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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)
Cayman Islands
(Jurisdiction of incorporation or organization)
Building 6, Zhengtongchuangyi Centre
No. 18, Xibahe Xili, Chaoyang District
Beijing 100020, People’s Republic of China
Fax number: +86 10 57586898
(Address of principal executive offices)
Title of each class | Name of each exchange and on which registered | |
American Depositary Shares, each representing 100 | Nasdaq Global Market | |
ordinary shares, par value US$0.00005 per share |
NONE
(Title of Class)
NONE
(Title of Class)
Large Accelerated Filero | Accelerated Filero | Non-Accelerated Filerþ |
U.S. GAAPþ | International Financial Reporting Standards as issued by the International Accounting Standards Boardo | Othero |
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• | “ADSs” refers to our American depositary shares, each of which represents 100 ordinary shares; |
• | “$,” “US$” and “U.S. dollars” refer to the legal currency of the United States; |
• | “Beijing WOFE” means Ku6 (Beijing) Technology Co., Ltd. |
• | “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; |
• | “Cayman Companies Law” refers to the Companies Law (2010 Revision) of the Cayman Islands (as amended); |
• | “Ku6” refers to Ku6 Holding Limited and its subsidiaries, affiliates and predecessor entities. |
• | “ordinary shares” refers to our ordinary shares, par value US$0.00005 per share; |
• | “RMB” and “Renminbi” refer to the legal currency of China; |
• | “Shanda Interactive” refers to Shanda Interactive Entertainment Limited, a Cayman Islands company, whose ADSs are listed on the NASDAQ Global Select Market under the symbol “SNDA”; |
• | “Shanda Group” refers to Shanda Interactive and its subsidiaries and VIEs and, unless the context requires otherwise, includes Ku6 Media Co., Ltd. and its subsidiaries and VIEs; |
• | “telecom operators” refer to China Mobile, China Unicom and China Telecom, the three principal telecommunication network operators in China; |
• | “Tianjin WOFE” means WeiMoSanYi (Tianjin) Technology Co., Ltd.; and |
• | “we,” “us,” “our company” and “our” refer to Ku6 Media 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; |
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• | 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 online video industry; |
• | the outcome of ongoing, or any future, litigation or arbitration; |
• | 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, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(Adjusted)(1) (2) | (Adjusted) (1) | Adjusted) (1) | (Adjusted) (1) | |||||||||||||||||
(in thousands of U.S. dollars, except for share and per share data) | ||||||||||||||||||||
Historical Condensed Consolidated Statement of Operations Data | ||||||||||||||||||||
Net revenues: | ||||||||||||||||||||
Advertising | ||||||||||||||||||||
Third parties | $ | 15,854 | $ | 758 | $ | — | $ | — | $ | — | ||||||||||
Related parties | 702 | 279 | — | — | — | |||||||||||||||
Total net revenues | 16,556 | 1,037 | — | — | — | |||||||||||||||
Cost of revenues: | ||||||||||||||||||||
Advertising | ||||||||||||||||||||
Third parties | (40,083 | ) | (557 | ) | — | — | — | |||||||||||||
Related parties | (376 | ) | — | — | — | — | ||||||||||||||
Total cost of revenues | (40,459 | ) | (557 | ) | — | — | — | |||||||||||||
Gross profit (loss) | (23,903 | ) | 480 | — | — | — | ||||||||||||||
Operating expenses | (29,703 | ) | (7,130 | ) | (2,401 | ) | (2,738 | ) | (2,184 | ) | ||||||||||
Operating loss from continuing operations | (53,606 | ) | (6,650 | ) | (2,401 | ) | (2,738 | ) | (2,184 | ) | ||||||||||
Interest income | 57 | 356 | 1,432 | 2,084 | 2,373 | |||||||||||||||
Interest expense | (31 | ) | — | — | (179 | ) | (45 | ) | ||||||||||||
Gain on reduction of acquisition payable | — | — | 5,000 | — | — | |||||||||||||||
Foreign exchange loss | — | — | (8,990 | ) | — | — | ||||||||||||||
Other income, net | — | 2 | — | 105 | — | |||||||||||||||
Income (loss) before income tax benefit (expense) from continuing operations | (53,580 | ) | (6,292 | ) | (4,959 | ) | (728 | ) | 144 | |||||||||||
Income tax benefit | 41 | 14 | — | — | — | |||||||||||||||
Income (loss) from continuing operations, net of tax | (53,539 | ) | (6,278 | ) | (4,959 | ) | (728 | ) | 144 |
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For the Year Ended December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
(Adjusted)(1) (2) | (Adjusted) (1) | Adjusted) (1) | (Adjusted) (1) | |||||||||||||||||
(in thousands of U.S. dollars, except for share and per share data) | ||||||||||||||||||||
Discontinued operations: | ||||||||||||||||||||
Income (loss) from operations of discontinued operations, net of tax | (3,383 | ) | (21,779 | ) | (7,744 | ) | (40,727 | ) | 6,222 | |||||||||||
Gain from disposal of discontinued operations | 4,487 | 222 | 413 | 193 | — | |||||||||||||||
Income (loss) from discontinued operations, net of tax | 1,104 | (21,557 | ) | (7,331 | ) | (40,534 | ) | 6,222 | ||||||||||||
Net income (loss) | (52,435 | ) | (27,834 | ) | (12,290 | ) | (41,262 | ) | 6,366 | |||||||||||
Less: Net loss attributable to the non-controlling interests from continuing operations | 681 | 257 | — | — | — | |||||||||||||||
Less: Net loss (income) attributable to the non-controlling interests and redeemable non-controlling interests from discontinued operations | 244 | 4,183 | 337 | (688 | ) | (562 | ) | |||||||||||||
Net (loss) income attributable to Ku6 Media Co., Ltd. | (51,510 | ) | (23,395 | ) | (11,953 | ) | (41,950 | ) | 5,804 | |||||||||||
Income (loss) from continuing operations, net of tax, attributable to Ku6 Media Co., Ltd. | (52,858 | ) | (6,021 | ) | (4,959 | ) | (728 | ) | 144 | |||||||||||
Income (loss) from discontinued operations, net of tax, attributable to Ku6 Media Co., Ltd. | 1,348 | (17,374 | ) | (6,994 | ) | (41,222 | ) | 5,660 | ||||||||||||
Net (loss) income attributable to Ku6 Media Co., Ltd. | (51,510 | ) | (23,395 | ) | (11,953 | ) | (41,950 | ) | 5,804 | |||||||||||
Loss attributable to Ku6 Media Co., Ltd. ordinary shareholders per share from continuing operations, basic and diluted | (0.02 | ) | — | — | — | — | ||||||||||||||
Loss attributable to Ku6 Media Co., Ltd. ordinary shareholders per share from discontinued operations, basic and diluted | — | (0.01 | ) | (0.01 | ) | (0.02 | ) | — | ||||||||||||
Loss attributable to Ku6 Media Co., Ltd. ordinary shareholders per share, basic and diluted | (0.02 | ) | (0.01 | ) | (0.01 | ) | (0.02 | ) | — | |||||||||||
Weighted average share used in per share calculation-basic and diluted | 3,096,421,097 | 2,196,291,947 | 2,185,615,129 | 2,172,208,190 | 2,189,748,563 | |||||||||||||||
As of December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Adjusted(2) | ||||||||||||||||||||
(in thousands of U.S. dollars, except for share data) | ||||||||||||||||||||
Historical Condensed Consolidated Balance Sheet Data | ||||||||||||||||||||
Cash and cash equivalents | $ | 27,295 | $ | 49,744 | $ | 59,473 | $ | 65,979 | $ | 74,597 | ||||||||||
Short term investments | — | 10,000 | — | — | — | |||||||||||||||
Accounts receivable, net | 8,461 | 4,062 | 12,658 | 14,691 | 13,449 | |||||||||||||||
Other current assets | 9,051 | 2,155 | 5,580 | 8,777 | 3,342 | |||||||||||||||
Property and equipment, net | 8,003 | 1,472 | 980 | 1,636 | 1,954 | |||||||||||||||
Goodwill | 6,896 | 2,099 | 3,157 | 5,621 | 39,621 | |||||||||||||||
Other assets | 27,265 | 1,976 | 6,476 | 8,890 | 7,027 | |||||||||||||||
Total assets | 86,970 | 71,508 | 88,324 | 105,594 | 139,990 | |||||||||||||||
Current liabilities | 36,406 | 13,783 | 6,316 | 14,467 | 12,960 | |||||||||||||||
Non-current liabilities | 4,926 | 421 | 316 | 877 | 851 | |||||||||||||||
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As of December 31, | ||||||||||||||||||||
2010 | 2009 | 2008 | 2007 | 2006 | ||||||||||||||||
Adjusted(2) | ||||||||||||||||||||
(in thousands of U.S. dollars, except for share data) | ||||||||||||||||||||
Total liabilities | 41,332 | 14,204 | 6,632 | 15,344 | 13,811 | |||||||||||||||
Redeemable non-controlling interests | — | 371 | — | — | — | |||||||||||||||
Ordinary shares (3,481,174,498, 2,200,194,040, 2,193,343,740, 2,174,784,440 and 2,163,031,740 shares issued and outstanding as of December 31, 2010, 2009, 2008, 2007 and 2006, respectively) | 174 | 110 | 110 | 109 | 108 | |||||||||||||||
Total Ku6 Media Co., Ltd. shareholders’ equity | 45,572 | 54,966 | 76,799 | 85,474 | 122,712 | |||||||||||||||
Non-controlling interests | (108 | ) | 1,857 | 4,783 | 4,667 | 3,359 | ||||||||||||||
Total liabilities, redeemable non-controlling interests and shareholders’ equity | $ | 86,970 | $ | 71,508 | $ | 88,324 | $ | 105,594 | $ | 139,990 | ||||||||||
(1) | Reflects the retrospective presentation of the operations data of the wireless value-added service and recorded music business in discontinued operations. | |
(2) | Reflects acquisition of online audio business from Shanda Interactive since the inception of the common control, which is the date on which we became controlled by Shanda Interactive. |
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• | inability to achieve planned operating results that could increase liquidity requirements beyond those considered in our business plan; |
• | changes in financial market conditions or our business condition that could limit our access to existing credit facilities or make new financings more costly or even unfeasible; and |
• | changes in China’s currency exchange control regulations that could limit our ability to access cash in China to meet liquidity requirements for our operations in China or elsewhere; |
• | growth of the online video industry and the online advertising market; |
• | the continued acceptance of our online video content by our users; |
• | the continued growth and maintenance of our user base; |
• | our ability to control our costs and expenses; and |
• | our ability to provide new advertising services to meet the demands of our advertising customers. |
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• | our future business development, financial condition and results of operations; |
• | general market conditions for financing activities by companies in our industry; and |
• | macroeconomic, political and other conditions in China and elsewhere. |
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• | global economic conditions; |
• | our ability to maintain and increase user traffic; |
• | our ability to attract and retain advertisers; |
• | changes in government policies or regulations, or their enforcement; and |
• | geopolitical events or natural disasters such as war, threat of war, earthquake or epidemics. |
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• | Our board members or executive officers may have conflicts of interest.Mr. Tianqiao Chen, Ms. Grace Wu and Mr. Danian Chen, who are our directors, currently also serve as members of the board of directors of Shanda Interactive. Some of our directors also own shares and/or options to purchase shares in Shanda Interactive. Shanda Interactive may continue to grant incentive share compensation to our board members from time to time. These relationships could create perceived or actual conflicts of interest when these persons are faced with decisions with potentially different implications for Shanda Interactive and us. |
• | Potential competition with Shanda Interactive.Shanda Interactive may engage in certain transactions or businesses that directly or indirectly compete with our online video and audio businesses. |
• | Business opportunities. Business opportunities may arise that both we and Shanda Interactive find attractive, and which would complement our respective businesses. Due to the controlling interest of Shanda Interactive and its leading market position and brand in China, we may not be able to pursue these business opportunities effectively if Shanda Interactive decides to take advantage of such opportunities itself. |
• | Developing business relationships with Shanda Interactive’s competitors.So long as Shanda Interactive remains our controlling shareholder, we may be limited in our ability to do business with its competitors, such as other interactive entertainment media companies in China. |
