercial advertising or serve as corporate image ambassadors on behalf of consumer products and services companies. Our affiliated music companies proactively seek out such opportunities to promote our artists and generate revenues from such corporate sponsorship. |
• | Offline CD distribution.Upon launching a new album, our affiliated music companies will distribute the album in CD format through traditional offline channels, which primarily consists of the tens of thousands of retail stores in China specializing in audio and video media products. As is customary in the industry, our affiliated music companies enter into distribution agreements with major offline distributors or retail chains. Such agreements typically include an upfront minimum license fee, plus royalties paid to the record companies based on sales. Offline CD distribution channels in China have been seriously affected, however, by piracy issues, and we believe that only a small portion of all CD sales in China are from copyrighted sales which generate royalty payments for the record companies. |
• | Music and Artist Agency Services.We endeavor through our music artist agency business to find, develop and retain recording artists who will achieve long-term profitable success. |
• | Direct Advertising. We engage in direct advertising in print, radio and TV media to market and promote our online video products. We believe that direct advertising is one of the most effective ways to market and promote our services to Internet users. |
• | Online Advertising.We engage in online advertising on other websites with user bases similar to our own or likely to watch online videos. |
• | Sales Co-promotion.We develop integrated sales campaigns with traditional media companies and multinational corporations. For example, in March 2010, we co-sponsored, along with Shanda and five other companies, the “Go Campus Angels!” beauty contest which sought to find the most beautiful, talented and energetic college students in China. |
• | Promotional Events.We organize and run a number of online promotional events which we believe help create brand awareness by associating the Ku6 brand with well-known and respected organizations and events in China. For example, in 2009, Ku6.com (i) became the official video sharing website for an internet audition of volunteers for the World Exposition 2010 Shanghai, (ii) jointly created with the China Green Foundation a program to promote environmentally-friendly life styles through its online resources and (iii) held the second “China Online Video Awards Ceremony” in Beijing. |
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• | develop and deliver our WVAS which are (or may in the future be) provided through networks of China Mobile, China Unicom and China Telecom; and |
• | maintain our internal billing and transmission records. |
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• | Telecommunications Regulations(2000), or the Telecom Regulations, categorize all telecommunications businesses in the PRC as either basic or value-added. Internet content services, or ICP services, are classified as value-added telecommunications businesses. Under the Telecom Regulations, commercial operators of value-added telecommunications services must first obtain an operating license from the MIIT or its provincial level counterparts. |
• | Administrative Measures on Internet Information Services(2000), or the Internet Measures. According to the Internet Measures, commercial ICP service operators must obtain an ICP license from the relevant government authorities before engaging in any commercial ICP operations within the PRC. |
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• | Administrative Measures for Telecommunications Business Operating License(2009, revised), or the Telecom License Measures. The Telecom License Measures set forth the types of licenses required to operate value-added telecommunications services and the qualifications and procedures for obtaining such licenses. For example, an ICP operator providing value-added services in multiple provinces is required to obtain an inter-regional license, whereas an ICP operator providing the same services in one province is required to obtain a local license. |
• | Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (2008, revised), or the FI Telecom Regulations. The FI Telecom Regulations set forth detailed requirements with respect to capitalization, investor qualifications and application procedures in connection with the establishment of a foreign-invested telecom enterprise. Under the FI Telecom Regulations, a foreign entity is prohibited from owning more than 50% of the total equity in any value-added telecommunication services business in China. To comply with these restrictions, we have entered into a series of agreements with each of our VIEs and their respective shareholders. We hold no ownership interest in any such VIEs. |
• | Notice on Intensifying the Administration of Foreign Investment in Value-added Telecommunications Services(2006). Under this notice, an operating company holding a value-added telecommunications license (and not its shareholders) must own all related Internet domain names and registered trademarks. In addition, such company’s business site and equipment should comply with its approved licenses, and the company should establish and audit its internal Internet and information security policies and standards and emergency management procedures. |
• | Notice Concerning Short Message Services(2004), Under this Notice, telecom operators may only cooperate with licensed information service providers for SMS. This Notice sets forth requirements for provision of SMS by information service providers with respect to pricing, content and method of service provision. Certain types of SMS require customer’s explicit confirmation on acceptance of charges before such services could be billed for. This Notice also sets forth a high standard for customer services provided by information service providers and requires the service providers to provide an easy and clear cancellation mechanism for their customers to cancel subscribed services. |
• | Notice Concerning the Pricing and Billing of Mobile Information Services(2006). Under this notice, the pricing and billing of WVAS must be accurate, clear and fair. In addition, a WVAS provider cannot charge a customer unless the customer responds to two customer requests, and it must maintain detailed invoices for each customer for more than five months. In turn, the telecom operators are required to first deal with customer complaints, requests for refunds and related matters. |
• | Notice Concerning the Billing of Telecommunications Services(2007). Under this notice, no telecommunication enterprise may activate any service or function directly connected to their platforms, such as call reminder and voice inbox functions, unless the customer affirmatively consents to subscribing to them. For any free trial service subscribed by the mobile phone user, upon expiration of the free trial period, service providers may not charge the mobile phone user any fee for such service or function until the user re-confirms that it wishes to continue such service or function. When a customer calls the customer support line of a service provider, the service provider is prohibited from charging the customer a fee for such call unless the customer expressly confirms its consent to such charge regardless of whether automated or live support is provided. If automated support is provided, the customer is required to be furnished with pricing and billing information through a free voice notice. |
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• | opposes the fundamental principles determined in China’s Constitution; |
• | compromises state security, divulges state secrets, subverts state power or damages national unity; |
• | harms the dignity or interests of the state; |
• | incites ethnic hatred or racial discrimination or damages inter-ethnic unity; |
• | sabotages China’s religious policy or propagates heretical teachings or feudal superstitions; |
• | disseminates rumors, disturbs social order or disrupts social stability; |
• | propagates obscenity, pornography, gambling, violence, murder or fear or incites the commission of crimes; |
• | insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or |
• | includes other content prohibited by laws or administrative regulations. |
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1. | Hurray! Solutions is 85% and 15% owned by Qindai Wang, and Songzuo Xiang, respectively. |
2. | Beijing Network is 50% owned by each of Li Xun and Hongmei Peng, two individuals in China. |
3. | WVAS Solutions is 99% owned by Beijing Network, with the remaining 1% equally owned by Hao Sun and Xiaoping Wang. | ||
4. | Beijing Palmsky is 50% and 50% owned by two individuals in China, Hong Liu and Haoyu Yang. | ||
5. | Beijing Hutong is 50% and 50% owned by two individuals in China, Wenqian Xu and Yi Cai. | ||
6. | Shanghai Magma is 50% and 50% owned by two individuals in China, Yi Zhang and Aiqin Shang. | ||
7. | Hengji Weiye is 50% and 50% owned by two individuals in China, Hong Pan and Xiaoqing Guo. |
8. | Shanghai Saiyu is 50% and 50% owned by two individuals in China, Liang Ruan and Yuqi Shi. |
9. | Henan Yinshan is 50% and 50% owned by two individuals in China, Hua Wei and Yidan Jiang. |
10. | Xifule is 50% and 50% owned by two individuals in China, Tan Jingling and Yao Lijuan. |
11. | Ku6 Information is 50% and 50% owned by two individuals in China, Li Shanyou and Han Hailong. |
12. | Tianjin Ku6 is 100% owned by Ku6 Information. |
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• | WVAS Services. We provide a wide range of WVAS to mobile users in China, including music, games, pictures and animation, community, and other media and entertainment services. Our services are offered through the various service platforms available on the 2G and 2.5G networks operated by the mobile telecommunication network operators in China, principally China Mobile, China Unicom and increasingly, China Telecom. Many of our services are also available to users in China through our Hurray! website. |
• | Music Business. We are a leader in artist development, music production and offline distribution in China through our affiliated music companies, Huayi Brothers Music, Freeland Music, New Run, Secular Bird and Seed Music Group, which also operates in Taiwan. |
• | Online Video Business. We entered the online video market in January 2010 when we acquired Ku6, one of the leading online video portals in China. Ku6.com hosts professionally-produced and user-generated video content from a network of media partners in China, around Asia and from around the world. Our online video business derives its revenue principally from advertising. The acquisition of Ku6 will affect our operating and financial results going forward. |
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• | Growth of the WVAS Market in China and Changes in Mobile Operator Policies. Our financial results have been, and we expect them to continue to be, largely dependent on growth in the WVAS market in China. Historically, 2G and 2.5G services, such as SMS, have represented the predominant portion of the WVAS market in China and of our revenues. We commercially launched 2.5G services in September 2002 and began billing users for these services at the beginning of 2003. Since the launch of these 2G and 2.5G services, we initially experienced significant growth in revenues from these services, followed by a significant decline in revenues for these services over the past three years. The important factors causing this decline have been the changes in the telecom operator policies or the manner in which they are enforced in 2008 and 2009. Such policy changes and their manner of enforcement have been frequent and unpredictable for the past three years and have caused our revenues to be volatile. See Item 3. “Risk Factors — a Company— Unilateral changes in the policies of the MII, China Mobile and China Unicom and in their enforcement of their policies have resulted in service suspensions and our having to pay additional charges to the telecom operators, and further changes could materially and adversely impact our revenue and profitability in the future.” Although we have been adversely affected by changes in telecom operator policies and the delay in the expansion of 2.5G networks by the telecom operators in 2008 and 2009 and in the launch of 3G networks in China, we continue to believe that our financial success in the near-term will depend on the growth of the market for our 2G and 2.5G services, especially services utilizing music content, where we have a leading position and, in the longer-term, on our ability to offer popular services on any new wireless technologies that are introduced in China such as 3G. |
• | Positioning of Our Services on the WAP Portals of the Telecom Operators.A key component of our revenue growth is our ability to not only maintain access to China Unicom’s and China Mobile’s networks and now to China Telecom’s networks following that company’s acquisition of one of China Unicom’s networks, but also our ability to secure prominent positioning for our services at the top of the menu of services for each major service category on the telecom operators’ WAP portals so that users see our services first when opening the service menus. |
• | Network Service Agreements with the Telecom Operators.Our results of operations are dependent on the terms of network service agreements with the telecom operators and the manner in which the telecom operators implement these agreements. Each of these agreements is non-exclusive, and has a limited term, generally one or two years. Renewal of them on favorable terms depends on our relationship with these telecom operators at both the national and provincial level, the popularity of our services and our ability to maintain adequate levels of performance. Any mobile operator could alter any of these terms or terminate the contracts for a variety of reasons in the future, including, for example, to increase their own service or network fees in order to enhance their profitability at the expense of service providers. |
• | Billing and Transmission Failures. We do not recognize any revenues for services that are characterized as billing and transmission failures. We can not collect fees when these failures occur for our 2G services from telecom operators, which arise in a number of circumstances, including when the delivery of our services to a customer is prevented because the customer’s phone is off, the customer’s prepaid phone card has run out of value or a mobile operator experiences technical problems with its network. These situations are known in the industry as billing and transmission failures. The level of billing and transmission failures significantly affects revenues we record. |