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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 caused by any public health problems. |
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• | economic structure; |
• | level of government involvement in the economy; |
• | level of development; |
• | level of capital reinvestment; |
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• | 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; |
• | 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. |
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• | 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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• | Innovative Targeting. Some targeting solutions are unique to the online video platform and cannot be transplanted into other media platforms. We are able to track and monitor an advertiser’s campaign on a real-time basis and can make adjustments to enhance its efficacy within parameters specified by the advertiser upfront. Our targeting strategies enable advertisers to reach targeted users based on any or a combination of standards, including the demographic information about the user, the nature of the video’s content, the geographic location of the user, the time of day at which a video is being watched, or the keywords associated with the video. Our video channels also help segregate videos based on users’ interested content, which allows us to deliver advertisements tailored to the viewers of different channels; and |
• | Product Placements. As an online video provider with a permit for radio and television program production and operation, we are able to produce web-based content, such as web serial dramas, interviews and variety shows, with embedded product placements. If a program’s storyline is consistent with a brand’s or product’s marketing initiatives, a product placement can have strong branding effects on viewers. |
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• | 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 Interactive 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. |
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• | opposes the fundamental principles stated in the PRC constitution; |
• | compromises national 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; |
• | undermines the PRC’s religious policy or propagates heretical teachings or feudal superstitions; |
• | disseminates rumors, disturbs social order or disrupts social stability; |
• | disseminates obscenity or pornography, encourages gambling, violence, murder or fear or incites the commission of a crime; |
• | insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or |
• | is otherwise prohibited by law or administrative regulations. |
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• | The Foreign Investment Industrial Guidance Catalog; |
• | The Administrative Regulations on Foreign-invested Advertising Enterprises; and |
• | The Circular Regarding Investment in the Advertising Industry by Foreign Investors through Equity Acquisition. |
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• | maintain and expand our user base; |
• | obtain and produce popular video content cost-effectively; |
• | procure Internet bandwidth cost-effectively; |
• | provide effective advertising services; |
• | control sales and marketing expenses; and |
• | maintain leading brand and market position. |
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• | the number of advertising customers; |
• | the number of users visiting our website and the amount of time they spend on our website; |
• | the list prices of our advertising services and the discount we offer to customers; |
• | the commissions earned by third-party advertising agencies; and |
• | the perceived effectiveness of online video advertising as compared to advertising in more traditional media, particularly television. |
Year ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(in thousands of U.S. dollars) | ||||||||||||
Internet bandwidth costs | $ | — | $ | 534 | $ | 10,279 | ||||||
Amortization of purchased video copyright cost | — | — | 8,012 | |||||||||
Impairment write-down of purchased video copyright cost | — | — | 7,740 | |||||||||
Payroll cost | — | — | 6,167 | |||||||||
In-house developed content costs | — | — | 1,596 | |||||||||
Depreciation of servers and other equipments | — | — | 2,503 | |||||||||
Other costs(1) | — | 23 | 4,162 | |||||||||
Total costs | $ | — | $ | 557 | $ | 40,459 | ||||||
(1) | Include primarily advertisement production costs and outside service fees and user-generated content costs. |
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Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(in thousands of U.S. dollars) | ||||||||||||
Operating Expenses | ||||||||||||
Product development | $ | 105 | $ | — | $ | — | ||||||
Selling and marketing | 623 | 665 | 16,196 | |||||||||
General and administrative | 1,673 | 6,465 | 13,507 | |||||||||
Total operating expenses | $ | 2,401 | $ | 7,130 | $ | 29,703 | ||||||
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• | Selling and Marketing Expenses. Our selling and marketing expenses increased to $16.2 million in 2010 from $0.7 million in 2009. The increase of the selling and marketing expenses were the result of Ku6’s higher advertising and marketing expenses, the salary and benefits of sales and marketing staff and the sales commission to the sales team as well as travelling and entertainment expenses. |
• | General and Administrative Expenses. Our general and administrative expenses increased to $13.5 million in 2010 from $6.4 million in 2009. The increase was mainly caused by the increase of $1.5 million in share-based compensation expenses including one-time compensation expenses of $1.3 million relating to incremental value of the ordinary shares issued by us to replace the options issued by Ku6 before its acquisition by us, $1.6 million increase in bad debt provision due to the expansion of our advertising business as the result of our acquisition of Ku6, $1.7 million increase in the amortization of intangible assets arising from the acquisition of Ku6, $1.6 million business tax for the intercompany transactions, $1.0 million increase in payroll expenses and $1.1 million increase in rental fees, partially offset by the consulting and legal expenses of $2.5 million incurred in 2009 for the Shanda Interactive tender offer. |
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• | Operating loss from Continuing Operations.As a result of the foregoing, operating loss from continuing operations was $53.6 million for 2010 compared to $6.6 million for 2009. |
• | General and Administrative Expenses. Our general and administrative expenses increased to $6.5 million in 2009 from $1.7 million in 2008. Our general and administrative expenses in 2009 included one-time expenses such as (i) the consulting and legal expenses $2.5 million incurred in connection with the Shanda Interactive tender offer through which Shanda Interactive acquired 51% of our outstanding shares and (ii) severance pay of $0.4 million to our former CEO and CFO. |
• | Selling and Marketing Expenses. Our selling and marketing expenses increased to $0.7 million in 2009 from $0.6 million in 2008. Selling and marketing expenses in 2009 included expenses associated with our online audio business for the last four months of 2009. |
• | Product Development Expenses.Our product development expenses were nil in 2009 and $0.1 million in 2008. The small amount of expenses in 2008 represented share-based compensation to our product development staff. |
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For the Year Ended December 31, 2009 | ||||||||||||||||||||
Shanghai | ||||||||||||||||||||
Ku6 Media Co., | Ku6 Holding | Yisheng Network | Pro Forma | Pro Forma | ||||||||||||||||
Ltd. | Ltd. | (2) | Adjustments (1) | Consolidation | ||||||||||||||||
(in thousands of U.S. dollars, except for share and per share data) | ||||||||||||||||||||
Total net revenues | $ | 1,037 | $ | 6,225 | $ | 985 | $ | — | $ | 8,247 | ||||||||||
Total cost of revenues | (557 | ) | (10,018 | ) | (428 | ) | — | (11,003 | ) | |||||||||||
Gross profit (loss) | 480 | (3,793 | ) | 557 | — | (2,756 | ) | |||||||||||||
Total operating expenses | (7,130 | ) | (6,374 | ) | (1,203 | ) | (1,962 | ) | (16,669 | ) | ||||||||||
Operating loss from continuing operations | (6,650 | ) | (10,167 | ) | (646 | ) | (1,962 | ) | (19,425 | ) | ||||||||||
Interest income | 356 | 8 | — | — | 364 | |||||||||||||||
Interest expense | — | (40 | ) | (1 | ) | — | (41 | ) | ||||||||||||
Other income, net | 2 | 2 | 39 | — | 43 | |||||||||||||||
Foreigin exchange loss | — | — | — | — | — | |||||||||||||||
Fair value changes in warrant liabilities | — | 186 | — | — | 186 | |||||||||||||||
Loss before income tax benefit from continuing operations | (6,292 | ) | (10,011 | ) | (608 | ) | (1,962 | ) | (18,873 | ) | ||||||||||
Income tax benefit | 14 | — | — | — | 14 | |||||||||||||||
Loss from continuing operations, net of tax | (6,278 | ) | (10,011 | ) | (608 | ) | (1,962 | ) | (18,859 | ) | ||||||||||
Discontinued operations: | ||||||||||||||||||||
Loss from operations of discontinued operations, net of tax | (21,778 | ) | — | — | — | (21,778 | ) | |||||||||||||
Gain from disposal of discontinued operations | 222 | — | — | — | 222 | |||||||||||||||
Loss from discontinued operations, net of tax | (21,556 | ) | — | — | — | (21,556 | ) | |||||||||||||
Loss from continuing and discontinued operations, net of tax | (27,834 | ) | (10,011 | ) | (608 | ) | (1,962 | ) | (40,415 | ) | ||||||||||
Less: Net loss attributable to the non-controlling interests from continuing operations | 256 | — | — | — | 256 | |||||||||||||||
Less: Net loss attributable to the non-controlling interests and redeemable non-controlling interests from discontinued operations | 4,183 | — | — | — | 4,183 | |||||||||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (23,395 | ) | (10,011 | ) | (608 | ) | (1,962 | ) | (35,976 | ) | ||||||||||
Loss from continuing operations, net of tax, attributable to Ku6 Media Co., Ltd. | (6,022 | ) | (10,011 | ) | (608 | ) | (1,962 | ) | (18,603 | ) | ||||||||||
Loss from discontinued operations, net of tax, attributable to Ku6 Media Co., Ltd. | (17,373 | ) | — | — | — | (17,373 | ) | |||||||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (23,395 | ) | (10,011 | ) | (608 | ) | (1,962 | ) | (35,976 | ) | ||||||||||
(1) | Represents the incremental amortization expense for the intangible assets resulting from the Ku6 and Yisheng acquisition. | |
(2) | The financial information reflects the operation results for the period from January 1, 2009 to August 31, 2009 since the operations from September 1, 2009 have already been included in the consolidate results of Ku6 Media Co., Ltd. |
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For the Year Ended December 31, 2010 | ||||||||||||||||
Pro Forma | Pro Forma | |||||||||||||||
Ku6 Media Co., Ltd. | Ku6 Holding Ltd.(2) | Adjustments(1) | Consolidation | |||||||||||||
Total net revenues | $ | 16,556 | $ | 232 | $ | — | $ | 16,788 | ||||||||
Total cost of revenues | (40,459 | ) | (3,956 | ) | — | (44,415 | ) | |||||||||
Gross loss | (23,903 | ) | (3,724 | ) | — | (27,627 | ) | |||||||||
Total operating expenses | (29,703 | ) | (641 | ) | (154 | ) | (30,498 | ) | ||||||||
Operating loss from continuing operations | (53,606 | ) | (4,365 | ) | (154 | ) | (58,125 | ) | ||||||||
Interest income | 57 | — | — | 57 | ||||||||||||
Interest expense | (31 | ) | — | — | (31 | ) | ||||||||||
Other income, net | — | — | — | — | ||||||||||||
Foreigin exchange loss | — | (4 | ) | — | (4 | ) | ||||||||||
Fair value changes in warrant liabilities | — | — | — | — | ||||||||||||
Loss before income tax benefit from continuing operations | (53,580 | ) | (4,369 | ) | (154 | ) | (58,103 | ) | ||||||||
Income tax benefit | 41 | — | — | 41 | ||||||||||||
Loss from continuing operations, net of tax | (53,539 | ) | (4,369 | ) | (154 | ) | (58,062 | ) | ||||||||
Discontinued operations: | ||||||||||||||||
Loss from operations of discontinued operations, net of tax | (3,382 | ) | — | — | (3,382 | ) | ||||||||||