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• | Acquisitions, Strategic Investments and Divestitures.Selective acquisitions and strategic investments, such as the ones described in Item 4.A. “History and Development of the Company” above, form part of our strategy to further expand our business. These acquisitions and investments may not produce the results that our management and board of directors anticipate, and may subject our company to unforeseen liabilities. In particular, our future revenue growth will depend on our ability to successfully integrate Ku6, which we acquired in January 2010, and operate its online video business, with which we have relatively limited experience. We may also sell businesses or assets as part of our strategy or if we receive offers from other parties. If we do so, we may sell an asset or business for less than its full value or may lose valuable opportunities attendant to such asset or business. |
• | Developing Artists, Sustaining a Pipeline of New Song Releases and Keeping up with Consumer Music Tastes.Through our acquisition of controlling and minority stakes in Huayi Brothers Music, Freeland Music, New Run and Secular Bird, and Seed Music Group, we have entered the business of artist development and music production. Artist development and music production is inherently a “hit” driven business, and its success depends to a large extent on our ability to maintain a large portfolio of talented singing artists and build a strong pipeline of new song releases. Further, the success of such new releases depends upon their acceptance by consumers with various and changing tastes. If our affiliated music companies fail to expand their portfolio of talented singing artists, sustain a pipeline of new releases, or keep abreast of changes in consumer music tastes, our business and financial condition may be adversely affected with respect to the financial performance of our affiliated music companies. |
• | Developing and Obtaining Online Video Content and Attracting Advertisers.Through our acquisition of Ku6, we have entered the online video business. Ku6 principally derives revenue from online marketing services. Advertisers are generally unwilling to run advertisements on sites that contain unlicensed content for fear of becoming subject to lawsuits concerning intellectual property. Our online video business therefore increasingly relies on third party relationships to attract traffic and provide content. These arrangements usually provide for short-term relationship with a limited period of exclusive use. We may allocate a significant portion of our working capital to the finance such acquisitions of video content, working capital which would otherwise be available for our other business segments. Our results of operation will be affected if the revenue derived from our online marketing services is not sufficient to offset the cost of acquiring legally licensed content. |
For the Year Ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Percentage | Percentage | Percentage | ||||||||||||||||||||||
Amount | of revenues | Amount | of revenues | Amount | of revenues | |||||||||||||||||||
(in thousands of U.S. dollars, except percentages) | ||||||||||||||||||||||||
Revenues: | ||||||||||||||||||||||||
Wireless value-added services | $ | 20,169 | 58.2 | % | $ | 42,672 | 79.1 | % | $ | 50,038 | 82.7 | % | ||||||||||||
Recorded music | 14,473 | 41.8 | % | 11,287 | 20.9 | % | 10,489 | 17.3 | % | |||||||||||||||
Total revenues | $ | 34,642 | 100.0 | % | $ | 53,959 | 100.0 | % | $ | 60,527 | 100.0 | % | ||||||||||||
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For the Year Ended December 31, 2009 | ||||||||||||||||||||||||
China | China | China | China | |||||||||||||||||||||
Mobile | Unicom | Telecom | Netcom | Others | Total | |||||||||||||||||||
(in millions of U.S. dollars) | ||||||||||||||||||||||||
SMS | $ | 3.0 | $ | 1.5 | $ | 0.2 | $ | — | $ | 0.6 | $ | 5.3 | ||||||||||||
IVR | 1.4 | 1.0 | 1.4 | — | 0.1 | 3.9 | ||||||||||||||||||
RBT | 2.3 | 1.6 | 0.6 | — | 0.1 | 4.6 | ||||||||||||||||||
2G Revenues | 6.7 | 4.1 | 2.2 | — | 0.8 | 13.8 | ||||||||||||||||||
WAP | 0.4 | 0.9 | 1.8 | — | — | 3.1 | ||||||||||||||||||
MMS | 1.5 | — | 0.2 | — | — | 1.7 | ||||||||||||||||||
Java | 1.6 | — | — | — | — | 1.6 | ||||||||||||||||||
2.5G revenues | 3.5 | 0.9 | 2.0 | — | — | 6.4 | ||||||||||||||||||
Other revenues | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 10.2 | $ | 5.0 | $ | 4.2 | $ | — | $ | 0.8 | $ | 20.2 | ||||||||||||
For the Year Ended December 31, 2008 | ||||||||||||||||||||||||
China | China | China | China | |||||||||||||||||||||
Mobile | Unicom | Telecom | Netcom | Others | Total | |||||||||||||||||||
(in millions of U.S. dollars) | ||||||||||||||||||||||||
SMS | $ | 9.5 | $ | 2.4 | $ | 0.4 | $ | 0.1 | $ | 0.9 | $ | 13.3 | ||||||||||||
IVR | 7.2 | 1.3 | 3.2 | 0.2 | 0.3 | 12.2 | ||||||||||||||||||
RBT | 2.6 | 1.9 | 0.5 | — | — | 5.0 | ||||||||||||||||||
2G Revenues | 19.3 | 5.6 | 4.1 | 0.3 | 1.2 | 30.5 | ||||||||||||||||||
WAP | 2.1 | 4.7 | 0.6 | — | — | 7.4 | ||||||||||||||||||
MMS | 0.8 | 0.5 | 0.1 | — | — | 1.4 | ||||||||||||||||||
Java | 2.2 | — | — | — | 0.1 | 2.3 | ||||||||||||||||||
WEB | — | — | 0.2 | — | — | 0.2 | ||||||||||||||||||
2.5G revenues | 5.1 | 5.2 | 0.9 | — | 0.1 | 11.3 | ||||||||||||||||||
Other revenues | — | — | — | — | 0.9 | 0.9 | ||||||||||||||||||
Total | $ | 24.4 | $ | 10.8 | $ | 5.0 | $ | 0.3 | $ | 2.2 | $ | 42.7 | ||||||||||||
For the Year Ended December 31, 2007 | ||||||||||||||||||||||||
China | China | China | China | |||||||||||||||||||||
Mobile | Unicom | Telecom | Netcom | Others | Total | |||||||||||||||||||
(in millions of U.S. dollars) | ||||||||||||||||||||||||
SMS | $ | 7.0 | $ | 2.5 | $ | 0.2 | $ | 0.3 | $ | 1.0 | $ | 11.0 | ||||||||||||
IVR | 13.3 | 1.2 | 2.4 | 0.3 | — | 17.2 | ||||||||||||||||||
RBT | 1.6 | 1.7 | 0.4 | — | — | 3.7 | ||||||||||||||||||
2G Revenues | 21.9 | 5.4 | 3.0 | 0.6 | 1.0 | 31.9 | ||||||||||||||||||
WAP | 5.9 | 6.7 | — | — | — | 12.6 | ||||||||||||||||||
MMS | 0.7 | 0.7 | — | — | — | 1.4 | ||||||||||||||||||
Java | 1.4 | — | — | — | — | 1.4 | ||||||||||||||||||
WEB | — | — | 2.0 | — | — | 2.0 | ||||||||||||||||||
2.5G revenues | 8.0 | 7.4 | 2.0 | — | — | 17.4 | ||||||||||||||||||
Other revenues | 0.1 | — | — | — | 0.6 | 0.7 | ||||||||||||||||||
Total | $ | 30.0 | $ | 12.8 | $ | 5.0 | $ | 0.6 | $ | 1.6 | $ | 50.0 | ||||||||||||
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For the Year Ended December 31 | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(in thousands of U.S. dollars) | ||||||||||||
Cost of Revenues: | ||||||||||||
Wireless value-added services | $ | 15,332 | $ | 32,840 | $ | 36,394 | ||||||
Recorded music | 12,625 | 6,730 | 6,233 | |||||||||
Total cost of revenues | $ | 27,957 | $ | 39,570 | $ | 42,627 | ||||||
For the Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(in thousands of U.S. dollars, except percentages) | ||||||||||||
Gross Profits: | ||||||||||||
Wireless value-added services | $ | 4,837 | $ | 9,832 | $ | 13,644 | ||||||
Recorded music | 1,848 | 4,557 | 4,256 | |||||||||
Total gross profits | $ | 6,685 | $ | 14,389 | $ | 17,900 | ||||||
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For the Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Gross Profit Margin: | ||||||||||||
Wireless value-added services | 24.0 | % | 23.0 | % | 27.3 | % | ||||||
Recorded music | 12.8 | % | 40.4 | % | 40.6 | % | ||||||
Total gross profit margin | 19.3 | % | 26.7 | % | 29.6 | % | ||||||
For the Year Ended December 31, | ||||||||||||||||||||||||
2009 | 2008 | 2007 | ||||||||||||||||||||||
Percentage | Percentage | Percentage | ||||||||||||||||||||||
Amount | of revenues | Amount | of revenues | Amount | of revenues | |||||||||||||||||||
(in thousands of U.S. dollars, except percentages) | ||||||||||||||||||||||||
Operating Expenses: | ||||||||||||||||||||||||
Product development expenses | $ | 467 | 1.3 | % | $ | 992 | 1.8 | % | $ | 2,028 | 3.4 | % | ||||||||||||
Selling and marketing expenses | 6,330 | 18.3 | 9,132 | 16.9 | 11,514 | 19.0 | ||||||||||||||||||
General and administrative expenses | 22,992 | 66.4 | 11,984 | 22.2 | 9,141 | 15.1 | ||||||||||||||||||
Provision for goodwill impairment | 3,593 | 10.4 | 2,675 | 5.0 | 38,779 | 64.1 | ||||||||||||||||||
Gain on reduction of Unicom liability | — | — | (1,557 | ) | (2.9 | ) | — | — | ||||||||||||||||
Gain from reversed litigation expenses | — | — | (557 | ) | (1.0 | ) | — | — | ||||||||||||||||
Total operating expenses | $ | 33,382 | 96.4 | % | $ | 22,669 | 42.0 | % | $ | 61,462 | 101.6 | % | ||||||||||||
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• | we are the primary obligor in the arrangement; |
• | we are able to establish prices within price caps prescribed by the telecom operators to reflect or react to changes in the market; |
• | we determine the service specifications of the services we will be rendering; |
• | we are able to control the selection of our content suppliers; and |
• | the telecom operators usually will not pay us if users cannot be billed or if users do not pay the telecom operators for services delivered and, as a result, we bear the delivery and billing risks for the revenues generated with respect to our services. |
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For the Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
(in thousands of U.S. dollars) | ||||||||||||
Net cash (used in) provided by operating activities | $ | (1,455 | ) | $ | (5,553 | ) | $ | (2,055 | ) | |||
Net cash used in investing activities | (9,376 | ) | (2,265 | ) | (8,120 | ) | ||||||
Net cash provided by (used in) financing activities | 3 | 2 | 16 | |||||||||
Net (decrease) in cash and cash equivalents | $ | (10,828 | ) | $ | (7,816 | ) | $ | (10,159 | ) | |||
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Payments Due by Period | ||||||||||||||||
Less than | 1-3 | 3-5 | ||||||||||||||
Total | 1 year | years | years | |||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||
Operating lease commitments | $ | 862 | $ | 492 | $ | 370 | $ | — | ||||||||
Other contractual commitments* | 2,024 | 852 | 1,172 | — | ||||||||||||
Total contractual obligations | $ | 2,886 | $ | 1,344 | $ | 1,542 | $ | — | ||||||||
* | Represents non-cancelable agency agreements with certain artists that provide for minimum payments. |
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Name | Age | Position | ||
Tianqiao Chen(1) | 36 | Director and Chairman of the Board | ||
Danian Chen | 31 | Director | ||
Grace Wu(1) | 39 | Director | ||
Haifa Zhu(1) | 37 | Director | ||
Haibin Qu | 36 | Director and acting Chief Executive Officer | ||
Shanyou Li | 37 | Director and CEO of Ku6 | ||
Zheng Wu(2) | 43 | Director | ||
Tongyu Zhou(2) | 41 | Director | ||
Wenwen Niu(2) | 45 | Director | ||
Li Yao | 36 | Acting Chief Financial Officer | ||
Haoyu Yang | 38 | Executive Vice President | ||
Yanmei Zhang | 45 | Executive Vice President | ||
Jianwu Liang | 29 | Chief Technology Officer and Senior Vice President |
(1) | Member of the compensation committee | |
(2) | Member of the audit committee |
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• | dishonesty, |
• | fraud, |
• | breach of trust, |
• | physical harm to any person, |
• | breach of the employment agreement, or |
• | other similar conduct. |
• | changes in the officer’s position, which materially reduce his level of responsibilities, duties or stature, or |
• | a reduction in the officer’s compensation. |
• | our ordinary shares, |
• | options to purchase our ordinary shares, |
• | dividend equivalent rights, the value of which is measured by the dividends paid with respect to our ordinary shares, |
• | non-vested shares, |
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• | stock appreciation rights the value of which is measured by appreciation in the value of our ordinary shares, and |
• | any other securities the value of which is derived from the value of our ordinary shares and which can be settled for cash, our ordinary shares or other securities or a combination of cash, our ordinary shares or other securities. |
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• | all persons who are beneficial owners of five percent or more of our ordinary shares; |
• | our current executive officers and directors; and |
• | all current directors and executive officers as a group. |
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Number of Shares | ||||||||
Beneficially Owned | ||||||||
Name | Number | Percentage | ||||||
5% and above Shareholders | ||||||||
Shanda Interactive Entertainment Ltd | 1,233,161,592 | 41.97 | % | |||||
Romasco Place, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, British Virgin Islands, VG1110(1) | ||||||||
Granite Global Ventures | 256,850,015 | 8.74 | % | |||||
2494 Sand Hill Road Suite 100 Menlo Park, CA 94025 United States(2) | ||||||||
Executive Officers and Directors(3) | ||||||||
Shanyou Li(3) | 274,077,076 | 9.33 | % | |||||
Tianqiao Chen | — | — | ||||||
Danian Chen | — | — | ||||||
Grace Wu | — | — | ||||||
Haifa Zhu | — | — | ||||||
Haibin Qu | — | — | ||||||
Shanyou Li | — | — | ||||||
Zheng Wu | — | — | ||||||
Tongyu Zhou | — | — | ||||||
Wenwen Niu | — | — | ||||||
Li Yao | — | — | ||||||
Haoyu Yang | — | — | ||||||
Yanmei Zhang | — | — | ||||||
Jianwu Liang | — | — | ||||||
All current directors and executive officers as a group (11 persons) | 274,077,076 | 9.33 | % |
* | Upon exercise of all options currently exercisable or vesting within 60 days of the date of this table, would beneficially own less than 1% of our ordinary shares. |
(1) | Shanda Interactive Entertainment Ltd, through Shanda Music Group Limited accepted 1,155,045,300 Shares (including Shares represented by ADSs) by Tender Offer Agreement among Shanda Interactive Entertainment Ltd, Shanda Music Group Limited and Hurray! Holding Co., Ltd. dated as of June 8, 2009. On September 18, 2009, Shanda Music Group Limited acquired additional 78,116,292 Shares (including Shares presented by ADSs) pursuant to the Share Transfer Agreements. |
(2) | Granite Global Ventures is an investment adviser. |
(3) | Includes (i) 257,106,176 ordinary shares held by KUMELLA HOLDINGS LIMITED, (ii) 8,999,200 ordinary shares held by Li Shanyou, and (iii) 79,717 American Depositary Shares held by Li Shanyou, each representing 100 ordinary shares of the Issuer. KUMELLA HOLDINGS LIMITED is a British Virgin Islands company, with Li Shanyou holding approximately 88.27% of its equity interest and other three individuals holding the remaining 11.73% of its equity interest. In addition, each of such three individual shareholders of KUMELLA HOLDINGS LIMITED has granted a power of attorney to the board of directors of KUMELLA HOLDINGS LIMITED to exercise the voting rights with respect to shares held by such individual shareholder. Li Shanyou is currently serving as the sole director on the board of KUMELLA HOLDINGS LIMITED. Therefore, Li Shanyou may be deemed to share the power to vote and dispose or direct the disposition of 257,106,176 ordinary shares of the Issuer held by KUMELLA HOLDINGS LIMITED. |
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Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Consulting, royalty and artist performance fee from Huayi Brothers Media Corporation | 26,087 | 281,795 | — | |||||||||
Consulting, production and marketing service fee from Huayi Brothers Times Culture Broker Co., Ltd. | — | — | 281,580 | |||||||||
Royalty revenue from Shanghai Haiyue Music Distribution Co., Ltd. | 185,510 | 120,129 | — | |||||||||
Royalty revenue from Beijing Oriental Freeland Film Media Co., Ltd. | — | 128,995 | — | |||||||||
CD distribution revenue from Beijing Century Freeland Film Media Co., Ltd. | 262,520 | 35,625 | 52,248 | |||||||||
Royalty revenue from Guangdong Freeland Film Media Co., Ltd. | 64,450 | — | — | |||||||||
Royalty revenue from New Run | 106,567 | — | — | |||||||||
645,134 | 566,544 | 333,828 | ||||||||||
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Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Content purchase, minimum guarantee and trade-name usage fee to Huayi Brothers Media Corporation | 80,285 | 58,501 | 208,663 | |||||||||
Content purchase and information service fee to New Run | 16,440 | 26,771 | 15,053 | |||||||||
Expenses paid on behalf of Beijing Secular Bird Culture Art Development Center | — | 19,009 | — | |||||||||
96,725 | 104,281 | 223,716 | ||||||||||
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Sales Price | ||||||||
High | Low | |||||||
Annual highs and lows | ||||||||
2005 (February 4, 2005 through December 31, 2005) | $ | 11.80 | $ | 7.67 | ||||
2006 | $ | 9.71 | $ | 4.70 | ||||
2007 | $ | 6.53 | $ | 3.05 | ||||
2008 | $ | 4.21 | $ | 1.08 | ||||
2009 | $ | 2.28 | $ | 0.93 | ||||
Quarterly highs and lows | ||||||||
First Quarter 2008 | $ | 4.21 | $ | 2.36 | ||||
Second Quarter 2008 | $ | 3.30 | $ | 2.61 | ||||
Third Quarter 2008 | $ | 3.19 | $ | 2.21 | ||||
Fourth Quarter 2008 | $ | 2.75 | $ | 1.08 | ||||
First Quarter 2009 | $ | 2.04 | $ | 0.93 | ||||
Second Quarter 2009 | $ | 4.00 | $ | 0.95 | ||||
Third Quarter 2009 | $ | 3.95 | $ | 3.25 | ||||
Fourth Quarter 2008 | $ | 7.16 | $ | 3.85 | ||||
First Quarter 2010 | $ | 4.50 | $ | 2.22 | ||||
Second Quarter 2010 (April 1, 2010 through April 23, 2010) | $ | 3.57 | $ | 3.03 | ||||
Monthly highs and lows | ||||||||
October 2009 | $ | 7.16 | $ | 3.85 | ||||
November 2009 | $ | 6.15 | $ | 4.63 | ||||
December 2009 | $ | 4.90 | $ | 3.89 | ||||
January 2010 | $ | 4.50 | $ | 3.50 | ||||
February 2010 | $ | 3.85 | $ | 2.22 | ||||
March 2010 | $ | 3.85 | $ | 2.84 | ||||
April 2010 (April 1, 2010 through 23, 2010) | $ | 3.57 | $ | 3.03 |
• | Notice on Issues Relating to the Administration of Foreign Exchange in Fundraising and Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose Companies; |
• | Foreign Currency Administration Rules (1996), as amended, or the Exchange Rules; and |
• | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
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(i) | that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income or gains or appreciations shall apply to our company or its operations; and |
(ii) | in addition, that no tax be levied on profits, income gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by our company: |
(a) | on or in respect of the shares, debentures or other obligations of our company; or |
(b) | by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Law (1999 Revision). |
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• | a citizen or resident of the United States; |
• | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States, any state therein or the District of Columbia; or |
• | an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source. |
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• | any “excess distribution” paid on ordinary shares or ADSs (or by a Lower-tier PFIC to its shareholder that is deemed to be received by a U.S. Holder), which means the excess (if any) of the total distributions received (or deemed received) by you during the current taxable year over 125% of the average distributions received (or deemed received) by you during the three preceding taxable years (or during the portion of your holding period for the ordinary shares or ADSs prior to the current taxable year, if shorter); and |
• | any gain realized on the sale or other disposition (including a pledge) of ordinary shares or ADSs (or on an indirect disposition of shares by a Lower-tier PFIC). |
• | any excess distribution or gain will be allocated ratably over your holding period for the ordinary shares or ADSs; |
• | the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC will be treated as ordinary income in the current taxable year; |
• | the amount allocated to each of the other years will be treated as ordinary income and taxed at the highest applicable tax rate in effect for that year; and |
• | the resulting tax liability from any such prior years will be subject to the interest charge applicable to underpayments of tax. |
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• | political and economic stability; |
• | an effective judicial system; |
• | a favorable tax system; |
• | the absence of exchange control or currency restrictions; and |
• | the availability of professional and support services. |
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Persons depositing or withdrawing shares must pay: | For: | |||
A fee not in excess of $5.00 per 100 ADSs | • | Issuance of ADSs, including issuances resulting from a distribution of ordinary shares or rights or other property | ||
• | Cancellation or withdrawals of ADSs | |||
• | Distributions of securities other than ADSs or rights to purchase additional ADSs | |||
A fee not in excess of $2.00 per 100 ADSs | • | Distributions of cash dividends or other cash distributions to holders of ADRs | ||
• | Annual depositary services, except to the extent of any cash dividend fee(s) charged | |||
A fee not in excess of $1.50 per ADR | • | Transfers of ADRs | ||
Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or ordinary shares underlying an ADS, for example, stock transfer taxes, stamp duty or withholding taxes | • | As necessary | ||
Any charges, fees or expenses incurred by the depositary or its agents for servicing the deposited securities | • | As necessary |
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For the year ended | ||||||||
December 31, | ||||||||
2009 | 2008 | |||||||
Audit fees(1) | $ | 1,247,687 | $ | 437,132 | ||||
Audit related fees(2) | — | — | ||||||
Tax fees(3) | — | 96,455 | ||||||
All other fees(4) | 41,233 | — |
(1) | “Audit fees” means the aggregate fees incurred in each of the fiscal years listed for our calendar year audits and reviews of financial statements. | |
(2) | “Audit-related fees” means the aggregate fees incurred in each of the fiscal years listed for professional services related to the audit of our financial statements that are not reported under “Audit fees” and consultation on accounting standards or transactions. | |
(3) | “Tax fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered for tax compliance, tax advice and tax planning. | |
(4) | “All other fees” means the aggregate fees incurred in each of the fiscal years listed for professional services rendered other than those reported under “Audit fees,” “Audit-related fees,” and “Tax fees.” |
• | Any audit or non-audit service to be provided to us by the independent accountant must be submitted to the audit committee for review and approval, with a description of the services to be performed and the fees to be charged. |
• | The audit committee in its sole discretion then approves or disapproves the proposed services and documents such approval, if given, through written resolutions or in the minutes of meetings, as the case may be. |
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Exhibit | ||||
Number | Document | |||
1.1 | Amended and Restated Memorandum and Articles of Association of the Company (incorporated herein by reference to Exhibit 3.1 to our registration statement on Form F-1 (Registration No. 333-121987) filed with the Commission on January 12, 2005). | |||
1.2 | Amendment to Memorandum and Articles of Association dated November 20, 2009. | |||
2.1 | Specimen American Depositary Receipt of us (incorporated by reference to Exhibit 4.1 to our registration statement on Form F-6 (Registration No. 333-122004) filed with the Commission on January 13, 2005). | |||
2.2 | Specimen Share Certificate (incorporated herein by reference to Exhibit 4.2 to our registration statement on Form F-1 (Registration No. 333-121987) filed with the Commission on January 12, 2005). | |||
2.3 | Deposit Agreement dated February 9, 2005 among us, Citibank N.A. and holders of the American Depositary Receipts issued thereunder (incorporated by reference to Exhibit 3(a) to our registration statement on Form F-6 (Registration No. 333-122004) filed with the Commission on January 13, 2005). | |||
4.1 | Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.2 | Translation of Equity Transfer Agreement by and among Zhang Yi, Shang Aiqin, Wang Jiang, Xu Hongyan, Xie Peifu, He Ming and Chen Yixiao dated December 30, 2005 (incorporated by reference to Exhibit 4.13 of our annual report on Form 20-F filed with the Commission on June 15, 2006). | |||
4.3 | Translation of Equity Transfer and Capital Increase Agreement by and among Beijing Huayi Brothers Advertising Co., Ltd., Beijing Qixin Weiye Culture Development Co., Ltd. and Hurray! Digital Music Technology Co., Ltd. dated December 12, 2005 (incorporated by reference to Exhibit 4.15 of our annual report on Form 20-F filed with the Commission on June 15, 2006). | |||
4.4 | Translation of Cooperation Agreement by and among Hurray! Solutions, Ltd., Beijing Enterprise Mobile Technology Co., Ltd., Beijing Hutong Wuxian Technology Co., Ltd., Zhong Xiongbing, Guangdong Freeland Movie and Television Production Co., Ltd., Beijing Shiji Freeland Movie and Television Distribution Co., Ltd., Shanghai Hai Le Audio & Video Distribution Co., Ltd. and Hong Kong Freeland Movie Industry Group Co., Ltd. dated November 14, 2005 (incorporated by reference to Exhibit 4.16 of our annual report on Form 20-F filed with the Commission on June 15, 2006). | |||
4.5 | Translation of Data Service Cooperation Agreement between Beijing Enlight Times Info Co., Ltd and Hurray! Solutions Ltd. (incorporated by reference to Exhibit 10.21 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.6 | Translation of Agreement for Transfer of Entitlement to Dividends between Qindai Wang and Hurray! Holding Co., Ltd. dated August 15, 2003 (incorporated by reference to Exhibit 10.24 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). |
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Exhibit | ||||
Number | Document | |||
4.7 | Translation of Software Assignment Agreement between Hurray! Solutions Ltd. and Hurray! Times Communications (Beijing) Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.27 of our registration statement on Form F-1 (File No. 333 121987) filed with the Commission on January 12, 2005). | |||
4.8 | Translation of Software License Agreement between Hurray! Times Communications (Beijing) Ltd. and Hurray! Solutions Ltd. dated May 5, 2004(incorporated by reference to Exhibit 10.28 of our registration statement on Form F-1 (File No. 333 121987) filed with the Commission on January 12, 2005). | |||
4.9 | Translation of Letter of Undertaking by Qindai Wang dated May 5, 2004 (incorporated by reference to Exhibit 10.31 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.10 | Translation of Authorization Agreement by Songzuo Xiang dated May 5, 2004 (incorporated by reference to Exhibit 10.32 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.11 | Translation of Exclusive Technical Consulting and Services Agreement between Hurray! Times Communications (Beijing) Ltd. and Hurray! Solutions Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.33 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.12 | Translation of Operating Agreement among Hurray! Times Communications (Beijing) Ltd., Hurray! Solutions Ltd., Qindai Wang and Songzuo Xiang dated May 5, 2004 (incorporated by reference to Exhibit 10.34 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.13 | Translation of Contract Related to Exclusive Purchase Right of Equity Interest among Hurray! Holding Co., Ltd., Hurray! Solutions Ltd. and Qindai Wang dated May 5, 2004 (incorporated by reference to Exhibit 10.35 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.14 | Translation of Contract Related to Exclusive Purchase Right of Equity Interest among Hurray! Holding Co., Ltd., Hurray! Solutions Ltd. and Songzuo Xiang dated May 5, 2004 (incorporated by reference to Exhibit 10.36 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.15 | Translation of Equity Interests Pledge Agreement between Qindai Wang and Hurray! Times Communications (Beijing) Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.37 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.16 | Translation of Equity Interests Pledge Agreement between Songzuo Xiang and Hurray! Times Communications (Beijing) Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.38 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.17 | Translation of Letter of Undertaking by Qindai Wang dated May 5, 2004 (incorporated by reference to Exhibit 10.39 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.18 | Translation of Equity Interests Pledge Agreement between Hurray! Times Communications (Beijing) Ltd. and Hurray! Solutions Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.46 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.19 | Translation of Software License Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing WVAS Solutions Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.53 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). |
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Exhibit | ||||
Number | Document | |||
4.20 | Translation of Authorization Agreements by each of Sun Hao and Wang Xiaoping dated October 1, 2004 and October 1, 2004, respectively (incorporated by reference to Exhibit 10.55 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.22 | Translation of Exclusive Technical Consulting and Services Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing WVAS Solutions Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.57 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.23 | Translation of Operating Agreement among Hurray! Times Communications (Beijing) Ltd., Beijing WVAS Solutions Ltd., Beijing Enterprise Network Technology Co., Ltd., Sun Hao and Wang Xiaoping dated October 1, 2004 (incorporated by reference to Exhibit 10.58 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.24 | Translation of Contracts Relating to Exclusive Purchase Right of Equity Interest between Hurray! Holding Co., Ltd., Beijing WVAS Solutions Ltd. and each of Sun Hao and Wang Xiaoping dated October 1, 2004 and October 1, 2004, respectively (incorporated by reference to Exhibit 10.59 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.25 | Translation of Contract Relating to Exclusive Purchase Right of Equity Interest between Hurray! Holding Co., Ltd., Beijing WVAS Solutions Ltd. and Beijing Enterprise Network Technology Co., Ltd. dated October 1, 2004 (incorporated by reference to Exhibit 10.60 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.26 | Translation of Equity Interests Pledge Agreements between Hurray! Times Communications (Beijing) Ltd. and each of Sun Hao and Wang Xiaoping dated October 1, 2004 and October 1, 2004, respectively (incorporated by reference to Exhibit 10.61 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.27 | Translation of Equity Interests Pledge Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing Enterprise Network Technology Co., Ltd. dated October 1, 2004 (incorporated by reference to Exhibit 10.62 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.28 | Translation of Software Assignment Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing Palmsky Technology Co., Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.65 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.29 | Translation of Software License Agreement between Hurray! times Communications (Beijing) Ltd. and Beijing Palmsky Technology Col, Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.66 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.30 | Translation of Authorization Agreement by Yang Haoyu dated October 1, 2004 (incorporated by reference to Exhibit 10.69 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.31 | Translation of Exclusive Technical Consulting and Services Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing Palmsky Technology Co., Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.71 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.32 | Translation of Operating Agreement among Hurray! Times Communications (Beijing) Ltd., Beijing Palmsky Technology Co., Ltd., Yang Haoyu and Wang Jianhua dated October 1, 2004 (incorporated by reference to Exhibit 10.72 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). |