Gain from disposal of discontinued operations | 4,486 | — | — | 4,486 | ||||||||||||
Loss from discontinued operations, net of tax | 1,104 | — | — | 1,104 | ||||||||||||
Loss from continuing and discontinued operations, net of tax | (52,435 | ) | (4,369 | ) | (154 | ) | (58,062 | ) | ||||||||
Less: Net loss attributable to the non-controlling interests from continuing operations | 681 | — | — | 681 | ||||||||||||
Less: Net loss attributable to the non-controlling interests and redeemable non-controlling interests from discontinued operations | 244 | — | — | 244 | ||||||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (51,510 | ) | (4,369 | ) | (154 | ) | (56,033 | ) | ||||||||
Loss from continuing operations, net of tax, attributable to Ku6 Media Co., Ltd. | (52,858 | ) | (4,369 | ) | (154 | ) | (57,381 | ) | ||||||||
Loss from discontinued operations, net of tax, attributable to Ku6 Media Co., Ltd. | 1,348 | — | — | 1,348 | ||||||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (51,510 | ) | (4,369 | ) | (154 | ) | (56,033 | ) | ||||||||
(1) | Represents the incremental amortization expense for the intangible assets resulting from the Ku6 acquisition. | |
(2) | The financial information reflects the operation results for the month ended January 31, 2010, as the Ku6 acquisition was completed on January 18, 2010. |
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Year ended December 31, 2009 | Year ended December 31, 2010 | |||||||||||||||||||||||
(in thousands) | (in thousands) | |||||||||||||||||||||||
Pro forma | Pro forma | |||||||||||||||||||||||
Actual | adjustments | Pro forma | Actual | adjustments | Pro forma | |||||||||||||||||||
Internet bandwidth costs | $ | 534 | $ | 4,137 | $ | 4,671 | $ | 10,279 | $ | 497 | $ | 10,776 | ||||||||||||
Amortization and impairment write-down of purchased video copyright cost | — | 1,747 | 1,747 | 15,619 | 2,852 | 18,471 | ||||||||||||||||||
Payroll cost | — | 2,506 | 2,506 | 6,167 | 350 | 6,517 | ||||||||||||||||||
In-house developed content costs | — | — | — | 1,596 | — | 1,596 | ||||||||||||||||||
Depreciation of servers and other equipments | — | 1,278 | 1,278 | 2,503 | 109 | 2,612 | ||||||||||||||||||
Other costs(1) | 23 | 778 | 801 | 4,295 | 148 | 4,443 | ||||||||||||||||||
Total costs | $ | 557 | $ | 10,446 | $ | 11,003 | $ | 40,459 | $ | 3,956 | $ | 44,415 | ||||||||||||
(1) | Includes primarily advertisement production costs and outside service fees and user-generated content costs. |
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• | Selling and Marketing Expenses. Our pro forma selling and marketing expenses increased to $16.8 million in 2010 from $5.0 million in 2009. The increase in pro forma selling and marketing expenses was the result of higher sales commissions to our sales team tied to sales performance and more marketing promotion activities in 2010 to enhance the reputation of our Ku6.com website. |
• | General and Administrative Expenses. Our pro forma general and administrative expenses increased to $13.7 million in 2010 from $11.6 million in 2009 mainly due to the increase of $1.4 million in share-based compensation expenses including one-time compensation expenses of $1.3 million relating to the fair value of ordinary shares issued by us to replace the options issued by Ku6 over the acquisition date fair value of those options attributable to the pre-combination portion in connection with the acquisition of Ku6. Also the increase of bad debt expenses of $1.6 million due to expansion of our advertising business, business tax of $1.7 million for the intercomany transactions within the group and rental and management expenses of $0.6 million due to relocation and expansion of our office building, was partially offset by the decrease of the consulting and legal expenses for the Shanda tender offer of $2.5 million. |
Year Ended December 31, | ||||||||||||
2008 | 2009 | 2010 | ||||||||||
(in thousands of U.S. dollars) | ||||||||||||
Net cash used in operating activities | $ | (5,553 | ) | $ | (2,092 | ) | $ | (29,570 | ) | |||
Net cash (used in) provided by investing activities | (2,265 | ) | (8,931 | ) | 2,168 | |||||||
Net cash provided by financing activities | 2 | 1,448 | 4,616 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 1,310 | (154 | ) | 337 | ||||||||
Net (decrease) in cash and cash equivalents | $ | (6,506 | ) | $ | (9,729 | ) | $ | (22,449 | ) |
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Payments Due by Period | ||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | |||||||||||||
(in thousands of U.S. dollars) | ||||||||||||||||
Operating lease commitments | $ | 9,775 | $ | 7,530 | $ | 2,201 | $ | 44 | ||||||||
Other contractual commitments(1) | 3,218 | 3,218 | — | — | ||||||||||||
Total contractual obligations | $ | 12,993 | $ | 10,748 | $ | 2,201 | $ | 44 |
(1) | Represents commitments in respect of purchased video copyrights. |
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Name | Age | Position | ||||
Bruno Wu(2) (3) | 44 | Independent Director and Chairman of the Board | ||||
Tianqiao Chen(1) (2) | 37 | Director | ||||
Danian Chen(1) | 32 | Director | ||||
Grace Wu(1) (2) | 40 | Director | ||||
Haifa Zhu | 38 | Director and Acting Chief Executive Officer | ||||
Haibin Qu | 36 | Director | ||||
Shanyou Li | 38 | Director | ||||
Tongyu Zhou(3) | 42 | Independent Director | ||||
Wenwen Niu(3) | 44 | Independent Director | ||||
Tony Shen | 43 | Chief Financial Officer | ||||
Feng Chen | 38 | Chief Editor and Vice President | ||||
Liang Zhao | 40 | Chief Technology Officer |
(1) | Member of the compensation and leadership development committee | |
(2) | Member of the corporate development and finance committee | |
(3) | Member of the audit committee |
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• | Options. Options provide for the right to purchase our ordinary shares at a specified exercise price subject to vesting. |
• | Share Appreciation Rights. A share appreciation right is a right to receive a payment, in cash or ordinary shares, equal to the excess of the fair market value of a specified number of our ordinary shares on the date the share appreciation right is exercised over the base price as set forth in the award document. The maximum term of a share appreciation right is six years. |
• | Restricted Shares.A restricted share award is the sale of ordinary shares at a price determined by our board or the committee administering our 2010 Plan or a grant of our ordinary shares, in each case subject to restrictions on transfer and vesting terms. |
• | Restricted Share Units. Restricted share units represent the right to receive our ordinary shares, subject to vesting. Restricted share units will be settled upon vesting, subject to the terms of the award agreement, either by our delivery to the holder of the number of ordinary shares that equals the number of the vested restricted share units or by a cash payment to the holder that equals the then fair market value of the number of underlying ordinary shares. |
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• | convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings; |
• | declaring dividends and distributions; |
• | appointing officers and determining the term of office of officers; |
• | exercising the borrowing powers of our company and mortgaging the property of our company; and |
• | approving the transfer of shares of our company, including the registering of such shares in our share register. |
• | 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 Limited (1) | 3,334,694,582 | 66.43 | % | |||||
Granite Global Ventures(2) | 202,047,600 | 5.80 | % | |||||
Executive Officers and Directors | ||||||||
Shanyou Li(3) | 274,077,076 | 7.87 | % | |||||
Bruno Wu | * | * | ||||||
Tianqiao Chen | — | — | ||||||
Danian Chen | * | * | ||||||
Grace Wu | * | * | ||||||
Haifa Zhu | * | * | ||||||
Haibin Qu | * | * | ||||||
Tongyu Zhou | * | * | ||||||
Wenwen Niu | * | * | ||||||
Tony Shen | * | * | ||||||
Feng Chen | * | * | ||||||
Liang Zhao | * | * | ||||||
All current directors and executive officers as a group (13 persons) | 276,352,576 | 7.94 | % |
* | Upon exercise of all options, this person would beneficially own less than 1% of our outstanding ordinary shares. | |
(1) | Includes (i) 1,380,848,429 ordinary shares, including ordinary shares represented by ADSs, held by Shanda Media Group Limited,a wholly owned subsidiary of Shanda Interactive, (ii) 415,384,615 ordinary shares held by Shanda Interactive, and (iii) 1,538,461,538 ordinary shares issuable to Shanda Media Group Limited, pursuant to the Share Purchase Agreement dated as of April 1, 2011 by and between us and Shanda Media Group Limited. | |
(2) | Granite Global Ventures is an investment advisor. | |
(3) | Includes (i) 257,106,176 ordinary shares held by Kumelia Holdings Limited, (ii) 8,999,200 ordinary shares held by Shanyou Li, and (iii) 79,717 American Depositary Shares held by Shanyou Li, each representing 100 ordinary shares. Kumelia Holdings Limited is a British Virgin Islands company, with Li Shanyou holding approximately 88.27% of its equity interest and the other three individuals holding the remaining 11.73% of its equity interest. In addition, each of such three individual shareholders of Kumelia Holdings Limited has granted a power of attorney to the board of directors of Kumelia Holdings Limited to exercise the voting rights with respect to shares held by such individual shareholder. Shanyou Li is currently serving as the sole director on the board of Kumelia Holdings Limited. Therefore, Shanyou Li may be deemed to share the power to vote and dispose or direct the disposition of 257,106,176 ordinary shares held by Kumelia Holdings Limited. |
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Sales Price | ||||||||
High | Low | |||||||
Annual highs and lows | ||||||||
2006 | $ | 9.71 | $ | 4.70 | ||||
2007 | $ | 6.53 | $ | 3.05 | ||||
2008 | $ | 4.21 | $ | 1.08 | ||||
2009 | $ | 7.16 | $ | 0.93 | ||||
2010 | $ | 8.40 | $ | 2.22 | ||||
Quarterly highs and lows | ||||||||
First Quarter 2009 | $ | 4.50 | $ | 0.93 | ||||
Second Quarter 2009 | $ | 4.00 | $ | 0.95 | ||||
Third Quarter 2009 | $ | 3.95 | $ | 3.25 | ||||
Fourth Quarter 2009 | $ | 7.16 | $ | 3.85 | ||||
First Quarter 2010 | $ | 4.21 | $ | 2.22 | ||||
Second Quarter 2010 | $ | 3.84 | $ | 2.45 | ||||
Third Quarter 2010 | $ | 5.19 | $ | 2.36 | ||||
Fourth Quarter 2010 | $ | 8.40 | $ | 4.14 | ||||
First Quarter 2011 | $ | 5.25 | $ | 2.59 | ||||
Monthly highs and lows | ||||||||
January 2011 | $ | 5.25 | $ | 4.31 | ||||
February 2011 | $ | 4.70 | $ | 3.55 | ||||
March 2011 | $ | 3.97 | $ | 2.59 | ||||
April 2011 | $ | 8.12 | $ | 3.75 | ||||
May 2011 | $ | 7.98 | $ | 3.47 | ||||
June 2011 (through June 24, 2011) | $ | 4.08 | $ | 2.83 |
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(a) | consolidate and divide all or any of our share capital into shares of larger amount than our existing shares; |
(b) | subdivide our existing shares, or any of them, into shares of smaller amount than is fixed by our amended and restated memorandum of association, subject nevertheless to the provisions of Section 13 of the Cayman Companies Law; or |
(c) | cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person. |
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• | 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; |
• | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules; and |
• | the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or SAFE Circular 142. |
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(i) | that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, 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 shareholders 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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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, | ||||||||
2010 | 2009 | |||||||
Audit fees (1) | $ | 1,026,652 | $ | 1,247,687 | ||||
Audit-related fees (2) | — | — | ||||||
Tax fees (3) | 29,544 | — | ||||||
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.” |