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Exhibit | ||||
Number | Document | |||
4.33 | Translation of Contract Relating to Exclusive Purchase Right of Equity Interest among Hurray! Holding Co., Ltd., Yang Haoyu and Beijing Palmsky Technology Co., Ltd. dated October 1, 2004 (incorporated by reference to Exhibit 10.73 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.34 | Translation of Contract Relating to Exclusive Purchase Right of Equity Interest among Hurray! Holding Co., Ltd., Wang Jianhua and Beijing Palmsky Technology Co., Ltd. dated October 1, 2004 (incorporated by reference to Exhibit 10.74 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.35 | Translation of Equity Interests Pledge Agreement between Hurray! Times Communications (Beijing) Ltd. and Yang Haoyu dated October 1, 2004 (incorporated by reference to Exhibit 10.75 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.36 | Translation of Equity Interests Pledge Agreement between Hurray! Times Communications (Beijing) Ltd. and Wang Jianhua dated October 1, 2004 (incorporated by reference to Exhibit 10.76 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.37 | Translation of Software License Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing Enterprise Network Technology Co., Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.79 of our registration statement on Form F-1 (file No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.38 | Translation of Authorization Agreement by Sun Hao dated August 15, 2004 (incorporated by reference to Exhibit 10.81 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.39 | Translation of Authorization Agreement by Wang Xiaoping dated August 15, 2004 (incorporated by reference to Exhibit 10.82 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.40 | Translation of Exclusive Technical Consulting and Services Agreement between Hurray! Times Communications (Beijing) Ltd. and Beijing Enterprise Network Technology Co., Ltd. dated May 5, 2004 (incorporated by reference to Exhibit 10.83 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.41 | Translation of Operating Agreement between Hurray! Times Communications (Beijing) Ltd., Beijing Enterprise Network Technology Co., Ltd., Sun Hao and Wang Xiaoping dated August 15, 2004 (incorporated by reference to Exhibit 10.84 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.42 | Translation of Contract Relating to Exclusive Purchase Right of Equity Interest among Hurray! Holding Co., Ltd., Wang Xiaoping and Beijing Enterprise Network Technology Co., Ltd. dated August 15, 2004 (incorporated by reference to Exhibit 10.85 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.43 | Translation of Contract Relating to Exclusive Purchase Right of Equity Interest among Hurray! Holding Co., Ltd., Sun Hao and Beijing Enterprise Network Technology Co., Ltd. dated August 15, 2004 (incorporated by reference to Exhibit 10.86 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). |
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Exhibit | ||||
Number | Document | |||
4.44 | Translation of Equity Interests Pledge Agreement between Hurray! Times Communications (Beijing) Ltd. and Sun Hao dated October 1, 2004 (incorporated by reference to Exhibit 10.87 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.45 | Translation of Equity Interests Pledge Agreement between Hurray! Times Communications (Beijing) Ltd. and Wang Xiaoping dated October 1, 2004 (incorporated by reference to Exhibit 10.88 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.46 | Translation of Agreement on Transfer of Shares of Beijing Enterprise Network Technology Co., Ltd. between Sun Hao and Wang Xiaoping and Hurray! Solutions Ltd. and Wang Qindai dated July 19, 2004 (incorporated by reference to Exhibit 10.89 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.47 | Translation of Software License Agreement by and between Hurray! Times Communications (Beijing) Ltd. and Shanghai Magma Digital Technology Co. Ltd. dated January 12, 2006 (incorporated by reference to Exhibit 4.97 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 15, 2006). | |||
4.48 | Translation of Software Assignment Agreement by and between Shanghai Magma Digital Technology Co. Ltd. and Hurray! Times Communications (Beijing) Ltd. dated January 12, 2006 (incorporated by reference to Exhibit 4.98 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 15, 2006). | |||
4.49 | Translation of Authorization Agreement by Shang Aiqin dated January 12, 2006 (incorporated by reference to Exhibit 4.101 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.50 | Translation of Authorization Agreement by Zhang Yi dated January 12, 2006 (incorporated by reference to Exhibit 4.102 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.51 | Translation of Exclusive Technical Consulting and Services Agreement by and between Hurray! Times Communications (Beijing) Ltd. and Shanghai Magma Digital Technology Co. Ltd. dated January 12, 2006 (incorporated by reference to Exhibit 4.103 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.52 | Translation of Operating Agreement by and among Hurray! Times Communications (Beijing) Ltd., Shanghai Magma Digital Technology Co. Ltd., Zhang Yi and Shang Aiqin dated January 12, 2006 (incorporated by reference to Exhibit 4.104 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.53 | Translation of Contract Relating to the Exclusive Purchase Right of an Equity Interest by and among Hurray! Holding Co., Ltd., Shang Aiqin and Shanghai Magma Digital Technology Co. Ltd. dated January 12, 2006 (incorporated by reference to Exhibit 4.105 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.54 | Translation of Contract Relating to the Exclusive Purchase Right of an Equity Interest by and among Hurray! Holding Co., Ltd., Zhang Yi and Shanghai Magma Digital Technology Co. Ltd. dated January 12, 2006 (incorporated by reference to Exhibit 4.106 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.55 | Translation of Equity Interests Pledge Agreement by and between Hurray! Times Communications (Beijing) Ltd. and Zhang Yi dated January 12, 2006 (incorporated by reference to Exhibit 4.107 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). |
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Exhibit | ||||
Number | Document | |||
4.56 | Translation of Equity Interests Pledge Agreement by and between Hurray! Times Communications (Beijing) Ltd. and Shang Aiqin dated January 12, 2006 (incorporated by reference to Exhibit 4.108 of our annual report on Form 20-F (File No. 000 51116) filed with the Commission on June 15, 2006). | |||
4.57 | 2004 Share Incentive Plan (incorporated by reference to Exhibit 10.95 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.58 | Translation of Supplemental Agreement to Agreement on Transfer of Shares of Beijing Enterprise Network Technology Co., Ltd. among Hurray! Holding Co., Ltd., Qindai Wang, Yu Qin and Zhang Chen dated November 4, 2004 (incorporated by reference to Exhibit 10.96 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.59 | Translation of Supplemental Agreement to Agreement on Transfer of Shares of Beijing Enterprise Mobile Technology Co., Ltd. among Hurray! Holdings Co., Ltd., Funway Investment Holdings Ltd. and I-mode Technology Ltd. dated November 4, 2004 (incorporated by reference to Exhibit 10.97 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.60 | Translation of Loan Agreement between Beijing Enterprise Network Technology Co., Ltd. and Yu Qin dated November 4, 2004 (incorporated by reference to Exhibit 10.98 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.61 | Translation of Loan Agreement between WVAS Solutions Ltd. and Yu Qin dated November 4, 2004 (incorporated by reference to Exhibit 10.99 of our registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 12, 2005). | |||
4.62 | Translation of Supplemental Agreement dated January 25, 2005 to certain Equity Interests Pledge Agreements (incorporated by reference to the registration statement on Form F-1 (File No. 333-121987) filed with the Commission on January 28, 2005). | |||
4.63 | Translation of Cooperation Agreement between Hurray! Digital Media Technology Co., Ltd., Lan Gang, Chen Jianzhong, Hu Li, and Guangzhou Hurray! Secular Bird Culture Communication Co., Ltd, dated March 12, 2007 (incorporated by reference to Exhibit 4.120 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 15, 2007). | |||
4.64 | Translation of Supplemental Agreement between Hurray Holdings Co., Ltd. and Magma Digital International Limited, dated September 1, 2006 (incorporated by reference to Exhibit 4.121 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 15, 2007). | |||
4.65 | Translation of Supplemental Agreement between Hurray Solutions, Ltd., Beijing Enterprise Mobile Technology Co., Ltd., Beijing Hutong Wuxian Technology Co., Ltd., Zhong Xiongbing, Guangdong Freeland Movie and Television Production Co., Ltd., Beijing Shiji Freeland Movie and Television Distribution Co., Ltd., Shanghai Hai Le Audio and Video Distribution Co., Ltd., Hong Kong Freeland Movie Industry Group Co., Ltd. and Beijing Freeland Wu Xian Digital Music Technology Co., Ltd., dated July 30, 2006 (incorporated by reference to Exhibit 4.122 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 15, 2007). | |||
4.66 | Translation of Supplemental Agreement between Hurray Solutions, Ltd., Beijing Enterprise Mobile Technology Co., Ltd., Beijing Hutong Wuxian Technology Co., Ltd., Zhong Xiongbing, Guangdong Freeland Movie and Television Production Co., Ltd., Beijing Shiji Freeland Movie and Television Distribution Co., Ltd., Shanghai Hai Le Audio and Video Distribution Co., Ltd. and Hong Kong Freeland Movie Industry Group Co., Ltd, dated November 30, 2006 (incorporated by reference to Exhibit 4.123 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 15, 2007). | |||
4.67 | Translation of Share Transfer Agreement between TWM Holding, Hurray! Holding Co., Ltd., and Hurray! Times Communications (Beijing) Ltd. dated October 8, 2007 (incorporated by reference to Exhibit 4.84 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 19, 2008). |
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Exhibit | ||||
Number | Document | |||
4.68 | Translation of Equity Transfer Agreement of Shanghai Saiyu Information Technology Co., Ltd. among Liang Ruan, Yuqi Shi, Jie Li and Jianmei Wan, dated February 12, 2007 (incorporated by reference to Exhibit 4.85 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 19, 2008). | |||
4.69 | Translation of Transfer Agreement between Hurray! Times Communications (Beijing) Co., Ltd., Beijing WVAS Solutions Ltd., Beijing Enterprise Network Technology Co., Ltd., Xiaoping Wang, Hao Sun and Beijing Hurray! Times Technology Co., Ltd., dated May, 2007 (incorporated by reference to Exhibit 4.86 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 19, 2008). | |||
4.70 | Translation of Cooperation Agreement on Monternet WAP Services between China Mobile Communications Group Corporation and Beijing Enterprise Network Technology Co., Ltd. dated June 18, 2008. (incorporated by reference to Exhibit 4.70 of our annual report on Form 20-F (File No. 000-5116) filed with the Commission on June 26, 2009). | |||
4.71 | Translation of Mobile Value-added Service (WAP1.2) Cooperation Agreement between China Telecommunications Corporation and Beijing Hengji Weiye Electronic Commerce Co., Ltd. dated October 1, 2008 (incorporated by reference to Exhibit 4.71 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 26, 2009). | |||
4.72 | Investment and Shareholders’ Agreement between, among others, Seed Music Group Limited and Hurray! Music Holding Co., Ltd. dated September 24, 2008 (incorporated by reference to Exhibit 4.72 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 26, 2009). | |||
4.73 | Translation of Supplemental Agreement of Asset, Business and Personnel Transfer Agreement between Beijing Secular Bird Culture and Art Development Centre and Guangzhou Secular Bird Culture Communication Co., Ltd. dated August 2008 (incorporated by reference to Exhibit 4.73 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 26, 2009). | |||
4.74 | Translation of Supplemental Agreement between Hurray! Digital Media Technology Co., Ltd. and Beijing Secular Bird Culture and Art Development Centre dated August 2008 (incorporated by reference to Exhibit 4.74 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 26, 2009). | |||
4.75 | Translation of Supplemental Agreement among Seed Music Group Limited, Hurray! Media Holding Co., Ltd., Tien, Ting-Feng, and Huang, Tien-Zan dated 2009 (incorporated by reference to Exhibit 4.75 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 26, 2009). | |||
4.76 | Translation of Supplemental Agreement among Hurray! Media Technologies Co., Ltd., Xiongbing Zhong, Guangdong Freeland Movie and Television Production Co., Ltd., Beijing Shiji Freeland Movie and Television Distribution Co., Ltd., Shanghai Hai Le Audio and Video Distribution Co., Ltd., and Hongkong Freeland Movie Industry Group Co., Ltd. dated 2008 (incorporated by reference to Exhibit 4.76 of our annual report on Form 20-F (File No. 000-51116) filed with the Commission on June 26, 2009). | |||
8.1 | List of Significant Subsidiaries and Affiliates. |
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Exhibit | ||||
Number | Document | |||
11.1 | Code of Business Conduct (incorporated by reference to Exhibit 11.1 of our annual report on Form 20-F filed with the Commission on June 15, 2006). | |||
12.1 | Certification of Chief Executive Officer Required by Rule 13a-14(a). | |||
12.2 | Certification of Chief Financial Officer Required by Rule 13a-14(a). | |||
13.1 | Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. | |||
13.2 | Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code. | |||
15.1 | Consent of Deloitte Touche Tohmatsu CPA Ltd., Independent Registered Public Accounting Firm. | |||
15.2 | Consent of Appleby. | |||
15.3 | Letter of Deloitte Touche Tohmatsu CPA Ltd. dated April 29, 2010. | |||
15.4 | Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company. |
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HURRAY! HOLDING CO., LTD. | ||||
By: | /s/ Haibin Qu | |||
Haibin Qu | ||||
Acting Chief Executive Officer | ||||
Date: April 29, 2010 |
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Table of Contents
HURRAY! HOLDING CO., LTD.:
Shanghai, the People’s Republic of China
April 29, 2010
F-2
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Hurray! Holding Co., Ltd.
Beijing, the People’s Republic of China
F-3
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December 31, 2008 | December 31, 2009 | |||||||
(in U.S. dollars, except number of shares) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 59,472,703 | 48,489,095 | ||||||
Short term investments | — | 10,000,000 | ||||||
Accounts receivable, net of allowance | 12,658,287 | 3,192,366 | ||||||
Prepaid expenses and other current assets | 4,170,323 | 1,834,361 | ||||||
Amount due from related parties | 745,351 | 62,725 | ||||||
Inventories | 254,589 | 196,745 | ||||||
Current deferred tax assets | 363,330 | — | ||||||
Receivable on disposal of a subsidiary | 46,860 | — | ||||||
Total current assets | 77,711,443 | 63,775,292 | ||||||
Property and equipment, net | 980,060 | 879,775 | ||||||
Acquired intangible assets, net | 1,945,322 | 1,081,962 | ||||||
Investment in an affiliated company | 824,579 | — | ||||||
Goodwill | 3,156,664 | 2,099,290 | ||||||
Deposits and other non-current assets | 719,977 | 331,958 | ||||||
Prepaid acquisition costs | 1,907,400 | — | ||||||
Investment at cost | 600,038 | — | ||||||
Non-current deferred tax assets | 478,919 | — | ||||||
Total assets | 88,324,402 | 68,168,277 | ||||||
Liabilities and shareholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | 2,454,064 | 3,731,562 | ||||||
Notes payable | — | 227,720 | ||||||
Acquisitions payable | 14,657 | — | ||||||
Accrued expenses and other current liabilities | 3,018,203 | 6,260,849 | ||||||
Amount due to related parties | 207,879 | 439,445 | ||||||
Income tax payable | 123,626 | 654,835 | ||||||
Current deferred tax liabilities | 497,283 | 12,316 | ||||||
Total current liabilities | 6,315,712 | 11,326,727 | ||||||
Long-term payable | 24,002 | 17,554 | ||||||
Non-current deferred tax liabilities | 292,194 | 262,665 | ||||||
Total liabilities | 6,631,908 | 11,606,946 | ||||||
Commitments and contingencies | — | — | ||||||
Redeemable non-controlling interest | — | 370,870 | ||||||
Equity: | ||||||||
Ordinary shares ($0.00005 par value; 4,560,000,000 shares authorized; 2,193,343,740 and 2,200,194,040 shares issued and outstanding as of December 31, 2008 and December 31, 2009, respectively) | 109,617 | 109,959 | ||||||
Additional paid-in capital | 75,012,693 | 75,190,411 | ||||||
Statutory reserves | 1,791,324 | 1,791,324 | ||||||
Accumulated deficits | (9,991,663 | ) | (32,649,555 | ) | ||||
Accumulated other comprehensive income | 9,987,314 | 9,953,826 | ||||||
Total Hurray! Holding Co., Ltd. shareholders’ equity | 76,909,285 | 54,395,965 | ||||||
Non-controlling interests | 4,783,209 | 1,794,496 | ||||||
Total equity | 81,692,494 | 56,190,461 | ||||||
Total liabilities and equity | 88,324,402 | 68,168,277 | ||||||
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Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||
Net revenues: | ||||||||||||
Wireless value-added services | 50,038,014 | 42,671,588 | 20,169,110 | |||||||||
Recorded music | 10,488,613 | 11,286,812 | 14,473,185 | |||||||||
Total net revenues | 60,526,627 | 53,958,400 | 34,642,295 | |||||||||
Cost of revenues: | ||||||||||||
Wireless value-added services | (36,394,300 | ) | (32,839,642 | ) | (15,331,675 | ) | ||||||
Recorded music | (6,232,728 | ) | (6,729,725 | ) | (12,625,139 | ) | ||||||
Total cost of revenues | (42,627,028 | ) | (39,569,367 | ) | (27,956,814 | ) | ||||||
Gross profit | 17,899,599 | 14,389,033 | 6,685,481 | |||||||||
Operating expenses: | ||||||||||||
Product development | (2,028,265 | ) | (991,689 | ) | (466,543 | ) | ||||||
Selling and marketing | (11,513,850 | ) | (9,132,374 | ) | (6,329,856 | ) | ||||||
General and administrative | (9,141,381 | ) | (11,983,973 | ) | (22,992,865 | ) | ||||||
Goodwill impairment | (38,778,584 | ) | (2,675,211 | ) | (3,592,933 | ) | ||||||
Gain on reduction of Unicom liability | — | 1,557,153 | — | |||||||||
Gain from reversed litigation expenses | — | 557,167 | — | |||||||||
Total operating expenses | (61,462,080 | ) | (22,668,927 | ) | (33,382,197 | ) | ||||||
Loss from continuing operations | (43,562,481 | ) | (8,279,894 | ) | (26,696,716 | ) | ||||||
Interest income | 2,313,576 | 1,613,078 | 454,438 | |||||||||
Interest expense | (179,062 | ) | — | (13,681 | ) | |||||||
Other income, net | 465,825 | 247,156 | 341,651 | |||||||||
Gain on reduction of acquisition payable | — | 5,000,000 | — | |||||||||
Foreign exchange loss | — | (8,990,067 | ) | — | ||||||||
Loss before income tax credit (expense), equity in (loss) earning of affiliated company, impairment for investment in affiliated company and discontinued operations | (40,962,142 | ) | (10,409,727 | ) | (25,914,308 | ) | ||||||
Income tax benefit (expense) | 182,370 | (486,250 | ) | (234,286 | ) | |||||||
Equity in (loss) earning of affiliated company | (62,756 | ) | 64,293 | (914,072 | ) | |||||||
Impairment for investment in affiliated company | — | (1,870,897 | ) | — | ||||||||
Net loss from continuing operations | (40,842,528 | ) | (12,702,581 | ) | (27,062,666 | ) | ||||||
Discontinued operations: | ||||||||||||
Net loss from discontinued operations, net of tax | (612,170 | ) | — | — | ||||||||
Gain from disposal of discontinued operations | 192,943 | 412,530 | 221,899 | |||||||||
Net (loss) income from discontinued operations, net of tax | (419,227 | ) | 412,530 | 221,899 | ||||||||
Net loss | (41,261,755 | ) | (12,290,051 | ) | (26,840,767 | ) | ||||||
Less: Net (income) loss attributable to the non-controlling interests and redeemable non-controlling interest | (688,440 | ) | 337,455 | 4,182,875 | ||||||||
Net loss attributable to Hurray! Holding Co., Ltd. | (41,950,195 | ) | (11,952,596 | ) | (22,657,892 | ) | ||||||
Net loss | (41,261,755 | ) | (12,290,051 | ) | (26,840,767 | ) | ||||||
Other comprehensive income: | ||||||||||||
Currency translation adjustments of subsidiaries | 4,642,922 | 2,658,344 | (37,917 | ) | ||||||||
Comprehensive loss | (36,618,833 | ) | (9,631,707 | ) | (26,878,684 | ) | ||||||
Comprehensive (income)/loss attributable to non-controlling interest and redeemable non-controlling interest | (1,077,837 | ) | 11,551 | 4,187,304 | ||||||||
Comprehensive loss attributable to Hurray! Holding Co., Ltd. | (37,696,670 | ) | (9,620,156 | ) | (22,691,380 | ) | ||||||
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Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||
Loss per ADS-basic and diluted (1ADS = 100 shares): | ||||||||||||
Loss from continuing operations attributable to Hurray! Holding Co., Ltd. common shareholders | (1.91 | ) | (0.57 | ) | (1.04 | ) | ||||||
Discontinued operations attributable to Hurray! Holding Co., Ltd. common shareholders | (0.02 | ) | 0.02 | 0.01 | ||||||||
Net loss attributable to Hurray! Holding Co., Ltd. common shareholders | (1.93 | ) | (0.55 | ) | (1.03 | ) | ||||||
Weighted average ADS used in per ADS calculation | ||||||||||||
Basic | 21,722,082 | 21,856,151 | 21,962,919 | |||||||||
Diluted | 21,722,082 | 21,856,151 | 21,962,919 | |||||||||
Amounts attributable to Hurray! Holding common shareholders: | ||||||||||||
Loss from continuing operations, net of tax | (41,530,968 | ) | (12,365,126 | ) | (22,879,791 | ) | ||||||
Discontinued operations, net of tax | (419,227 | ) | 412,530 | 221,899 | ||||||||
Net loss | (41,950,195 | ) | (11,952,596 | ) | (22,657,892 | ) | ||||||
Share-based compensation included in: | ||||||||||||
Product development | 921 | 40,102 | — | |||||||||
Selling and marketing | 286,885 | 621,094 | 118,521 | |||||||||
General and administrative | 155,169 | 284,086 | 50,789 |
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Retained | Accumulated | Total Hurray! | |||||||||||||||||||||||||||||||||||
Ordinary shares | Additional | earnings | other | Holding Co., Ltd. | |||||||||||||||||||||||||||||||||
(US$0.00005 par value) | paid-in | Statutory | (Accumulated | comprehensive | shareholders’ | Non-controlling | Total | ||||||||||||||||||||||||||||||
Shares | Amount | capital | reserves | deficits) | income | equity | interests | equity | |||||||||||||||||||||||||||||
(in U.S. dollars, except shares data) | |||||||||||||||||||||||||||||||||||||
Balance as of January 1, 2007 | 2,163,031,740 | 108,102 | 73,608,117 | 5,661,061 | 40,041,391 | 3,401,349 | 122,820,020 | 3,359,193 | 126,179,213 | ||||||||||||||||||||||||||||
Non-controlling interest arising from acquisition of Secular Bird and Beijing Hurray! Fly Songs | — | — | — | — | — | — | — | 230,372 | 230,372 | ||||||||||||||||||||||||||||
Stock-based compensation expense | 11,099,300 | 554 | 442,421 | — | — | — | 442,975 | — | 442,975 | ||||||||||||||||||||||||||||
Exercise of stock options | 653,400 | 33 | 16,301 | — | — | — | 16,334 | — | 16,334 | ||||||||||||||||||||||||||||
Appropriations to statutory reserves | — | — | — | 841,788 | (841,788 | ) | — | — | — | — | |||||||||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | 4,253,525 | 4,253,525 | 389,397 | 4,642,922 | ||||||||||||||||||||||||||||
Net (loss) income | — | — | — | — | (41,950,195 | ) | — | (41,950,195 | ) | 688,440 | (41,261,755 | ) | |||||||||||||||||||||||||
Balance as of December 31, 2007 | 2,174,784,440 | 108,689 | 74,066,839 | 6,502,849 | (2,750,592 | ) | 7,654,874 | 85,582,659 | 4,667,402 | 90,250,061 | |||||||||||||||||||||||||||
Stock-based compensation expense | 18,499,300 | 925 | 944,357 | — | — | — | 945,282 | — | 945,282 | ||||||||||||||||||||||||||||
Exercise of stock options | 60,000 | 3 | 1,497 | — | — | — | 1,500 | — | 1,500 | ||||||||||||||||||||||||||||
Appropriations to statutory reserves | — | — | — | (4,711,525 | ) | 4,711,525 | — | — | — | — | |||||||||||||||||||||||||||
Capital injection to Secular Bird attributable to non-controlling interest | — | — | — | — | — | — | — | 127,358 | 127,358 | ||||||||||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | 2,332,440 | 2,332,440 | 325,904 | 2,658,344 | ||||||||||||||||||||||||||||
Net loss | — | — | — | — | (11,952,596 | ) | — | (11,952,596 | ) | (337,455 | ) | (12,290,051 | ) | ||||||||||||||||||||||||
Balance as of December 31, 2008 | 2,193,343,740 | 109,617 | 75,012,693 | 1,791,324 | (9,991,663 | ) | 9,987,314 | 76,909,285 | 4,783,209 | 81,692,494 | |||||||||||||||||||||||||||
Stock-based compensation expense | 6,500,300 | 324 | 168,986 | — | — | — | 169,310 | — | 169,310 | ||||||||||||||||||||||||||||
Exercise of stock options | 350,000 | 18 | 8,732 | — | — | — | 8,750 | — | 8,750 | ||||||||||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | (33,488 | ) | (33,488 | ) | (4,429 | ) | (37,917 | ) | ||||||||||||||||||||||||
Net loss | — | — | — | — | (22,657,892 | ) | — | (22,657,892 | ) | (2,984,284 | ) | (25,642,176 | ) | ||||||||||||||||||||||||
Balance as of December 31, 2009 | 2,200,194,040 | $ | 109,959 | 75,190,411 | 1,791,324 | (32,649,555 | ) | 9,953,826 | 54,395,965 | 1,794,496 | 56,190,461 | ||||||||||||||||||||||||||
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Table of Contents
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
(in U.S. dollars) | ||||||||||||
Operating activities: | ||||||||||||
Net loss | (41,261,755 | ) | (12,290,051 | ) | (26,840,767 | ) | ||||||
Adjustments for: | ||||||||||||
Share-based compensation | 442,975 | 945,282 | 169,310 | |||||||||
Depreciation and amortization | 3,644,095 | 3,327,798 | 1,699,171 | |||||||||
Impairment of goodwill | 38,778,584 | 2,675,211 | 3,592,933 | |||||||||
Impairment for investment in affiliated company | — | 1,870,897 | — | |||||||||
Impairment of intangible assets | 2,480,253 | 2,850,714 | 3,542,071 | |||||||||
Bad debt provision | 453,674 | 1,012,738 | 3,422,876 | |||||||||
Inventory provision | — | — | 238,370 | |||||||||