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• | 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 the Amended and Restated Memorandum and Articles of Association of the Company as adopted on October 16, 2009 (incorporated herein by reference to Exhibit 1.2 to our Form 20-F (file No. 000-51116) filed with the Commission on April 30, 2010). | |||
1.3 | Amendment to the Amended and Restated Memorandum and Articles of Association of the Company as adopted on June 24, 2011. | |||
2.1 | Specimen American Depositary Receipt of Ku6 Media Co., Ltd. | |||
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 | Form of Deposit Agreement 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 | English translation of Equity Transfer Agreement dated May 17, 2010, between Hurray! Digital Media Technology Co., Ltd. and Huayi Brothers Media Corporation relating to the equity interest in Beijing Huayi Brothers Music Co., Ltd. | |||
4.2 | Share Purchase Agreement dated November 26, 2009 among Hurray! Holding Co., Ltd., the selling shareholders of Ku6 Holding Limited and Ku6 Holding Limited. | |||
4.3 | Master Transaction Agreement between Shanda Interactive Entertainment Limited and Hurray! Holding Co., Ltd., dated June 1, 2010 (incorporated by reference to Exhibit 99.2 to our press release on Form 6-K (file no. 000-51116) filed with the Commission on June 2, 2010). | |||
4.4 | English Translation of Loan Agreement between Ku6 (Beijing) Information Technology Co., Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated December 31, 2010. | |||
4.5 | English Translation of Loan Agreement between Ku6 (Beijing) Information Technology Co., Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated February 10, 2011. | |||
4.6 | English Translation of Loan Agreement between Ku6 Media Co., Ltd. and Shanda Games Limited dated December 27, 2010. | |||
4.7 | English Translation of Loan Agreement between Ku6 Media Co., Ltd. and Shanda Games Limited dated January 25, 2011. | |||
4.8 | English translation of Loan Agreement between Ku6 (Beijing) Technology Co., Ltd. and Shanyou Li dated April 11, 2007. |
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Exhibit | ||||
Number | Document | |||
4.9 | English translation of Loan Agreement between Ku6 (Beijing) Technology Co., Ltd. and Shanyou Li dated June 23, 2008. | |||
4.10 | English translation of Loan Agreement between Ku6 (Beijing) Technology Co., Ltd. and Hailong Han dated April 11, 2007. | |||
4.11 | English translation of Exclusive Business Cooperation Agreement between Ku6 (Beijing) Technology Co., Ltd. and Ku6 (Beijing) Information Technology Co., Ltd dated June 23, 2008. | |||
4.12 | English translation of Share Pledge Agreement among Ku6 (Beijing) Technology Co., Ltd., Shanyou Li and Ku6 (Beijing) Information Technology Co., Ltd dated July 8, 2009. | |||
4.13 | English translation of Share Pledge Agreement among Ku6 (Beijing) Technology Co., Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co., Ltd dated April 11, 2007. | |||
4.14 | English translation of Supplementary Agreement to the Share Pledge Agreement among Ku6 (Beijing) Technology Co., Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co., Ltd dated June 23, 2008. | |||
4.15 | English translation of Power of Attorney by Shanyou Li dated July 8, 2009. | |||
4.16 | English translation of Power of Attorney by Hailong Han dated June 23, 2008. | |||
4.17 | English translation of Exclusive Option Agreement among Ku6 (Beijing) Technology Co., Ltd., Shanyou Li and Ku6 (Beijing) Information Technology Co., Ltd dated July 8, 2009. | |||
4.18 | English translation of Exclusive Option Agreement among Ku6 (Beijing) Technology Co., Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co., Ltd dated April 11, 2007. | |||
4.19 | English translation of Exclusive Intellectual Property Option Agreement between Ku6 (Beijing) Technology Co., Ltd. and Ku6 (Beijing) Information Technology Co., Ltd dated June 23, 2008. | |||
4.20 | English translation of Supplementary Agreement to the Exclusive Option Agreement among Ku6 (Beijing) Technology Co., Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co., Ltd dated June 23, 2008. | |||
4.21 | English translation of Loan Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and Shanyou Li dated May 27, 2010. | |||
4.22 | English translation of Loan Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and Xingye Zeng dated May 27, 2010. | |||
4.23 | English translation of Exclusive Consulting And Service Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and Ku6 (Beijing) Cultural Media Co., Ltd dated May 27, 2010. | |||
4.24 | English translation of Business Operation Agreement among WeiMoSanYi (Tianjin) Technology Co., Ltd., Ku6 (Beijing) Cultural Media Co., Ltd., Shanyou Li and Xingye Zeng dated May 27, 2010. | |||
4.25 | English translation of Power of Attorney by Shanyou Li dated May 27, 2010. | |||
4.26 | English translation of Power of Attorney by Xingye Zeng dated May 27, 2010. | |||
4.27 | English translation of Share Pledge Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and Shanyou Li dated May 27, 2010. |
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Exhibit | ||||
Number | Document | |||
4.28 | English translation of Share Pledge Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and Xingye Zeng dated May 27, 2010. | |||
4.29 | English translation of Equity Disposition Agreement among WeiMoSanYi (Tianjin) Technology Co., Ltd., Shanyou Li, Xingye Zeng and Ku6 (Beijing) Cultural Media Co., Ltd. dated May 27, 2010. | |||
4.30 | English translation of Transfer Agreement among Shanda Computer (Shanghai) Co., Ltd., Ku6 (Beijing) Technology Co., Ltd. and Dongxu Wang dated August 5, 2010. | |||
4.31 | English translation of Exclusive Consulting And Service Agreement between Ku6 (Beijing) Technology Co., Ltd. and Shanghai Yisheng Network Technology Co., Ltd. dated August 5, 2010. | |||
4.32 | English translation of Business Operation Agreement among Ku6 (Beijing) Technology Co., Ltd., Dongxu Wang and Shanghai Yisheng Network Technology Co., Ltd. dated August 5, 2010. | |||
4.33 | English translation of Power of Attorney by Dongxu Wang dated August 5, 2010. | |||
4.34 | English translation of Share Pledge Agreement between Ku6 (Beijing) Technology Co., Ltd. and Dongxu Wang dated August 5, 2010. | |||
4.35 | English translation of Equity Disposition Agreement among Ku6 (Beijing) Technology Co., Ltd., Dongxu Wang and Shanghai Yisheng Network Technology Co., Ltd. dated August 5, 2010. | |||
4.36 | English translation of Share Proxy Agreement between Ku6 (Beijing) Technology Co., Ltd. and Dongxu Wang dated August 5, 2010. | |||
4.37 | English translation of Exclusive Option Agreement among WeiMoSanYi (Tianjin) Technology Co., Ltd., Ku6 (Beijing) Information Technology Co., Ltd and Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. dated March 21, 2009. | |||
4.38 | English translation of Exclusive Business Cooperation Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd., and Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. dated March 21, 2009. | |||
4.39 | English translation of Equity Interest Pledge Agreement among WeiMoSanYi (Tianjin) Technology Co., Ltd., Ku6 (Beijing) Information Technology Co., Ltd and Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. dated March 21, 2009. | |||
4.40 | English translation of Power of Attorney by Ku6 (Beijing) Information Technology Co., Ltd dated March 21, 2009. | |||
4.41 | 2010 Equity Compensation Plan. | |||
4.42 | 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). | |||
4.43 | Share Purchase Agreement between Ku6 Media Co., Ltd. and Shanda Media Group Limited, dated April 1, 2011. | |||
4.44 | Senior Convertible Bond Purchase Agreement between Ku6 Media Co., Ltd. and Shanda Media Group Limited, dated April 1, 2011. | |||
4.45 | Equity Purchase Agreement by and among Ku6 Media Co., Ltd., the shareholders of Hangzhou Soushi Networking Co., Ltd. and Hangzhou Soushi Networking Co., Ltd. dated as of April 20, 2011. |
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Exhibit | ||||
Number | Document | |||
4.46 | English Translation of Loan Agreement between Shanghai Yisheng Network Technology Co., Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated June 2009. | |||
4.47 | English Translation of Loan Agreement between Shanghai Yisheng Network Technology Co., Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated 2010. | |||
4.48 | English Translation of Loan Agreement between Ku6 (Beijing) Information Technology Co., Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated June 2011. | |||
4.49 | English Translation of Loan Agreement between Ku6 Media Co., Ltd. and Shanda Games Limited dated June 8, 2011. | |||
8.1 | List of Significant Subsidiaries and Affiliates. | |||
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 Acting 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 Acting 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 PricewaterhouseCoopers Zhong Tian CPAs Limited Company. | |||
15.2 | Consent of Deloitte Touche Tohmatsu CPA Ltd., Independent Registered Public Accounting Firm. |
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KU6 MEDIA CO., LTD. | ||||||||
By: | /s/ Haifa Zhu | |||||||
Name: | Haifa Zhu | |||||||
Title: | Acting Chief Executive Officer | |||||||
Date: | June 28, 2011 |
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INDEX TO FINANCIAL STATEMENTS
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INDEX TO FINANCIAL STATEMENTS
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KU6 MEDIA CO., LTD.:
Shanghai, the People’s Republic of China
June 28, 2011
F-2
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Ku6 Media Co., Ltd. (formerly known as Hurray! Holding Co., Ltd.)
Beijing, the People’s Republic of China
F-3
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Note | December 31, 2009 | December 31, 2010 | ||||||||||
(Adjusted) | ||||||||||||
(Note 2(1)) | ||||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||
Assets | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | 49,743,934 | 27,294,819 | ||||||||||
Short term investments | 10,000,000 | — | ||||||||||
Accounts receivable, net of allowance for doubtful accounts | 19 | 4,009,841 | 8,135,195 | |||||||||
Accounts receivable due from related party | 12 | 51,832 | 325,757 | |||||||||
Prepaid expenses and other current assets | 5 | 1,890,285 | 3,487,327 | |||||||||
Other receivables due from related parties | 12 | 63,312 | 5,532,248 | |||||||||
Inventories | 201,576 | 31,038 | ||||||||||
Total current assets | 65,960,780 | 44,806,384 | ||||||||||
Property and equipment, net | 6 | 1,471,732 | 8,003,474 | |||||||||
Acquired intangible assets, net | 7 | 1,644,531 | 27,264,283 | |||||||||
Goodwill | 9 | 2,099,290 | 6,896,340 | |||||||||
Deposits and other non-current assets | 331,958 | — | ||||||||||
Total assets | 71,508,291 | 86,970,481 | ||||||||||
Liabilities and shareholders’ equity | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | 4,652,050 | 15,502,901 | ||||||||||
Accounts payable due to related party | 12 | — | 1,664,570 | |||||||||
Notes payable | 227,720 | — | ||||||||||
Accrued expenses and other current liabilities | 11 | 6,331,687 | 11,462,241 | |||||||||
Other payables due to related parties | 12 | 1,904,455 | 7,776,698 | |||||||||
Income tax payable | 654,835 | — | ||||||||||
Current deferred tax liabilities | 15 | 12,316 | — | |||||||||
Total current liabilities | 13,783,063 | 36,406,410 | ||||||||||
Long-term payable | 17,554 | — | ||||||||||
Non-current deferred tax liabilities | 2(26),15 | 403,308 | 4,925,538 | |||||||||
Total liabilities | 14,203,925 | 41,331,948 | ||||||||||
Commitments and contingencies | 21 | — | — | |||||||||
Redeemable non-controlling interest | 3 | 370,870 | — | |||||||||
Equity: | ||||||||||||
Ordinary shares ($0.00005 par value; 4,560,000,000 shares authorized; 2,200,194,040 and 3,481,174,498 shares issued and outstanding as of December 31, 2009 and 2010, respectively) | 109,959 | 174,008 | ||||||||||
Additional paid-in capital | 76,605,958 | 130,100,153 | ||||||||||
Statutory reserves | 20 | 1,791,324 | — | |||||||||
Accumulated deficits | (33,386,524 | ) | (83,105,464 | ) | ||||||||
Accumulated other comprehensive income (loss) | 9,955,687 | (1,422,414 | ) | |||||||||
Total Ku6 Media Co., Ltd. shareholders’ equity | 55,076,404 | 45,746,283 | ||||||||||