Exchange loss | — | — | 17,198 | |||||||||
Equity in (earning) loss of affiliated company | 62,756 | (64,293 | ) | 914,072 | ||||||||
Gain from disposal of subsidiary | (192,943 | ) | (412,530 | ) | (221,899 | ) | ||||||
Receivable from disposal of subsidiary (net of cash disposed of $771,570) | (3,186,887 | ) | — | — | ||||||||
Loss (gain) on disposal of property and equipment | 74,300 | 112,745 | (5,843 | ) | ||||||||
Change in fair value of contingent consideration | — | — | (352,217 | ) | ||||||||
Gain on reduction of acquisition payable | — | (5,000,000 | ) | — | ||||||||
Gain on reduction of Unicom liability | — | (1,557,153 | ) | — | ||||||||
Gain from reversed litigation expenses | — | (557,167 | ) | — | ||||||||
Changes in assets and liabilities net of effect of businesses acquired and sold: | ||||||||||||
Accounts receivable | (2,069,378 | ) | 3,492,068 | 6,439,522 | ||||||||
Prepaid expenses and other current assets | (138,548 | ) | (1,142,954 | ) | 2,727,610 | |||||||
Amount due from related parties | (273,618 | ) | (245,724 | ) | 733,151 | |||||||
Deposits and other non-current assets | (147,543 | ) | 183,003 | 439,859 | ||||||||
Inventories | (81,422 | ) | 56,833 | (128,122 | ) | |||||||
Deferred taxes | (749,936 | ) | 187,671 | (516,469 | ) | |||||||
Accounts payable | (140,809 | ) | (761,068 | ) | 187,315 | |||||||
Notes payable | — | — | 22,901 | |||||||||
Accrued expenses and other current liabilities | 305,097 | (71,705 | ) | 2,253,594 | ||||||||
Amount due to related parties | 245,379 | (63,140 | ) | (80,199 | ) | |||||||
Income tax payable | (299,897 | ) | (102,057 | ) | 290,670 | |||||||
Net cash used in operating activities | (2,055,623 | ) | (5,552,882 | ) | (1,454,893 | ) | ||||||
Investing activities: | ||||||||||||
Increase of short-term investments | — | — | (10,000,000 | ) | ||||||||
Purchases of property and equipment | (863,603 | ) | (349,233 | ) | (678,282 | ) | ||||||
Proceeds from disposal of property and equipment | — | — | 80,498 | |||||||||
Purchase of intangible assets | (1,535,436 | ) | (1,718,340 | ) | (66,259 | ) | ||||||
Proceeds from disposal of a subsidiary | — | 4,517,070 | 254,102 | |||||||||
Acquisition of subsidiaries, net of cash acquired ($1,398,709, nil, and $1,034,308 for the years ended December 31, 2007, 2008 and 2009, respectively) | (3,237,834 | ) | (2,207,132 | ) | 1,034,308 | |||||||
Payments related to acquisition not yet consummated | — | (1,907,400 | ) | — | ||||||||
Investment at cost in Seed Music Group Limited | — | (600,038 | ) | — | ||||||||
Investment in an affiliated company | (2,483,277 | ) | — | — | ||||||||
Net cash used in investing activities | (8,120,150 | ) | (2,265,073 | ) | (9,375,633 | ) | ||||||
Financing activities: | ||||||||||||
Proceeds from exercise of options | 16,334 | 1,500 | 2,500 | |||||||||
Net cash provided by financing activities | 16,334 | 1,500 | 2,500 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 1,541,345 | 1,310,274 | (155,582 | ) | ||||||||
Net decrease in cash and cash equivalents | (10,159,439 | ) | (7,816,455 | ) | (10,828,026 | ) | ||||||
Cash and cash equivalents, beginning of year | 74,596,978 | 65,978,884 | 59,472,703 | |||||||||
Cash and cash equivalents, end of the year | 65,978,884 | 59,472,703 | 48,489,095 | |||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Income taxes paid | 854,864 | 385,501 | 465,696 | |||||||||
F-8
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(Amounts expressed in U.S. dollars, unless otherwise stated)
Date of | Percentage of | |||||
incorporation or | effective ownership | |||||
Name of Subsidiaries | establishment | by Hurray! | ||||
Wireless value-added services (“WVAS”) business segment: | ||||||
Subsidiaries | ||||||
Beijing Hurray! Times Technology Co., Ltd. (“Beijing Hurray Times”) | June 27, 2002 | 100 | % | |||
Hurray Technologies (Hong Kong) Ltd.(incorporated in Hong Kong) | July 23, 2003 | 99 | % | |||
Invest China Group Limited (incorporated in the British Virgin Islands) | April 1, 2007 | 100 | % | |||
Beijing Hand-in-Hand Media Technology Co., Ltd. | April 1, 2007 | 100 | % | |||
Shanghai Fuming Information Technology Co., Ltd. | January 1, 2006 | 100 | % | |||
Variable Interest Entities | ||||||
Hurray! Solutions Ltd. | September 21, 1999 | 100 | % | |||
Beijing Enterprise Network Technology Co., Ltd. (“Beijing Enterprise”) | March, 31, 2004 | 100 | % | |||
Beijing Hengji Weiye Electronic Commerce Co., Ltd. (“Hengji Weiye”) | October 1, 2005 | 100 | % | |||
Beijing Hutong Wuxian Technology Co., Ltd. (“Beijing Hutong”) | April 1, 2005 | 100 | % | |||
Beijing Palmsky Technology Co., Ltd. (“Beijing Palmsky”) | March, 31, 2004 | 100 | % | |||
Henan Yinshan Digital Network Technology Co., Ltd. (“Henan Yinshan”) | June 30, 2007 | 100 | % | |||
Shanghai Magma Digital Technology Co., Ltd. (“Shanghai Magma”) | January 1, 2006 | 100 | % | |||
Shanghai Saiyu Information Technology Co., Ltd. (“Saiyu”) | April 1, 2007 | 100 | % | |||
Subsidiaries of Variable Interest Entities | ||||||
Beijing WVAS Solutions Ltd. | October 10, 2001 | 100 | % |
F-9
Table of Contents
Date of | Percentage of | |||||
incorporation or | effective ownership | |||||
Name of Subsidiaries | establishment | by Hurray! | ||||
Recorded music business segment: | ||||||
Subsidiaries | ||||||
Hurray! Media Co., Ltd. (incorporated in the Cayman Islands) | August 19, 2005 | 100 | % | |||
Seed Music Group Limited (“Seed Music”) | July 26, 2006 | 61.08 | % | |||
Seed Music Co., Ltd | June 28, 1997 | 61.08 | % | |||
Profita Publishing Limited | August 10, 2006 | 61.08 | % | |||
Leguan Seed (Beijing) Culture Consulting Co. Ltd. | May 30, 2006 | 61.08 | % | |||
Subsidiaries of Variable Interest Entities | ||||||
Hurray! Digital Media Technology Co., Ltd. (“Hurray Digital Media”) | November 10, 2005 | 100 | % | |||
Beijing Huayi Brothers Music Co., Ltd. (“Huayi Brothers Music”) | December 31, 2005 | 51 | % | |||
Beijing Huayi Brothers Music Broker Co., Ltd. (“Huayi Brothers Broker”) | April 17, 2007 | 51 | % | |||
Hurray! Freeland Digital Music Technology Co., Ltd. (“Freeland Music”) | January 1, 2006 | 60 | % | |||
Beijing Hurray! Freeland Culture Development Co., Ltd. (“Freeland Culture”) | January 8, 2007 | 60 | % | |||
Beijing Hurray! Fly Songs International Culture Co., Ltd. (“Beijing Hurray! Fly Songs”) | August 21, 2007 | 30.6 | %(1) | |||
Guangzhou Hurray! Secular Bird Art Co., Ltd. (“Secular Bird”) | May 30, 2007 | 65 | % | |||
Xi Fu Le (Beijing) Culture Broker Co., Ltd. | July 14, 2009 | 61.08 | % |
(1) | Hurray! holds a 30.6% effective interest in Beijing Hurray! Fly Songs through a holding of 60% interest in Freeland Music. Freeland Music owns a 51% equity interest in Beijing Hurray! Fly Songs. Therefore, Beijing Hurray! Fly Songs is a consolidated entity of the Company. |
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F-11
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F-12
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F-13
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Furniture and office equipment | 3 years | |||
Motor vehicles | 5 years | |||
Telecommunications equipment | 3 years | |||
Leasehold improvements | Lesser of original lease term or estimated useful life |
F-14
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F-15
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• | the Company is the primary obligor in the arrangement; |
• | the Company is able to establish prices within price caps prescribed by the telecommunications operators to reflect or react to changes in the market; |
• | the Company determines the service specifications of the services it will be rendering; | ||
• | the Company is able to control the selection of its content suppliers; and |
• | the Telecom Operators usually will not pay the Company if users cannot be billed or if users do not pay the Telecom Operators for services delivered and, as a result, the Company bears the delivery and billing risks for the revenues generated with respect to its services. |
F-16
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F-17
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F-18
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F-19
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F-20
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Total purchase price: | ||||
Cash consideration | 2,507,438 | |||
Contingent consideration (Note 10) | 352,217 | |||
Fair value of redeemable non-controlling interests | 1,569,808 | |||
4,429,463 | ||||
Amortization | ||||||||
period | ||||||||
Aggregate purchase price allocation —Seed Music: | ||||||||
Cash and cash equivalents | 1,034,308 | |||||||
Inventory | 53,504 | |||||||
Other current assets | 891,723 | |||||||
Acquired intangible assets: | ||||||||
Artist contracts | 1,717,846 | 7.1~9.0 years | ||||||
Trademarks | 1,569,808 | 20 years | ||||||
Non-compete agreement | 183,218 | 4.5 years | ||||||
Copyrights | 5,863 | 0.4 years | ||||||
Non-current deferred tax liability | (869,184 | ) | ||||||
Goodwill (allocated to music segment) | 2,535,523 | |||||||
Property and equipment, net | 50,084 | |||||||
Other non-current assets | 51,526 | |||||||
Current liabilities | (2,216,292 | ) | ||||||
Other non-current liabilities | (578,464 | ) | ||||||
Total | 4,429,463 | |||||||
F-21
Table of Contents
Year Ended December 31,2008 | ||||
(unaudited) | ||||
Net revenues | 60,044,387 | |||
Net loss attributable to Hurray! Holding Co., Ltd. | (12,933,442 | ) | ||
Loss per ADS: | ||||
- Basic | (0.59 | ) | ||
- Diluted | (0.59 | ) |
(b) | 2007 acquisitions |
Total purchase price: | ||||
Cash consideration | 5,307,678 | |||
Transaction costs | 21,021 | |||
5,328,699 | ||||
Amortization period | ||||||||
Aggregate purchase price allocation — Saiyu and Henan Yinshan: | ||||||||
Cash and cash equivalents | 1,311,572 | |||||||
Accounts receivable | 45,451 | |||||||
Other current assets | 1,226 | |||||||
Acquired intangible assets: | ||||||||
Agreements with China Mobile | 1,946,402 | 5 years | ||||||
WVAS license | 24,763 | 3 years | ||||||
Goodwill allocated to WVAS segment | 2,134,375 | N/A | ||||||
Property and equipment, net | 9,496 | 3-5 years | ||||||
Other assets | 17,751 | |||||||
Current liabilities | (71,652 | ) | ||||||
Non-current deferred tax liabilities | (90,685 | ) | ||||||
Total | 5,328,699 | |||||||
F-22
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Amortization period | ||||||||
Aggregate purchase price allocation — Secular Bird and Beijing Hurray! Fly Songs | ||||||||
Cash and cash equivalents | 87,138 | |||||||
Inventory | 10,747 | |||||||
Other current assets | 116,559 | |||||||
Acquired intangible assets: | ||||||||
Artist contracts | 32,293 | 4.6 years | ||||||
Trademarks | 24,644 | 20 years | ||||||
Copyrights | 17,846 | 1.9 years | ||||||
Non-complete contract | 4,249 | 3.8 years | ||||||
Goodwill allocated to recorded music segment | 253,705 | N/A | ||||||
Property and equipment, net | 53,375 | 3-5 years | ||||||
Other assets | 1,402 | |||||||
Current liabilities | (11,108 | ) | ||||||
Non-current deferred tax liabilities | (14,784 | ) | ||||||
Total | 576,066 | |||||||
F-23
Table of Contents
August 1, 2007 | ||||
unaudited | ||||
Current assets of discontinued operations | ||||
Cash | 771,746 | |||
Accounts receivable, net of allowance | 1,868,593 | |||
Prepaid expenses and other current assets | 18,942 | |||
Amount due from related parties | 4,918,631 | |||
Inventories | 1,397 | |||
7,579,309 | ||||
Non-current assets of discontinued operations: | ||||
Property and equipment, net | 49,842 | |||
Rental deposits | 462 | |||
50,304 | ||||
Current liabilities of discontinued operations | ||||
Accounts payable | 270,843 | |||
Accrued expenses and other current liabilities | 605,739 | |||
Dividend payable | 3,002,588 | |||
3,879,170 | ||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
(in U.S. dollars) | ||||||||||||
Revenues | 227,391 | — | — | |||||||||
Operating loss | (643,151 | ) | — | — | ||||||||
Income taxes | 178 | — | — | |||||||||
Net loss from discontinued operations, net of tax | (612,170 | ) | — | — | ||||||||
Gain from disposal of SSI | 192,943 | 412,530 | 221,899 | |||||||||
Total net (loss) income from discontinued operations | (419,227 | ) | 412,530 | 221,899 | ||||||||
December 31, 2008 | December 31, 2009 | |||||||
(in U.S. dollars) | ||||||||
Staff advances and other receivables | 1,174,104 | 350,097 | ||||||
Advances to suppliers | 1,492,019 | 681,670 | ||||||
Prepaid expenses | 1,406,157 | 397,024 | ||||||
Prepaid artist costs | 98,043 | 405,570 | ||||||
4,170,323 | 1,834,361 | |||||||
F-24
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December 31, 2008 | December 31, 2009 | |||||||
(in U.S. dollars) | ||||||||
Furniture and office equipment | 3,066,923 | 3,271,481 | ||||||
Motor vehicles | 290,335 | 336,778 | ||||||
Telecommunications equipment | 4,556,290 | 3,067,601 | ||||||
Leasehold improvements | 663,307 | 611,011 | ||||||
8,576,855 | 7,286,871 | |||||||
Less: accumulated depreciation and amortization | (7,596,795 | ) | (6,407,096 | ) | ||||
980,060 | 879,775 | |||||||
December 31, 2009 | ||||||||||||||||
Gross carrying | Accumulated | Intangible assets | Net carrying | |||||||||||||
amount | amortization | impairment | amount | |||||||||||||
WVAS Segment: | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||
WVAS licenses | 518,114 | 400,847 | 117,267 | — | ||||||||||||
Customer agreements with Telecom Operators | 2,849,884 | 780,129 | 2,069,755 | — | ||||||||||||
Non-compete agreements | 988,882 | 355,413 | 633,469 | — | ||||||||||||
Business transaction codes | 196,897 | 164,081 | 32,816 | — | ||||||||||||
Platform(1) | 473,784 | 434,427 | 39,357 | — | ||||||||||||
Software | 95,226 | 95,226 | — | — | ||||||||||||
Trademarks | 174,336 | 9,685 | 164,651 | — | ||||||||||||
5,297,123 | 2,239,808 | 3,057,315 | — | |||||||||||||
Recorded Music Segment: | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||
Artist contracts(2) | 6,700,617 | 2,653,318 | 3,840,082 | 207,217 | ||||||||||||
Copyrights | 698,055 | 552,944 | 145,111 | — | ||||||||||||
Exclusive WVAS agreements | 584,873 | 66,925 | 478,590 | 39,358 | ||||||||||||
Exclusive copyright agreements | 12,543 | 11,498 | 1,045 | — | ||||||||||||
WVAS contracts | 249,845 | 249,845 | — | — | ||||||||||||
Non-compete agreements | 318,724 | 38,102 | 211,135 | 69,487 | ||||||||||||
Software | 6,431 | 4,431 | — | 2,000 | ||||||||||||
Trademarks | 2,264,634 | 176,610 | 1,324,124 | 763,900 | ||||||||||||
10,835,722 | 3,753,673 | 6,000,087 | 1,081,962 | |||||||||||||
16,132,845 | 5,993,481 | 9,057,402 | 1,081,962 | |||||||||||||
F-25
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December 31, 2008 | ||||||||||||||||
Gross carrying | Accumulated | Intangible assets | Net carrying | |||||||||||||
amount | amortization | impairment | amount | |||||||||||||
WVAS Segment: | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||
WVAS licenses | 514,765 | 397,440 | 117,325 | — | ||||||||||||
Customer agreements with Telecom Operators | 2,851,304 | 780,518 | 2,070,786 | — | ||||||||||||
Non-compete agreements | 989,375 | 355,590 | 633,785 | — | ||||||||||||
Business transaction codes | 196,995 | 164,163 | 32,832 | — | ||||||||||||
Platform(1) | 474,020 | 434,643 | 39,377 | — | ||||||||||||
Software | 95,273 | 95,273 | — | — | ||||||||||||
Trademarks | 174,423 | 9,690 | 164,733 | — | ||||||||||||
5,296,155 | 2,237,317 | 3,058,838 | — | |||||||||||||
Recorded Music Segment: | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||
Artist contracts(2) | 4,917,694 | 1,938,859 | 1,739,848 | 1,238,987 | ||||||||||||
Copyrights | 692,435 | 527,163 | 145,147 | 20,125 | ||||||||||||
Exclusive WVAS agreements | 584,873 | 52,465 | 214,000 | 318,408 | ||||||||||||
Exclusive copyright agreements | 12,543 | 11,497 | 1,046 | — | ||||||||||||
VAS contracts | 249,845 | 249,845 | — | — | ||||||||||||
Non-compete agreements | 135,506 | 8,117 | 65,000 | 62,389 | ||||||||||||
Software | 6,434 | 3,146 | — | 3,288 | ||||||||||||
Trademarks | 694,826 | 100,701 | 292,000 | 302,125 | ||||||||||||
7,294,156 | 2,891,793 | 2,457,041 | 1,945,322 | |||||||||||||
12,590,311 | 5,129,110 | 5,515,879 | 1,945,322 | |||||||||||||
(1) | The Platform represents the Wireless Application Protocol site owned by Hurray! Solutions and the SMS Platform owned by Hengji Weiye. | |
(2) | The carrying amount of artist contracts represents the payments for agency agreements with certain artists. |
F-26
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F-27
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2010 | 125,572 | |||
2011 | 117,575 | |||
2012 | 86,164 | |||
2013 | 78,511 | |||
2014 and later | 674,140 | |||
1,081,962 | ||||
F-28
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Year ended December 31, 2009 | ||||||||||||
Gross amount of goodwill | WVAS | Recorded Music | Total | |||||||||
Balance as of January 1,2008 | 39,275,506 | 5,123,907 | 44,399,413 | |||||||||
Goodwill arising from acquisitions during the year | 80,504 | 189,255 | 269,759 | |||||||||
Effect of exchange rate changes | 2,554,011 | — | 2,554,011 | |||||||||
Balance as of December 31, 2008 | 41,910,021 | 5,313,132 | 47,223,153 | |||||||||
Goodwill arising from acquisitions during the year | — | 2,535,523 | 2,535,523 | |||||||||
Effect of exchange rate changes | (19,630 | ) | — | (19,630 | ) | |||||||
Balance as of December 31, 2009 | 41,890,391 | 7,848,655 | 49,739,046 | |||||||||
Accumulated impairment | WVAS | Recorded Music | Total | |||||||||
Balance as of January 1,2008 | (38,778,507 | ) | — | (38,778,507 | ) | |||||||
Goodwill impairment | (518,714 | ) | (2,156,497 | ) | (2,675,211 | ) | ||||||
Effect of exchange rate changes | (2,612,800 | ) | — | (2,612,800 | ) | |||||||
Balance as of December 31, 2008 | (39,410,021 | ) | (2,156,497 | ) | (44,066,489 | ) | ||||||
Goodwill arising from acquisitions during the year | — | 2,535,523 | 2,535,523 | |||||||||
Goodwill impairment | — | (3,592,933 | ) | (3,592,933 | ) | |||||||
Effect of exchange rate changes | — | 36 | 36 | |||||||||
Balance as of December 31, 2009 | — | 2,099,290 | 2,099,290 | |||||||||
Net carrying amount as of December 31, 2008 | — | 3,156,664 | 3,156,664 | |||||||||
Net carrying amount as of December 31, 2009 | — | 2,099,290 | 2,099,290 | |||||||||
F-29
Table of Contents
Fair Value Measurements | ||||
Using Significant Unobservable Inputs | ||||
(Level 3) | ||||
Contingent consideration | ||||
Beginning balance | — | |||
Contingent consideration recognized as of acquisition date | (352,217 | ) | ||
Change in fair value of contingent consideration | 550,092 | |||
Impairment provision | (197,875 | ) | ||
Ending balance | — | |||
F-30
Table of Contents
December 31, 2008 | December 31, 2009 | |||||||
Accrued payroll | 157,714 | 572,489 | ||||||
Accrued welfare benefits | 165,402 | 667,756 | ||||||
Accrued professional service fee | 230,958 | 1,214,404 | ||||||
Advance from customers | 422,406 | 964,262 | ||||||
Business tax payable | 955,901 | 441,235 | ||||||
Value-added tax payable | 104,435 | 121,982 | ||||||
Other taxes payable | 140,135 | 1,185,791 | ||||||
Other accrued expenses | 841,252 | 1,092,930 | ||||||
3,018,203 | 6,260,849 | |||||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Consulting, royalty and artist performance fee from Huayi Brothers Media Corporation | 26,087 | 281,795 | — | |||||||||
Consulting, production and marketing service fee from Huayi Brothers Times Culture Broker Co., Ltd. | — | — | 281,580 | |||||||||
Royalty revenue from Shanghai Haiyue Music Distribution Co., Ltd. | 185,510 | 120,129 | — | |||||||||
Royalty revenue from Beijing Oriental Freeland Film Media Co., Ltd. | — | 128,995 | — | |||||||||
CD distribution revenue from Beijing Century Freeland Film Media Co., Ltd. | 262,520 | 35,625 | 52,248 | |||||||||
Royalty revenue from Guangdong Freeland Film Media Co., Ltd. | 64,450 | — | — | |||||||||
Royalty revenue from New Run | 106,567 | — | — | |||||||||
645,134 | 566,544 | 333,828 | ||||||||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Content purchase, minimum guarantee and trade-name usage fee to Huayi Brothers Media Corporation | 80,285 | 58,501 | 208,663 | |||||||||
Content purchase and information service fee to New Run | 16,440 | 26,771 | 15,053 | |||||||||
Expenses paid on behalf of Beijing Secular Bird Culture Art Development Center | — | 19,009 | — | |||||||||
96,725 | 104,281 | 233,716 | ||||||||||
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F-32
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Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Current | 576,774 | 298,579 | 750,705 | |||||||||
Deferred | (759,144 | ) | 187,671 | (516,419 | ) | |||||||
(182,370 | ) | 486,250 | 234,286 | |||||||||
December 31,2008 | December 31, 2009 | |||||||
Deferred tax assets: | ||||||||
Cost and expenses accruals | 363,330 | 2,709,145 | ||||||
Less: valuation allowance | — | (2,709,145 | ) | |||||
Current deferred tax assets | 363,330 | — | ||||||
Depreciation and amortization | 330,035 | 170,828 | ||||||
Net operating loss carry forwards | 2,690,142 | 5,502,682 | ||||||
Less: valuation allowance | (2,541,258 | ) | (5,063,370 | ) | ||||
Non-current deferred tax assets | $ | 478,919 | 610,140 | |||||
Deferred tax liabilities: | ||||||||
Revenue recognition | (497,283 | ) | (622,456 | ) | ||||
Current deferred tax liabilities | (497,283 | ) | (622,456 | ) | ||||
Intangible assets | (292,194 | ) | (262,665 | ) | ||||
Non-current deferred tax liabilities | (292,194 | ) | (262,665 | ) | ||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Statutory tax rate | 33.0% | 25.0% | 25.0% | |||||||||
Differential statutory tax rates | 0.3% | 10.1% | 0.3% | |||||||||
Non-deductible expenses | (47.5% | ) | (26.7% | ) | (6.5% | ) | ||||||
Non-taxable income | 45.0% | 15.9% | 0.0% | |||||||||
Change in enterprise income tax rate | (8.6% | ) | 0.0% | (0.0% | ) | |||||||
Change in valuation allowance | (13.8% | ) | (37.3% | ) | (19.7% | ) | ||||||
Effective tax rate | 8.4% | (13.0% | ) | (0.9% | ) | |||||||
F-33
Table of Contents
Ordinary shares | ||||||||
Weighted average | ||||||||
Number of options | exercise price | |||||||
Options outstanding at January 1, 2007 | 80,506,600 | $ | 0.085 | |||||
Exercised | (653,400 | ) | $ | 0.027 | ||||
Cancelled/Expired | (5,587,000 | ) | $ | 0.106 | ||||
Options outstanding at December 31, 2007 | 74,266,200 | $ | 0.084 | |||||
Exercised | (60,000 | ) | $ | 0.025 | ||||
Cancelled/Expired | (26,838,500 | ) | $ | 0.094 | ||||
Options outstanding at December 31, 2008 | 47,367,700 | $ | 0.080 | |||||
Exercised | (350,000 | ) | $ | 0.025 | ||||
Cancelled/Expired | (1,435,000 | ) | $ | 0.115 | ||||
Options outstanding at December 31, 2009 | 45,582,700 | $ | 0.080 | |||||
F-34
Table of Contents
Options outstanding and exercisable | ||||||||||||||||
Weighted average | ||||||||||||||||
remaining | Weighted average | Aggregated Intrinsic | ||||||||||||||
Exercise Prices | Number outstanding | contractual life | exercise price | value | ||||||||||||
$0.0250 | 9,514,700 | 2.58 | $ | 0.0250 | $ | 147,478 | ||||||||||
$0.0705 | 16,418,000 | 3.49 | $ | 0.0705 | — | |||||||||||
$0.1170 | 14,988,000 | 4.00 | $ | 0.1170 | — | |||||||||||
$0.1025 | 4,662,000 | 5.00 | $ | 0.1025 | — | |||||||||||