Non-controlling interests | 1,857,092 | (107,750 | ) | |||||||||
Total equity | 56,933,496 | 45,638,533 | ||||||||||
Total liabilities and equity | 71,508,291 | 86,970,481 | ||||||||||
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Year ended | Year ended | Year ended | ||||||||||||||
Note | December 31, 2008 | December 31, 2009 | December 31, 2010 | |||||||||||||
(Adjusted) | (Adjusted) | |||||||||||||||
(Note 2(1)) | (Note 2(1)) | |||||||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||||||
Net revenues: | 2(19) | |||||||||||||||
Advertising | ||||||||||||||||
Third parties | — | 757,723 | 15,853,948 | |||||||||||||
Related parties | — | 279,341 | 701,732 | |||||||||||||
Total net revenues | — | 1,037,064 | 16,555,680 | |||||||||||||
Cost of revenues: | 2(19) | |||||||||||||||
Advertising | — | |||||||||||||||
Third parties | — | (556,639 | ) | (40,082,758 | ) | |||||||||||
Related parties | — | — | (376,302 | ) | ||||||||||||
Total cost of revenues | — | (556,639 | ) | (40,459,060 | ) | |||||||||||
Gross profit/(loss) | — | 480,425 | (23,903,380 | ) | ||||||||||||
Operating expenses: | ||||||||||||||||
Product development | 2(20) | (105,283 | ) | — | — | |||||||||||
Selling and marketing | 2(22) | (622,846 | ) | (665,131 | ) | (16,195,539 | ) | |||||||||
General and administrative | 2(21) | (1,672,608 | ) | (6,465,080 | ) | (13,507,701 | ) | |||||||||
Total operating expenses | (2,400,737 | ) | (7,130,211 | ) | (29,703,240 | ) | ||||||||||
Operating loss from continuing operations | (2,400,737 | ) | (6,649,786 | ) | (53,606,620 | ) | ||||||||||
Interest income | 1,431,507 | 356,167 | 57,464 | |||||||||||||
Interest expense | — | — | (31,134 | ) | ||||||||||||
Other income, net | — | 1,783 | 3 | |||||||||||||
Gain on reduction of acquisition payable | 13 | 5,000,000 | — | — | ||||||||||||
Foreign exchange loss | 2(7),14 | (8,990,067 | ) | — | — | |||||||||||
Loss before income tax benefit from continuing operations | (4,959,297 | ) | (6,291,836 | ) | (53,580,287 | ) | ||||||||||
Income tax benefit | 2(26),15 | — | 13,721 | 41,172 | ||||||||||||
Loss from continuing operations, net of tax | (4,959,297 | ) | (6,278,115 | ) | (53,539,115 | ) | ||||||||||
Discontinued operations: | ||||||||||||||||
Loss from operations of discontinued operations, net of tax | 4 | (7,743,284 | ) | (21,778,174 | ) | (3,382,438 | ) | |||||||||
Gain from disposal of discontinued operations, net of tax | 412,530 | 221,899 | 4,486,786 | |||||||||||||
Loss (income) from discontinued operations, net of tax | (7,330,754 | ) | (21,556,275 | ) | 1,104,348 | |||||||||||
Net loss | (12,290,051 | ) | (27,834,390 | ) | (52,434,767 | ) | ||||||||||
Less: Net loss attributable to the non-controlling interests from continuing operations | — | 256,654 | 680,837 | |||||||||||||
Less: Net loss attributable to the non-controlling interests and redeemable non-controlling interests from discontinued operations | 337,455 | 4,182,875 | 243,666 | |||||||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (11,952,596 | ) | (23,394,861 | ) | (51,510,264 | ) | ||||||||||
Loss from continuing operations, net of tax, attributable to Ku6 Media Co., Ltd. | (4,959,297 | ) | (6,021,461 | ) | (52,858,278 | ) | ||||||||||
Income (loss) from discontinued operations, net of tax, attributable to Ku6 Media Co., Ltd. | (6,993,299 | ) | (17,373,400 | ) | 1,348,014 | |||||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (11,952,596 | ) | (23,394,861 | ) | (51,510,264 | ) | ||||||||||
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Note | Year ended | Year ended | Year ended | |||||||||||||
(cont’d) | December 31, 2008 | December 31, 2009 | December 31,2010 | |||||||||||||
(Adjusted) | (Adjusted) | |||||||||||||||
(Note 2(1)) | (Note 2(1)) | |||||||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||||||
Net loss | (12,290,051 | ) | (27,834,390 | ) | (52,434,767 | ) | ||||||||||
Other comprehensive income (loss): | ||||||||||||||||
Currency translation adjustments of subsidiaries | 2,658,344 | (36,057 | ) | (809,654 | ) | |||||||||||
Comprehensive loss | (9,631,707 | ) | (27,870,447 | ) | (53,244,421 | ) | ||||||||||
Comprehensive loss attributable to non-controlling interests and redeemable non-controlling interests | 11,551 | 4,443,959 | 921,701 | |||||||||||||
Comprehensive loss attributable to Ku6 Media Co., Ltd. | (9,620,156 | ) | (23,426,488 | ) | (52,322,720 | ) | ||||||||||
Loss per share-basic and diluted | 18 | |||||||||||||||
Loss from continuing operations attributable to Ku6 Media Co., Ltd. common shareholders | (0.00 | ) | (0.00 | ) | (0.02 | ) | ||||||||||
Loss from discontinued operations attributable to Ku6 Media Co., Ltd. common shareholders | (0.01 | ) | (0.01 | ) | 0.00 | |||||||||||
Net loss attributable to Ku6 Media Co., Ltd. common shareholders | (0.01 | ) | (0.01 | ) | (0.02 | ) | ||||||||||
Weighted average share used in per share calculation-basic and diluted | 2,185,615,129 | 2,196,291,947 | 3,096,421,097 | |||||||||||||
Loss per ADS-basic and diluted (1ADS = 100 shares): | 18 | |||||||||||||||
Loss from continuing operations attributable to Ku6 Media Co., Ltd. common shareholders | (0.23 | ) | (0.27 | ) | (1.71 | ) | ||||||||||
Loss from discontinued operations attributable to Ku6 Media Co., Ltd. common shareholders | (0.32 | ) | (0.79 | ) | 0.04 | |||||||||||
Net loss attributable to Ku6 Media Co., Ltd. common shareholders | (0.55 | ) | (1.06 | ) | (1.67 | ) | ||||||||||
Weighted average ADS used in per ADS calculation-basic and diluted | 21,856,151 | 21,962,919 | 30,964,211 | |||||||||||||
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Accumulated | Total Ku6 Media | |||||||||||||||||||||||||||||||||||
Ordinary shares | Additional | other | 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, 2008 | 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 | |||||||||||||||||||||||||||
Transfer statutory reserve to retained earnings | — | — | — | (4,711,525 | ) | 4,711,525 | — | — | — | — | ||||||||||||||||||||||||||
Capital contribution to a subsidiary by non-controlling shareholders | — | — | — | — | — | — | — | 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 | |||||||||||||||||||||||||||
Online audio business (“Yisheng”) contributed by Shanda Interactive Entertainment Limited (“Shanda”) | — | — | 1,415,547 | — | — | — | 1,415,547 | (43,533 | ) | 1,372,014 | ||||||||||||||||||||||||||
Capital contribution to Yisheng by non-controlling shareholders | — | — | — | — | — | — | — | 362,773 | 362,773 | |||||||||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | (31,627 | ) | (31,627 | ) | (4,430 | ) | (36,057 | ) | |||||||||||||||||||||||
Net loss | — | — | — | — | (23,394,861 | ) | — | (23,394,861 | ) | (3,240,927 | ) | (26,635,788 | ) | |||||||||||||||||||||||
Balance as of December 31, 2009 (Adjusted (Note 2(1))) | 2,200,194,040 | $ | 109,959 | 76,605,958 | 1,791,324 | (33,386,524 | ) | 9,955,687 | 55,076,404 | 1,857,092 | 56,933,496 | |||||||||||||||||||||||||
Stock-based compensation expense | 3,000,100 | 150 | 607,014 | — | — | — | 607,164 | — | 607,164 | |||||||||||||||||||||||||||
Exercise of stock options | 450,000 | 22 | 20,328 | — | — | — | 20,350 | — | 20,350 | |||||||||||||||||||||||||||
Issuance of ordinary shares related to acquisitions of Ku6 Holding Limited | 723,684,204 | 36,185 | 28,838,816 | — | — | — | 28,875,001 | — | 28,875,001 | |||||||||||||||||||||||||||
Disposal of Huayi Brothers Music Co., Ltd. | — | — | — | (74,246 | ) | 74,246 | (221,315 | ) | (221,315 | ) | (209,736 | ) | (431,051 | ) | ||||||||||||||||||||||
Contribution by Shanda related to Yisheng | — | — | 663,570 | — | — | — | 663,570 | — | 663,570 | |||||||||||||||||||||||||||
Issuance of ordinary shares for Yisheng to Shanda | 415,384,615 | 20,769 | 12,440,769 | — | — | — | 12,461,538 | — | 12,461,538 | |||||||||||||||||||||||||||
Deemed distribution to Shanda related to Yisheng | — | — | (12,461,538 | ) | — | — | — | (12,461,538 | ) | — | (12,461,538 | ) | ||||||||||||||||||||||||
Purchase of additional equity interests of Yisheng from non-controlling shareholders | 138,461,539 | 6,923 | (520,181 | ) | — | — | — | (513,258 | ) | 513,258 | — | |||||||||||||||||||||||||
Disposal of WVAS and recorded music businesses to Shanda | — | — | 23,905,417 | (1,717,078 | ) | 1,717,078 | (10,344,330 | ) | 13,561,087 | (1,464,169 | ) | 12,096,918 | ||||||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | (812,456 | ) | (812,456 | ) | 2,802 | (809,654 | ) | ||||||||||||||||||||||||
Net loss | — | — | — | — | (51,510,264 | ) | — | (51,510,264 | ) | (806,997 | ) | (52,317,261 | ) | |||||||||||||||||||||||
Balance as of December 31, 2010 | 3,481,174,498 | 174,008 | 130,100,153 | — | (83,105,464 | ) | (1,422,414 | ) | 45,746,283 | (107,750 | ) | 45,638,533 | ||||||||||||||||||||||||
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Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
(Adjusted) | ||||||||||||
(Note 2(1)) | ||||||||||||
(in U.S. dollars) | ||||||||||||
Net loss | (12,290,051 | ) | (27,834,390 | ) | (52,434,767 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Share-based compensation | 945,282 | 169,310 | 607,164 | |||||||||
Share based compensation cost in relation to acquisition of Ku6 | — | — | 1,284,766 | |||||||||
Depreciation and amortization | 3,327,798 | 1,798,396 | 5,266,212 | |||||||||
Amortization and write-down of licensed video copyrights | — | — | 15,751,814 | |||||||||
Impairment of goodwill | 2,675,211 | 3,592,933 | — | |||||||||
Impairment for investment in affiliated company | 1,870,897 | 209,848 | — | |||||||||
Impairment of intangible assets | 2,850,714 | 3,542,071 | — | |||||||||
Bad debt provision | 1,012,738 | 3,819,894 | 1,474,568 | |||||||||
Inventory provision | — | 238,370 | 84,481 | |||||||||
Exchange loss | — | 17,198 | (898,682 | ) | ||||||||
Equity in (earning) loss of affiliated company | (64,293 | ) | 704,224 | — | ||||||||
Gain from disposal of subsidiary | (412,530 | ) | (221,899 | ) | (4,486,786 | ) | ||||||
Loss (gain) on disposal of property and equipment | 112,745 | (5,843 | ) | 196,969 | ||||||||
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 acquisitions and dispositions: | ||||||||||||
Accounts receivable | 3,492,068 | 5,883,070 | (8,678,575 | ) | ||||||||
Prepaid expenses and other current assets | (1,142,954 | ) | 2,737,066 | (796,237 | ) | |||||||
Amount due from related parties | (245,724 | ) | 732,563 | (2,836,461 | ) | |||||||
Deposits and other non-current assets | 183,003 | 439,859 | (414 | ) | ||||||||
Inventories | 56,833 | (130,333 | ) | (94,101 | ) | |||||||
Deferred taxes | 187,671 | (530,190 | ) | (72,985 | ) | |||||||
Accounts payable | (761,068 | ) | 579,864 | 8,753,566 | ||||||||
Notes payable | — | 22,901 | (54,218 | ) | ||||||||
Accrued expenses and other current liabilities | (71,705 | ) | 2,283,336 | 5,976,116 | ||||||||
Amount due to related parties | (63,140 | ) | (78,307 | ) | 1,408,305 | |||||||
Income tax payable | (102,057 | ) | 290,670 | (20,633 | ) | |||||||
Net cash used in operating activities | (5,552,882 | ) | (2,091,606 | ) | (29,569,898 | ) | ||||||
Investing activities: | ||||||||||||
(Increase)/decrease of short-term investments | — | (10,000,000 | ) | 10,000,000 | ||||||||
Purchases of property and equipment | (349,233 | ) | (867,061 | ) | (6,586,819 | ) | ||||||
Proceeds from disposal of property and equipment | — | 80,498 | — | |||||||||
Purchase of intangible assets | (1,718,340 | ) | (66,258 | ) | — | |||||||
Payment for licensed video copyright | — | — | (15,046,257 | ) | ||||||||
Proceeds from disposal of subsidiaries, net of cash disposed (nil, nil, and $669,705 for the years ended December 31, 2008, 2009 and 2010, respectively) | 4,517,070 | 254,102 | 4,376,048 | |||||||||
Acquisition of subsidiaries, net of cash acquired (nil, $1,034,308 and $329,743 for the years ended December 31, 2008, 2009 and 2010, respectively) | (2,207,132 | ) | 1,034,308 | 329,743 | ||||||||
Cash received upon consolidation of a subsidiary contributed by Shanda | — | 633,424 | — | |||||||||
Net cash received from disposal of wireless value-added service and recorded music businesses to Shanda, net of cash disposed $24,948,577 for the years ended December 31, 2010) | — | — | 12,295,323 | |||||||||
Loan to related parties under common control by Shanda | — | — | (3,200,000 | ) | ||||||||
Payments related to acquisition not yet consummated | (1,907,400 | ) | — | — | ||||||||
Investment at cost in Seed Music Group Limited | (600,038 | ) | — | — | ||||||||
Net cash provided by (used in) investing activities | (2,265,073 | ) | (8,930,987 | ) | 2,168,038 | |||||||
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Table of Contents
Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
(Adjusted) | ||||||||||||
(Note 2(1)) | ||||||||||||
Financing activities: | ||||||||||||
Proceeds from exercise of options | 1,500 | 2,500 | 20,350 | |||||||||
Cash injection into VIE subsidiary by Shanda | — | 1,083,057 | — | |||||||||
Borrowings from related parties under common control by Shanda | — | — | 4,596,001 | |||||||||
Cash injection in VIE subsidiary by non-controlling shareholders | — | 362,773 | — | |||||||||
Net cash provided by financing activities | 1,500 | 1,448,330 | 4,616,351 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | 1,310,274 | (154,506 | ) | 336,394 | ||||||||
Net decrease in cash and cash equivalents | (6,506,181 | ) | (9,728,769 | ) | (22,449,115 | ) | ||||||
Cash and cash equivalents, beginning of year | 65,978,884 | 59,472,703 | 49,743,934 | |||||||||
Cash and cash equivalents, end of the year | 59,472,703 | 49,743,934 | 27,294,819 | |||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Income taxes paid | 385,501 | 465,696 | 23,047 | |||||||||
�� | ||||||||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||||||
Accounts payable related to purchase of property and equipment | — | — | 2,045,032 | |||||||||
Accounts payable related to licensed video copyright | — | — | 2,946,304 | |||||||||
Issuance of ordinary shares to Shanda for Yisheng | — | — | 12,461,538 | |||||||||
Purchase of additional equity interests of Yisheng from non-controlling shareholders | — | — | 4,153,846 | |||||||||
Issuance of ordinary shares related to acquisition of Ku6 Holding Limited | — | — | 28,875,000 |
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F-10
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Date of | Percentage of | |||||
Name of Subsidiaries | incorporation | ownership | ||||
Subsidiaries | ||||||
Ku6 (Beijing) Technology Co., Ltd. (“Beijing WOFE”) | March 5, 2007 | 100 | % | |||
Wei Mo San Yi (Tianjin) Science and Technology Co., Ltd.(“Tianjin WOFE”) | December 23, 2008 | 100 | % | |||
Variable Interest Entities | ||||||
Ku6 (Beijing) Information Technology Co., Ltd. (“Beijing VIE”) | April 20, 2006 | 100 | % | |||
Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (“Tianjin VIE”) | March 20, 2009 | 100 | % | |||
Shanghai Yisheng Network Technology Co., Ltd. | November 22, 2007 | 100 | % |
F-11
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Consolidated Balance Sheet as of December | As originally | Effect of acquisition of | ||||||||||
31, 2009 | reported | online audio business | As adjusted* | |||||||||
Assets | ||||||||||||
Cash and cash equivalents | 48,489,095 | 1,254,839 | 49,743,934 | |||||||||
Short term investments | 10,000,000 | — | 10,000,000 | |||||||||
Accounts receivable, net of allowance | 3,192,366 | 817,475 | 4,009,841 | |||||||||
Accounts receivable due from related party | — | 51,832 | 51,832 | |||||||||
Prepaid expenses and other current assets | 1,834,361 | 55,924 | 1,890,285 | |||||||||
Amount due from related parties | 62,725 | 587 | 63,312 | |||||||||
Inventories | 196,745 | 4,831 | 201,576 | |||||||||
Total current assets | 63,775,292 | 2,185,488 | 65,960,780 | |||||||||
Property and equipment, net | 879,775 | 591,957 | 1,471,732 | |||||||||
Acquired intangible assets, net | 1,081,962 | 562,569 | 1,644,531 | |||||||||
Goodwill | 2,099,290 | — | 2,099,290 | |||||||||
Deposits and other non-current assets | 331,958 | — | 331,958 | |||||||||
Total assets | 68,168,277 | 3,340,014 | 71,508,291 | |||||||||
Liabilities | ||||||||||||
Accounts payable | 3,731,562 | 920,488 | 4,652,050 | |||||||||
Notes payable | 227,720 | — | 227,720 | |||||||||
Accrued expenses and other current liabilities | 6,260,849 | 70,838 | 6,331,687 | |||||||||
Amount due to related parties | 439,445 | 1,465,010 | 1,904,455 | |||||||||
Income tax payable | 654,835 | — | 654,835 | |||||||||
Current deferred tax liabilities | 12,316 | — | 12,316 | |||||||||
Total current liabilities | 11,326,727 | 2,456,336 | 13,783,063 | |||||||||
Long-term payable | 17,554 | — | 17,554 | |||||||||
Non-current deferred tax liabilities | 262,665 | 140,643 | 403,308 | |||||||||
Total liabilities | 11,606,946 | 2,596,979 | 14,203,925 | |||||||||
Redeemable non-controlling interests | 370,870 | — | 370,870 | |||||||||
Equity | ||||||||||||
Ordinary shares | 109,959 | — | 109,959 | |||||||||
Additional paid-in capital | 75,190,411 | 1,415,547 | 76,605,958 | |||||||||
Statutory reserves | 1,791,324 | — | 1,791,324 | |||||||||
Accumulated deficits | (32,649,555 | ) | (736,969 | ) | (33,386,524 | ) | ||||||
Accumulated other comprehensive income | 9,953,826 | 1,861 | 9,955,687 | |||||||||
Total Ku6 Media Co., Ltd. shareholders’ equity | 54,395,965 | 680,439 | 55,076,404 | |||||||||
Non-controlling interests | 1,794,496 | 62,596 | 1,857,092 | |||||||||
Total equity | 56,190,461 | 743,035 | 56,933,496 | |||||||||
Total liabilities and equity | 68,168,277 | 3,340,014 | 71,508,291 | |||||||||
F-12
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Consolidated Statement of Operations and | ||||||||||||
Comprehensive Loss for the year ended | As originally | Effect of acquisition of | ||||||||||
December 31, 2009 | reported | online audio business | As adjusted* | |||||||||
Net revenues: | ||||||||||||
Wireless value-added services | 20,169,110 | — | 20,169,110 | |||||||||
Recorded music | 14,473,185 | — | 14,473,185 | |||||||||
Advertising-third party | — | 757,723 | 757,723 | |||||||||
Advertising-related party | — | 279,341 | 279,341 | |||||||||
Total net revenues: | 34,642,295 | 1,037,064 | 35,679,359 | |||||||||
Cost of revenues: | ||||||||||||
Wireless value-added services | (15,331,675 | ) | — | (15,331,675 | ) | |||||||
Recorded music | (12,625,139 | ) | — | (12,625,139 | ) | |||||||
Advertising | — | (556,639 | ) | (556,639 | ) | |||||||
Total cost of revenues: | (27,956,814 | ) | (556,639 | ) | (28,513,453 | ) | ||||||
Gross profit | 6,685,481 | 480,425 | 7,165,906 | |||||||||
Operating expenses: | ||||||||||||
Product development | (466,543 | ) | — | (466,543 | ) | |||||||
Selling and marketing | (6,329,856 | ) | (546,609 | ) | (6,876,465 | ) | ||||||
General and administrative | (22,992,865 | ) | (941,660 | ) | (23,934,525 | ) | ||||||
Goodwill impairment | (3,592,933 | ) | — | (3,592,933 | ) | |||||||
Total operating expenses | (33,382,197 | ) | (1,488,269 | ) | (34,870,466 | ) | ||||||
Operating loss from continuing operations | (26,696,716 | ) | (1,007,844 | ) | (27,704,560 | ) | ||||||
Interest income | 454,438 | 499 | 454,937 | |||||||||
Interest expenses | (13,681 | ) | — | (13,681 | ) | |||||||
Other income, net | 341,651 | 1 | 341,652 | |||||||||
Loss before income tax expenses from continuing operations | (25,914,308 | ) | (1,007,344 | ) | (26,921,652 | ) | ||||||
Income tax benefit (expense) | (234,286 | ) | 13,721 | (220,565 | ) | |||||||
Equity in loss of affiliated company | (914,072 | ) | — | (914,072 | ) | |||||||
Loss from continuing operations, net of tax | (27,062,666 | ) | (993,623 | ) | (28,056,289 | ) | ||||||
Discontinued operations: | ||||||||||||
Loss from operations of discontinued operations | — | — | — | |||||||||
Gain from disposal of discontinued operations | 221,899 | — | 221,899 | |||||||||
Gain from discontinued operations, net of tax | 221,899 | — | 221,899 | |||||||||
Loss from continuing and discontinued operations | (26,840,767 | ) | (993,623 | ) | (27,834,390 | ) | ||||||
Less: Net loss attributable to the non-controlling interests and redeemable non-controlling interest from coninuting operations | 4,182,875 | 256,654 | 4,439,529 | |||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (22,657,892 | ) | (736,969 | ) | (23,394,861 | ) | ||||||
Loss from continuing operations, net of tax, attributable to Ku6 Media Co., Ltd. | (22,879,791 | ) | (736,969 | ) | (23,616,760 | ) | ||||||
Loss from discontinued operations, net of tax, attributable to Ku6 Media Co., Ltd. | 221,899 | — | 221,899 | |||||||||
Net loss attributable to Ku6 Media Co., Ltd. | (22,657,892 | ) | (736,969 | ) | (23,394,861 | ) | ||||||
F-13
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Consolidated Statement of Operations and | ||||||||||||
Comprehensive Loss for the year ended | As originally | Effect of acquisition of | ||||||||||
December 31, 2009 | reported | online audio business | As adjusted* | |||||||||
Net loss | (26,840,767 | ) | (993,623 | ) | (27,834,390 | ) | ||||||
Other comprehensive loss: | ||||||||||||
Currency translation adjustments of subsidiaries | (37,917 | ) | 1,861 | (36,056 | ) | |||||||
Comprehensive loss | (26,878,684 | ) | (991,763 | ) | (27,870,446 | ) | ||||||
Comprehensive loss attributable to non-controlling interests and redeemable non-controlling interests | 4,187,304 | 256,654 | 4,443,958 | |||||||||
Comprehensive loss attributable to Ku6 Media Co., Ltd. | (22,691,380 | ) | (735,108 | ) | (23,426,488 | ) | ||||||
Loss per share-basic and diluted: | ||||||||||||
Loss from continuing operations attributable to Ku6 Media Co., Ltd. common shareholders | (0.01 | ) | (0.00 | ) | (0.01 | ) | ||||||
Loss from discontinued operations attributable to Ku6 Media Co., Ltd. common shareholders | 0.00 | — | 0.00 | |||||||||
Net loss attributable to Ku6 Media Co., Ltd. common shareholders | (0.01 | ) | (0.03 | ) | (0.01 | ) | ||||||
Weighted average share used in per share calculation-basic and diluted | 2,196,291,947 | 2,196,291,947 | 2,196,291,947 | |||||||||
Loss per ADS-basic and diluted (1ADS = 100 shares): | ||||||||||||
Loss from continuing operations attributable to Ku6 Media Co., Ltd. common shareholders | (1.04 | ) | (0.03 | ) | (1.07 | ) | ||||||
Loss from discontinued operations attributable to Ku6 Media Co., Ltd. common shareholders | 0.01 | — | 0.01 | |||||||||
Net loss attributable to Ku6 Media Co., Ltd. common shareholders | (1.03 | ) | (0.03 | ) | (1.06 | ) | ||||||
Weighted average ADS used in per ADS calculation-basic and diluted | 21,96,2,919 | 21,96,2,919 | 21,96,2,919 | |||||||||
* | As adjusted reflects the acquisition of Yisheng only and does not include the effects of the disposal of wireless value-added services and recorded music business as discussed in note (b) below. |
F-14
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
Year ended | Year ended | Eight months | ||||||||||
December 31, | December 31, | ended August 31, | ||||||||||
2008 | 2009 | 2010 | ||||||||||
Net revenues: | ||||||||||||
Wireless value added services Revenue | 42,671,588 | 20,169,110 | 5,385,985 | |||||||||
Recorded music Revenue | 11,286,812 | 14,473,185 | 9,458,423 | |||||||||
Total net revenues | 53,958,400 | 34,642,295 | 14,844,408 | |||||||||
Wireless value added services Cost | (32,839,642 | ) | (15,331,675 | ) | (3,799,581 | ) | ||||||
Recorded music Cost | (6,729,725 | ) | (12,625,139 | ) | (6,118,305 | ) | ||||||
Total cost of revenues | (39,569,367 | ) | (27,956,814 | ) | (9,917,886 | ) | ||||||
Gross profit | 14,389,033 | 6,685,481 | 4,926,522 | |||||||||
Product development | (886,406 | ) | (466,543 | ) | (444,581 | ) | ||||||
Selling and marketing | (8,509,528 | ) | (6,211,334 | ) | (3,397,797 | ) | ||||||
General and administrative | (10,311,365 | ) | (17,469,445 | ) | (4,544,460 | ) | ||||||
Goodwill impairment | (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 | (20,268,190 | ) | (27,740,255 | ) | (8,386,838 | ) | ||||||
Loss from operations | (5,879,157 | ) | (21,054,774 | ) | (3,460,316 | ) | ||||||
Interest income | 181,571 | 98,770 | 42,627 | |||||||||
Interest expense | — | (13,681 | ) | — | ||||||||
Other income | 247,156 | 339,869 | 9,667 | |||||||||
Loss before income tax benefit (expense), equity in (loss) earnings of affiliated company, impairment for investment in affiliated company | (5,450,430 | ) | (20,629,816 | ) | (3,408,022 | ) | ||||||
Income tax benefit (expense) | (486,250 | ) | (234,286 | ) | 25,584 | |||||||
Equity in (loss) earnings of affiliated company | 64,293 | (914,072 | ) | — | ||||||||