Total | 45,582,700 | $ | 147,478 | |||||||||||||
Non-vested shares | ||||
Outstanding | ||||
Non-vested stock units outstanding at January 1, 2007 | 31,833,300 | |||
Granted | 39,500,000 | |||
Forfeited | (10,400,200 | ) | ||
Vested | (11,099,300 | ) | ||
Non-vested stock units outstanding at December 31, 2007 | 49,833,800 | |||
Granted | — | |||
Forfeited | (17,834,200 | ) | ||
Vested | (18,499,300 | ) | ||
Non-vested stock units outstanding at December 31, 2008 | 13,500,300 | |||
Granted | — | |||
Forfeited | (3,999,900 | ) | ||
Vested | (6,500,300 | ) | ||
Non-vested stock units outstanding at December 31, 2009 | 3,000,100 | |||
Expected to vest stock units at December 31, 2009 | 1,950,065 | |||
F-35
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Non-vested shares outstanding | ||||||||
Number | Aggregate | |||||||
outstanding | intrinsic value | |||||||
Grant date | ||||||||
November 23, 2007 | 3,000,100 | $ | 121,504 | |||||
Total | 3,000,100 | $ | 121,504 | |||||
F-36
Table of Contents
December 31, 2008 | December 31, 2009 | |||||||
Assets | ||||||||
WVAS | 28,952,925 | 24,400,482 | ||||||
Recorded music | 16,977,258 | 9,863,363 | ||||||
Reconciling amounts | 42,394,219 | 33,904,432 | ||||||
Total assets | 88,324,402 | 68,168,277 | ||||||
Reconciling assets: | ||||||||
Corporate assets | 42,394,219 | 33,904,432 | ||||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Total expenditures for additions to long-lived assets | ||||||||||||
WVAS | 755,921 | 228,431 | 599,254 | |||||||||
Recorded music | 107,682 | 120,802 | 79,028 | |||||||||
Total capital expenditure | 863,603 | 349,233 | 678,282 | |||||||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Revenues | ||||||||||||
WVAS | 50,038,014 | 42,671,588 | 20,169,110 | |||||||||
Recorded music | 10,488,613 | 11,286,812 | 14,473,185 | |||||||||
Total net revenues | 60,526,627 | 53,958,400 | 34,642,295 | |||||||||
Cost of revenues | ||||||||||||
WVAS | 36,394,300 | 32,839,642 | 15,331,675 | |||||||||
Recorded music | 6,232,728 | 6,729,725 | 12,625,139 | |||||||||
Total net revenues | 42,627,028 | 39,569,367 | 27,956,814 | |||||||||
Gross profit | ||||||||||||
WVAS | 13,643,714 | 9,831,946 | 4,837,435 | |||||||||
Recorded music | 4,255,885 | 4,557,087 | 1,848,046 | |||||||||
Total net revenues | 17,899,599 | 14,389,033 | 6,685,481 | |||||||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Revenues | ||||||||||||
SMS | 10,948,524 | 13,319,011 | 5,307,435 | |||||||||
IVR | 17,325,223 | 12,207,136 | 3,943,733 | |||||||||
RBT | 3,719,470 | 4,960,624 | 4,447,918 | |||||||||
2G revenues | 31,993,217 | 30,486,771 | 13,699,086 | |||||||||
WAP | 12,530,200 | 7,434,197 | 3,145,885 | |||||||||
MMS | 1,313,397 | 1,355,441 | 1,692,585 | |||||||||
JAVA | 1,399,193 | 2,244,010 | 1,541,618 | |||||||||
WEB | 2,029,298 | 218,810 | 11,794 | |||||||||
2.5G revenues | 17,272,088 | 11,252,458 | 6,391,882 | |||||||||
Other revenues | 772,709 | 932,359 | 78,142 | |||||||||
Total WVAS revenue | 50,038,014 | 42,671,588 | 20,169,110 | |||||||||
Recorded music revenue | 10,488,613 | 11,286,812 | 14,473,185 | |||||||||
Total revenues | 60,526,627 | 53,958,400 | 34,642,295 | |||||||||
F-37
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F-38
Table of Contents
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31, 2009 | ||||||||||
Numerator: | ||||||||||||
Net loss attributable to Hurray! Holding Co., Ltd. from continuing operations for basic and diluted earnings per ADS | (41,530,968 | ) | (12,365,126 | ) | (22,879,791 | ) | ||||||
Net loss (income) attributable to Hurray! Holding Co., Ltd. from discontinued operations for basic and diluted earnings per ADSs | (419,227 | ) | 412,530 | 221,899 | ||||||||
Net loss attributable to Hurray! Holding Co., Ltd. | (41,950,195 | ) | (11,952,596 | ) | (22,657,892 | ) | ||||||
Denominator: | ||||||||||||
Weighted-average ordinary shares outstanding for basic calculation | 2,172,208,190 | 2,185,615,129 | 2,196,291,947 | |||||||||
Dilutive effect of restricted shares and stock options | — | — | — | |||||||||
Weighted average ordinary shares outstanding for diluted calculation | 2,172,208,190 | 2,185,615,129 | 2,196,291,947 | |||||||||
Loss from continuing operations attributable to Hurray! Holding Co., Ltd. ordinary shareholders per share — basic and diluted | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||
Loss (income) from discontinued operations attributable to Hurray! Holding Co., Ltd. ordinary shareholders per share — basic and diluted | (0.00 | ) | 0.00 | 0.00 | ||||||||
Loss attributable to Hurray! Holding Co., Ltd. ordinary shareholders per share — basic and diluted | (0.02 | ) | (0.01 | ) | (0.01 | ) | ||||||
Year ended December 31, 2007 | Year ended December 31, 2008 | Year ended December 31, 2009 | ||||||||||||||||||||||
Revenues | % | Revenues | % | Revenues | % | |||||||||||||||||||
China Mobile | 29,921,502 | 49 | % | 24,352,344 | 45 | % | 10,074,902 | 29 | % | |||||||||||||||
China Unicom | 12,789,026 | 21 | % | 10,775,358 | 20 | % | 5,068,739 | 15 | % | |||||||||||||||
China Telecom | 5,054,984 | 8 | % | 5,070,996 | 9 | % | 4,405,260 | 13 | % |
F-39
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December 31, 2008 | December 31, 2009 | |||||||||||||||
Accounts receivable | % | Accounts receivable | % | |||||||||||||
China Mobile | 5,458,929 | 43 | % | 744,428 | 23 | % | ||||||||||
China Unicom | 2,632,764 | 21 | % | 678,640 | 21 | % | ||||||||||
China Telecom | 1,007,467 | 8 | % | 228,914 | 7 | % |
Year ended | Year ended | |||||||
December 31, 2008 | December 31, 2009 | |||||||
Balance at beginning of the period | 699,525 | 826,026 | ||||||
Consolidation of Seed Music | — | 425,065 | ||||||
Provisions | 1,087,565 | 3,710,897 | ||||||
Reversed | (190,860 | ) | (373,943 | ) | ||||
Written off | (770,204 | ) | (969,918 | ) | ||||
Balance at the end of the period | 826,026 | 3,618,127 | ||||||
December 31 | ||||
2010 | 492,337 | |||
2011 | 262,538 | |||
2012 | 107,139 | |||
Total | 862,014 | |||
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December 31, | ||||
2010 | 851,723 | |||
2011 | 872,586 | |||
2012 | 299,554 | |||
Total | 2,023,863 | |||
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ADDITIONAL INFORMATION — FINANCIAL STATEMENT SCHEDULE I
HURRAY! HOLDING CO., LTD.
BALANCE SHEETS
(In U.S. dollars)
December 31, 2008 | December 31, 2009 | |||||||
(in U.S. dollars, except number of shares) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | 39,519,423 | 23,760,844 | ||||||
Short term investments | — | 10,000,000 | ||||||
Prepaid expenses and other current assets | 168,233 | 134,436 | ||||||
Total current assets | 39,687,656 | 33,895,280 | ||||||
Receivable on disposal of subsidiary | 46,860 | — | ||||||
Prepaid investment cost | 1,907,400 | — | ||||||
Investment at cost | 600,038 | — | ||||||
Investments in subsidiaries and variable interest entities | 35,131,851 | 22,158,284 | ||||||
Investment in equity affiliate | 150,000 | — | ||||||
Total assets | $ | 77,523,805 | 56,053,564 | |||||
Liabilities and shareholders’ equity | ||||||||
Accrued expenses and other current liabilities | 272,844 | 1,280,994 | ||||||
Amounts due to subsidiaries and variable interest entities | 341,676 | 376,605 | ||||||
Total current liabilities | 614,520 | 1,657,599 | ||||||
Shareholders’ equity: | ||||||||
Ordinary shares ($0.00005 par value; 4,560,000,000 shares authorized; 2,193,343,740 and 2,200,194,040 shares issued and outstanding as of December 31, 2008 and December 31, 2009, respectively) | 109,617 | 109,959 | ||||||
Additional paid-in capital | 75,012,693 | 75,190,411 | ||||||
Accumulated deficit | (8,200,339 | ) | (30,858,231 | ) | ||||
Accumulated other comprehensive income | 9,987,314 | 9,953,826 | ||||||
Total shareholders’ equity | 76,909,285 | 54,395,965 | ||||||
Total liabilities and shareholders’ equity | 77,523,805 | 56,053,564 | ||||||
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ADDITIONAL INFORMATION — FINANCIAL STATEMENT SCHEDULE I
HURRAY! HOLDING CO., LTD.
STATEMENT OF OPERATIONS
(In U.S. dollars)
Year ended | Year ended | Year ended | ||||||||||
December 31, 2007 | December 31, 2008 | December 31,2009 | ||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||
Operating expenses: | ||||||||||||
Product development | 9,385 | 105,283 | — | |||||||||
Selling and marketing | 286,885 | 622,846 | 118,521 | |||||||||
General and administrative | 2,440,417 | 1,666,532 | 5,520,453 | |||||||||
Total operating expenses | 2,736,687 | 2,394,661 | 5,638,974 | |||||||||
Loss from operations | (2,736,687 | ) | (2,394,661 | ) | (5,638,974 | ) | ||||||
Interest income | 2,082,629 | 1,429,837 | 355,616 | |||||||||
Interest expense | (179,062 | ) | — | — | ||||||||
Other income | 105,485 | 5,000,000 | — | |||||||||
Foreign exchange loss (gain) | — | (8,990,067 | ) | 1,085 | ||||||||
Gain from disposal of subsidiary | 192,943 | 412,530 | 221,899 | |||||||||
Equity in loss of subsidiaries, VIEs and affiliate | (41,415,503 | ) | (7,410,235 | ) | (17,597,518 | ) | ||||||
Net loss | (41,950,195 | ) | (11,952,596 | ) | (22,657,892 | ) | ||||||
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STATEMENTS OF CASH FLOWS
(In U.S. dollars)
Year ended | Year ended December | Year ended | ||||||||||
December 31, 2007 | 31, 2008 | December 31, 2009 | ||||||||||
(In U.S. dollars) | ||||||||||||
Operating activities: | ||||||||||||
Net loss | (41,950,195 | ) | (11,952,596 | ) | (22,657,892 | ) | ||||||
Adjustments for: | ||||||||||||
Stock-based compensation | 442,975 | 945,282 | 169,310 | |||||||||
Equity in profit of subsidiary companies | 41,415,503 | 7,410,235 | 17,447,518 | |||||||||
Impairment for investment in equity affiliate | — | — | 150,000 | |||||||||
Gain from disposal of subsidiary | (192,943 | ) | (412,530 | ) | (221,899 | ) | ||||||
Receivable from disposal of subsidiary | (3,186,887 | ) | — | — | ||||||||
Gain on reduction of acquisition payable | — | (5,000,000 | ) | — | ||||||||
Prepaid expenses and other current assets | 226,001 | 56,064 | 40,047 | |||||||||
Amount due from related parties | 5,843,380 | — | — | |||||||||
Other payables and accruals | 403,512 | (322,804 | ) | 1,008,149 | ||||||||
Amount due to related parties | 530,756 | (189,080 | ) | 34,929 | ||||||||
Net cash provided by (used in) operating activities | 3,532,102 | (9,465,429 | ) | (4,029,838 | ) | |||||||
Investing activities: | ||||||||||||
Increase of short-term investments | — | — | (10,000,000 | ) | ||||||||
Proceeds from disposal of subsidiary | — | 4,517,070 | 268,759 | |||||||||
Payments related to acquisitions consummated | (2,833,658 | ) | (1,987,930 | ) | — | |||||||
Payments related to acquisition not yet consummated | — | (1,907,400 | ) | — | ||||||||
Investment in cost affiliate | — | (600,038 | ) | — | ||||||||
Investment in subsidiary | (2,000,000 | ) | ||||||||||
Purchase of equity affiliate | (150,000 | ) | — | — | ||||||||
Net cash used in (provided by) investing activities | (2,983,658 | ) | 21,702 | (11,731,241 | ) | |||||||
Financing activities: | ||||||||||||
Proceeds from exercise of options | 16,334 | 1,500 | 2,500 | |||||||||
Net cash provided by financing activities | 16,334 | 1,500 | 2,500 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | — | (99,879 | ) | — | ||||||||
Net increase (decrease) in cash and cash equivalents | 564,778 | (9,442,227 | ) | (15,758,579 | ) | |||||||
Cash and cash equivalents, beginning of year | 48,496,751 | 49,061,529 | 39,519,423 | |||||||||
Cash and cash equivalents, end of the year | 49,061,529 | 39,519,423 | 23,760,844 | |||||||||
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