Impairment for investment in affiliated company | (1,870,897 | ) | — | — | ||||||||
Net loss | (7,743,284 | ) | (21,778,174 | ) | (3,382,438 | ) | ||||||
Less: Net loss attributable to the non-controlling interests and redeemable non-controlling interest | 337,455 | 4,182,875 | 243,666 | |||||||||
Net loss from discontinued operations, net of tax | (7,405,829 | ) | (17,595,299 | ) | (3,138,772 | ) | ||||||
Gain from disposal of Huayi Music | — | — | 4,486,786 | |||||||||
Total net (loss) income from discontinued operations | (7,405,829 | ) | (17,595,299 | ) | 1,348,014 | |||||||
F-15
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-16
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-17
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-18
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-19
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-20
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Furniture and office equipment | 3~5 years | |||
Motor vehicles | 5 years | |||
Telecommunications equipment | 3~5 years | |||
Leasehold improvements | Lesser of original lease term or estimated useful life |
F-21
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-22
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-23
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
• | the Company was the primary obligor in the arrangement; |
• | the Company was able to establish prices within price caps prescribed by the telecommunications operators to reflect or react to changes in the market; |
• | the Company determined the service specifications of the services it will be rendering; |
• | the Company was able to control the selection of its content suppliers; and |
• | the Telecom Operators usually would not pay the Company if users couldnot be billed or if users did 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-24
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-25
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-26
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-27
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-28
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-29
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-30
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Total purchase price: | ||||
Ordinary shares issued to acquired all of the outstanding shares of Ku6 | 27,101,920 | |||
Ordinary shares issued to replace the options issued by Ku6 | 1,773,080 | |||
Share based compensation related to post combination portion | (1,284,766 | ) | ||
27,590,234 | ||||
Amortization period | ||||||||
Aggregate purchase price allocation —Ku6: | ||||||||
Cash and cash equivalents | 329,743 | |||||||
Account receivables | 3,264,513 | |||||||
Other current assets | 811,845 | |||||||
Acquired intangible assets: | ||||||||
Trademark | 24,901,940 | 20 years | ||||||
Software technology | 2,197,230 | 7 years | ||||||
Customer base | 1,464,820 | 5 years | ||||||
Non-current deferred tax liability | (4,826,059 | ) | ||||||
Goodwill | 6,232,770 | |||||||
Property and equipment, net | 3,652,599 | |||||||
Other non-current assets | 937,485 | |||||||
Current liabilities | (11,376,652 | ) | ||||||
Total | 27,590,234 | |||||||
F-31
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year Ended | Year Ended | |||||||
December 31, 2009 | December 31, 2010 | |||||||
(unaudited) | (unaudited) | |||||||
Net revenues | 7,261,708 | 16,787,493 | ||||||
Net loss attributable to Ku6 Media Co., Ltd. | (35,258,520 | ) | (56,033,640 | ) | ||||
Loss per ADS- Basic and Diluted: | (1.61 | ) | (1.81 | ) |
F-32
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
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-33
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
August 31, 2010 | ||||
Current assets: | ||||
Cash | 24,948,577 | |||
Accounts receivable, net of allowance | 5,402,738 | |||
Prepaid expenses and other current assets | 2,610,863 | |||
32,962,178 | ||||
Non-current assets: | ||||
Property and equipment, net | 943,258 | |||
Intangible assets | 766,847 | |||
Goodwill | 1,998,821 | |||
Other non-current assets | 300,532 | |||
4,009,458 | ||||
Current liabilities: | ||||
Accounts payable | 4,337,542 | |||
Accrued expenses and other current liabilities | 7,034,894 | |||
11,372,436 | ||||
Non-current liabilities: | ||||
Non-current deferred tax liabilities | 186,528 | |||
Other non-current liabilities | 12,322 | |||
198,850 | ||||
Non-controlling interests and redeemable non-controlling interest: | 1,717,533 | |||
F-34
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year ended | Year ended | Eight months ended | ||||||||||
December 31, 2008 | December 31, 2009 | August 31, 2010 | ||||||||||
Total net revenues | 53,958,400 | 34,642,295 | 14,844,408 | |||||||||
Loss from operations | (5,879,157 | ) | (21,054,774 | ) | (3,460,316 | ) | ||||||
Income tax benefit (expense) | (486,250 | ) | (234,286 | ) | 25,584 | |||||||
Net loss | (7,743,284 | ) | (21,778,174 | ) | (3,382,438 | ) | ||||||
Less: Net loss attributable to the non-controlling interests and redeemable non-controlling interest | 337,455 | 4,182,875 | 243,666 | |||||||||
Net loss from discontinued operations, net of tax | (7,405,829 | ) | (17,595,299 | ) | (3,138,772 | ) | ||||||
Gain from disposal of Huayi Music | — | — | 4,486,786 | |||||||||
Total net (loss) income from discontinued operations | (7,405,829 | ) | (17,595,299 | ) | 1,348,014 | |||||||
F-35
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, 2009 | December 31, 2010 | |||||||
Staff advances and other receivables | 387,710 | 1,028,156 | ||||||
Advances to suppliers | 700,569 | 454,273 | ||||||
Prepaid licensing fee of video copyright | — | 1,722,608 | ||||||
Prepaid expenses | 396,436 | 282,290 | ||||||
Prepaid artist costs | 405,570 | — | ||||||
1,890,285 | 3,487,327 | |||||||
December 31, 2009 | December 31, 2010 | |||||||
Furniture and office equipment | 3,303,822 | 1,208,434 | ||||||
Motor vehicles | 336,778 | — | ||||||
Telecommunications equipment | 3,630,903 | 10,627,167 | ||||||
Leasehold improvements | 776,639 | 1,368,677 | ||||||
8,048,162 | 13,204,278 | |||||||
Less: accumulated depreciation and amortization | (6,576,430 | ) | (5,200,804 | ) | ||||
1,471,732 | 8,003,474 | |||||||
F-36
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, 2010 | ||||||||||||||||
Gross carrying | Accumulated | Intangible assets | Net carrying | |||||||||||||
amount | amortization | impairment | amount | |||||||||||||
Online advertising segment: | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||
Software technology | 823,273 | 425,358 | — | 397,915 | ||||||||||||
Trademark | 24,901,940 | 1,141,339 | — | 23,760,601 | ||||||||||||
Technology | 2,197,230 | 287,733 | — | 1,909,497 | ||||||||||||
Customer list | 1,464,820 | 268,550 | — | 1,196,270 | ||||||||||||
29,387,263 | 2,122,980 | — | 27,264,283 | |||||||||||||
December 31, 2009 (Adjusted) (Note 2(1)) | ||||||||||||||||
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 | 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 | 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 | |||||||||||||
Online advertising segment: | ||||||||||||||||
Amortizable intangible assets | ||||||||||||||||
Software technology | 823,273 | 260,704 | — | 562,569 | ||||||||||||
16,956,117 | 6,254,185 | 9,057,401 | 1,644,531 | |||||||||||||
F-37
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
2011 | 2,016,612 | |||
2012 | 2,016,612 | |||
2013 | 1,920,571 | |||
2014 | 1,851,960 | |||
2015 and later | 19,458,528 | |||
27,264,283 | ||||
F-38
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Recorded | Online | |||||||||||||||
Gross amount of goodwill | WVAS | Music | Advertising | Total | ||||||||||||
Balance as of January 1, 2009 | 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 | ||||||||||||
Goodwill arising from acquisitions during the year | — | — | 6,232,770 | 6,232,770 | ||||||||||||
Goodwill contributed by Shanda | — | — | 663,570 | 663,570 | ||||||||||||
Goodwill transferred out due to disposal | (42,148,288 | ) | (7,848,655 | ) | — | (49,996,943 | ) | |||||||||
Effect of exchange rate changes | 257,897 | — | — | 257,897 | ||||||||||||
Balance as of December 31, 2010 | — | — | 6,896,340 | 6,896,340 | ||||||||||||
Recorded | Online | |||||||||||||||
Accumulated goodwill impairment | WVAS | Music | Advertising | Total | ||||||||||||
Balance as of January 1, 2009 | (41,910,021 | ) | (2,156,497 | ) | — | (44,066,518 | ) | |||||||||
Goodwill impairment | — | (3,592,933 | ) | — | (3,592,933 | ) | ||||||||||
Effect of exchange rate changes | 19,630 | 65 | — | 19,695 | ||||||||||||
Balance as of December 31, 2009 | (41,890,391 | ) | (5,749,365 | ) | — | (47,639,756 | ) | |||||||||
Goodwill impairment | — | — | — | — | ||||||||||||
Impairment transferred out due to disposal | 42,148,288 | 5,749,365 | — | 47,897,653 | ||||||||||||
Effect of exchange rate changes | (257,897 | ) | — | — | (257,897 | ) | ||||||||||
Balance as of December 31, 2010 | — | — | — | — | ||||||||||||
Net carrying amount as of December 31, 2009 | — | 2,099,290 | — | 2,099,290 | ||||||||||||
Net carrying amount as of December 31, 2010 | — | — | 6,896,340 | 6,896,340 | ||||||||||||
F-39
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-40
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
Fair Value Measurements | ||||
Using Significant | ||||
Unobservable Inputs | ||||
(Level 3) | ||||
Contingent consideration | ||||
Balance as of January 1, 2009 | — | |||
Contingent consideration recognized as of acquisition date | (352,217 | ) | ||
Change in fair value of contingent consideration | 550,092 | |||
Impairment provision | (197,875 | ) | ||
Balance as of December 31, 2009 | — | |||
Change in fair value of contingent consideration | — | |||
Transferred out due to disposal | — | |||
Balance as of December 31, 2010 | — | |||
F-41
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, 2009 | December 31, 2010 | |||||||
Accrued payroll | 572,489 | 2,127,951 | ||||||
Accrued welfare benefits | 667,756 | 1,731,403 | ||||||
Accrued professional service fee | 1,214,404 | 1,524,890 | ||||||
Advance from customers | 964,262 | 609,442 | ||||||
Business tax payable | 441,235 | 1,722,830 | ||||||
Value-added tax payable | 121,982 | 532 | ||||||
Other taxes payable | 1,207,932 | 718,668 | ||||||
Accrued litigation provision | — | 748,299 | ||||||
Other accrued expenses | 1,141,627 | 2,278,226 | ||||||
6,331,687 | 11,462,241 | |||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
Related party transactions in discontinued operations: | ||||||||||||
Consulting, royalty and artist performance fee from Huayi Brothers Media Corporation | 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. | 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. | 35,625 | 52,248 | — |
F-42
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
Related party transactions in continuing operations: | ||||||||||||
Advertising revenue received from companies under common control by Shanda | — | 279,341 | 701,732 | |||||||||
Promotion service fee paid to companies under common control by Shanda | — | — | 376,302 | |||||||||
Loan from Shanghai Computer (Shanghai) Co., Ltd. | — | — | 1,565,290 | |||||||||
Loan from Shanghai Shulong Technology Co., Ltd. | — | — | 3,030,711 | |||||||||
Loan to Shanda Games Limited | — | — | 3,200,000 |
December 31, 2009 | December 31, 2010 | |||||||
Other receivables due from related parties | ||||||||
Seed Music Group Limited | — | 980,000 | ||||||
Shanda Games Limited | — | 3,200,000 | ||||||
Hurray! Media Co., Ltd. | — | 1,246,641 | ||||||
Other companies under common control by Shanda | 63,312 | 105,607 | ||||||
63,312 | 5,532,248 | |||||||
December 31, 2009 | December 31, 2010 | |||||||
Other payables due to related parties | ||||||||
Shanda Computer (Shanghai) Co., Ltd. | 1,465,010 | 3,030,300 | ||||||
Shanghai Shulong Technology Co. Ltd | — | 3,030,711 | ||||||
Hurray! Solutions Ltd. | — | 1,586,899 | ||||||
Other related party | 439,445 | 128,788 | ||||||
1,904,455 | 7,776,698 | |||||||
F-43
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31,2010 | ||||||||||
Current income taxes from discontinued operations | 298,579 | 750,705 | 6,229 | |||||||||
Deferred income taxes from discontinued operations | 187,671 | (516,419 | ) | (31,813 | ) | |||||||
Deferred income taxes from continuing operations | — | (13,721 | ) | (41,172 | ) | |||||||
486,250 | 220,565 | (66,756 | ) | |||||||||
F-44
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, 2009 | December 31, 2010 | |||||||
Deferred tax assets: | ||||||||
Cost and expenses accruals | 3,038,521 | 4,714,262 | ||||||
Revenue recognition | — | 851,657 | ||||||
Less: valuation allowance | (3,038,521 | ) | (4,985,157 | ) | ||||
Current deferred tax assets | — | 580,762 | ||||||
Depreciation and amortization | 170,828 | 1,899,375 | ||||||
Net operating loss carry forwards | 5,710,412 | 13,727,221 | ||||||
Less: valuation allowance | (5,271,100 | ) | (14,137,744 | ) | ||||
Non-current deferred tax assets | 610,140 | 1,488,852 | ||||||
Deferred tax liabilities: | ||||||||
Revenue recognition | (622,456 | ) | (2,069,614 | ) | ||||
Current deferred tax liabilities | (622,456 | ) | (2,069,614 | ) | ||||
Intangible assets | (403,308 | ) | (4,925,538 | ) | ||||
Non-current deferred tax liabilities | (403,308 | ) | (4,925,538 | ) | ||||
Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
Statutory tax rate | 25.0 | % | 25.0 | % | 25.0 | % | ||||||
Differential statutory tax rates | 10.1 | % | 0.2 | % | (3.3 | %) | ||||||
Non-deductible expenses | (26.7 | %) | (6.2 | %) | 0.4 | % | ||||||
Non-taxable income | 15.9 | % | — | — | ||||||||
Change in enterprise income tax rate | — | — | — | |||||||||
Change in valuation allowance | (37.3 | %) | (19.8 | %) | (22.0 | %) | ||||||
Effective tax rate | (13.0 | %) | (0.8 | %) | 0.1 | % | ||||||
F-45
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, 2009 | December 31, 2010 | |||||||
At beginning of year | (7,772,515 | ) | (8,309,621 | ) | ||||
Consolidation of Ku6 | — | (6,123,900 | ) | |||||
Consolidation of Yisheng | (167,418 | ) | — | |||||
Current year additions | (1,029,311 | ) | (14,292,925 | ) | ||||
Current year reversals | 655,761 | 1,404,205 | ||||||
Transferred out due to disposal of WVAS and recorded music businesses | — | 8,433,935 | ||||||
Effect of exchange rate changes | 3,862 | (234,595 | ) | |||||
(8,309,621 | ) | (19,122,901 | ) | |||||
F-46
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Options | Average | Remaining | Aggregate | |||||||||||||
Outstanding | Exercise Price | Contractual Life | Intrinsic Value | |||||||||||||
US$ | US$ | |||||||||||||||
Outstanding at January 1, 2008 | 74,266,200 | 0.084 | — | — | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (60,000 | ) | 0.025 | — | — | |||||||||||
Cancelled or Expired | (26,838,500 | ) | 0.094 | — | — | |||||||||||
Outstanding at December 31, 2008 | 47,367,700 | 0.080 | — | — | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (350,000 | ) | 0.025 | — | — | |||||||||||
Cancelled or Expired | (1,435,000 | ) | 0.115 | — | — | |||||||||||
Outstanding at December 31, 2009 | 45,582,70 | 0.080 | 3.63 | 147,478 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (450,000 | ) | 0.045 | — | — | |||||||||||
Cancelled or Expired | (548,000 | ) | 0.113 | — | — | |||||||||||
Outstanding at December 31, 2010 | 44,584,700 | 0.080 | 2.63 | 226,985 | ||||||||||||
Vested and expected to vest at December 31, 2010 | 44,584,700 | 0.080 | 2.63 | 226,985 | ||||||||||||
Vested and exercisable at December 31, 2010 | 44,584,700 | 0.080 | 2.63 | 226,985 | ||||||||||||
F-47
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Weighted | ||||||||
Number | average grant | |||||||
Non-vested stock units | outstanding | date fair value | ||||||
US$ | ||||||||
Outstanding at January 1, 2008 | 49,833,800 | 0.0488 | ||||||
Granted | — | — | ||||||
Vested | (18,499,300 | ) | 0.0523 | |||||
Forfeited | (17,834,200 | ) | 0.0513 | |||||
Outstanding at December 31, 2008 | 13,500,300 | 0.0406 | ||||||
Granted | — | — | ||||||
Vested | (6,500,300 | ) | 0.0313 | |||||
Forfeited | (3,999,900 | ) | 0.0507 | |||||
Outstanding at December 31, 2009 | 3,000,100 | 0.0313 | ||||||
Granted | — | — | ||||||
Vested | (3,000,100 | ) | 0.0313 | |||||
Forfeited | — | — | ||||||
Outstanding at December 31, 2010 | — | — | ||||||
F-48
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Options | Average | Remaining | Aggregate | |||||||||||||
Outstanding | Exercise Price | Contractual Life | Intrinsic Value | |||||||||||||
US$ | US$ | |||||||||||||||
Outstanding at January 1, 2010 | — | — | — | — | ||||||||||||
Granted | 516,750,000 | 0.0568 | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Cancelled or Expired | — | — | — | — | ||||||||||||
Outstanding at December 31, 2010 | 516,750,000 | 0.0568 | 6.46 | — | ||||||||||||
Vested and expected to vest at December 31, 2010 | 355,129,632 | 0.0568 | 6.65 | — | ||||||||||||
Vested and exercisable at December 31, 2010 | — | — | — | — | ||||||||||||
F-49
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
2010 | ||
Fair value of ordinary shares (US$) | 0.0800 | |
Exercise price (US$) | 0.0568 | |
Expected volatility (%) | 60%~65% | |
Expected dividend yield (%) | 0% | |
Expected term (years) | 4~5 | |
Risk-free interest rate (per annum) (%) | 1.9407%~2.6565% |
(1) | The risk-free interest rate for periods within the contractual life of the share option is based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with the expected term of the awards. | |
(2) | The expected term of stock options granted is developed giving consideration to vesting period, contractual term and historical exercise pattern of options granted by the Company. | |
(3) | The Company has no history or expectation of paying dividends on its common stock. | |
(4) | Expected volatility is estimated based on the historical volatility of comparable companies’ stocks and of the Company’s common stock for a period equal to the expected term preceding the grant date. |
F-50
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
WVAS | 28,952,925 | 24,400,482 | — | |||||||||
Recorded music | 16,977,258 | 9,863,363 | — | |||||||||
Corporate assets | 42,394,219 | 33,904,432 | — | |||||||||
Total assets | 88,324,402 | 68,168,277 | — | |||||||||
Year ended | Year ended | Eight months ended | ||||||||||
December 31, 2008 | December 31, 2009 | August 31, 2010 | ||||||||||
Total expenditures for additions to long-lived assets | ||||||||||||
WVAS | 228,431 | 599,254 | 402,710 | |||||||||
Recorded music | 120,802 | 79,028 | 84,613 | |||||||||
Total capital expenditure | 349,233 | 678,282 | 487,323 | |||||||||
F-51
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year ended | Year ended | Eight months ended | ||||||||||
December 31, 2008 | December 31, 2009 | August 31, 2010 | ||||||||||
Revenues | ||||||||||||
WVAS | 42,671,588 | 20,169,110 | 5,385,985 | |||||||||
Recorded music | 11,286,812 | 14,473,185 | 9,458,423 | |||||||||
Total revenues | 53,958,400 | 34,642,295 | 14,844,408 | |||||||||
Cost of revenues | ||||||||||||
WVAS | 32,839,642 | 15,331,675 | 3,799,581 | |||||||||
Recorded music | 6,729,725 | 12,625,139 | 6,118,305 | |||||||||
Total cost of revenues | 39,569,367 | 27,956,814 | 9,917,886 | |||||||||
Gross profit | ||||||||||||
WVAS | 9,831,946 | 4,837,435 | 1,586,404 | |||||||||
Recorded music | 4,557,087 | 1,848,046 | 3,340,118 | |||||||||
Total gross profit | 14,389,033 | 6,685,481 | 4,926,522 | |||||||||
Year ended | Year ended | Eight months ended | ||||||||||
December 31, 2008 | December 31, 2009 | August 31, 2010 | ||||||||||
Revenues | ||||||||||||
SMS | 13,319,011 | 5,307,435 | 456,968 | |||||||||
IVR | 12,207,136 | 3,943,733 | 545,890 | |||||||||
RBT | 4,960,624 | 4,447,918 | 2,493,929 | |||||||||
2G revenues | 30,486,771 | 13,699,086 | 3,496,787 | |||||||||
WAP | 7,434,197 | 3,145,885 | 565,205 | |||||||||
MMS | 1,355,441 | 1,692,585 | 170,281 | |||||||||
JAVA | 2,244,010 | 1,541,618 | 902,194 | |||||||||
WEB | 218,810 | 11,794 | — | |||||||||
2.5G revenues | 11,252,458 | 6,391,882 | 1,637,680 | |||||||||
Other revenues | 932,359 | 78,142 | 251,518 | |||||||||
Total WVAS revenue | 42,671,588 | 20,169,110 | 5,385,985 | |||||||||
Recorded music revenue | 11,286,812 | 14,473,185 | 9,458,423 | |||||||||
Total revenues | 53,958,400 | 34,642,295 | 14,844,408 | |||||||||
F-52
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
Numerator: | ||||||||||||
Net loss attributable to Ku6 Media Co., Ltd. from continuing operations for basic and diluted earnings per ADS | (4,959,297 | ) | (6,021,461 | ) | (52,858,278 | ) | ||||||
Net loss (income) attributable to Ku6 Media Co., Ltd. from discontinued operations for basic and diluted earnings per ADSs | (6,993,299 | ) | (17,373,400 | ) | 1,348,014 | |||||||
Net loss attributable to Ku6 Media Co., Ltd. | (11,952,596 | ) | (23,394,861 | ) | (51,510,264 | ) | ||||||
Denominator: | ||||||||||||
Weighted-average ordinary shares outstanding for basic calculation | 2,185,615,129 | 2,196,291,947 | 3,096,421,097 | |||||||||
Dilutive effect of restricted shares and stock options | — | — | — | |||||||||
Weighted average ordinary shares outstanding for diluted calculation | 2,185,615,129 | 2,196,291,947 | 3,096,421,097 | |||||||||
Weighted-average ADS used in per basic ADS calculations | 21,856,151 | 21,962,919 | 30,964,211 | |||||||||
Dilutive effect of restricted shares and stock options | — | — | — | |||||||||
Weighted-average ADS used in per diluted ADS calculations | 21,856,151 | 21,962,919 | 30,964,211 | |||||||||
Loss per share — basic and diluted | ||||||||||||
Loss from continuing operations attributable to Ku6 Media Co., Ltd. ordinary shareholders per share — basic and diluted | (0.00 | ) | (0.00 | ) | (0.02 | ) | ||||||
Loss (income) from discontinued operations attributable to Ku6 Media Co., Ltd. ordinary shareholders per share — basic and diluted | (0.01 | ) | (0.01 | ) | 0.00 | |||||||
Loss attributable to Ku6 Media Co., Ltd. ordinary shareholders per share — basic and diluted | (0.01 | ) | (0.01 | ) | (0.02 | ) | ||||||
Loss per ADS — basic and diluted | ||||||||||||
Loss from continuing operations attributable to Ku6 Media Co., Ltd. ordinary shareholders per ADS — basic and diluted | (0.23 | ) | (0.27 | ) | (1.71 | ) | ||||||
Loss (income) from discontinued operations attributable to Ku6 Media Co., Ltd. ordinary shareholders per ADS— basic and diluted | (0.32 | ) | (0.79 | ) | 0.04 | |||||||
Loss attributable to Ku6 Media Co., Ltd. ordinary shareholders per ADS — basic and diluted | (0.55 | ) | (1.06 | ) | (1.67 | ) | ||||||
F-53
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year ended December 31, 2008 | Year ended December 31, 2009 | Eight months ended August 31, 2010 | ||||||||||||||||||||||
Revenues | % | Revenues | % | Revenues | % | |||||||||||||||||||
China Mobile | 24,352,344 | 45 | % | 10,074,902 | 28 | % | 2,455,914 | 46 | % | |||||||||||||||
China Unicom | 10,775,358 | 20 | % | 5,068,739 | 14 | % | 1,711,726 | 32 | % | |||||||||||||||
China Telecom | 5,070,996 | 9 | % | 4,405,260 | 12 | % | 1,059,075 | 20 | % |
December 31, 2009 | December 31, 2010 | |||||||||||||||
Accounts receivable | % | Accounts receivable | % | |||||||||||||
China Mobile | 744,428 | 18 | % | — | — | |||||||||||
China Unicom | 678,640 | 17 | % | — | — | |||||||||||
China Telecom | 228,914 | 6 | % | — | — |
F-54
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Year ended | Year ended | |||||||
December 31, 2009 | December 31, 2010 | |||||||
Balance at beginning of the period | 826,026 | 4,015,145 | ||||||
Consolidation of Seed Music | 425,065 | — | ||||||
Consolidation of Ku6 | — | 101,484 | ||||||
Provisions | 4,107,915 | 1,976,053 | ||||||
Reversed | (373,943 | ) | (501,485 | ) | ||||
Written off | (969,918 | ) | (53,563 | ) | ||||
Transferred out due to disposal of WVAS and recorded music businesses | — | (3,100,455 | ) | |||||
Balance at the end of the period | 4,015,145 | 2,437,179 | ||||||
F-55
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
Within 1 year | 7,529,765 | |||
Between 1 and 2 years | 1,657,259 | |||
Between 2 and 3 years | 543,843 | |||
Between 3 and 4 years | 43,653 | |||
Total | 9,774,520 | |||
F-56
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-57
Table of Contents
December 31, 2009 | December 31, 2010 | |||||||
(Adjusted) | ||||||||
(Note 2(1)) | ||||||||
(in U.S. dollars, except number of shares) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | 23,760,844 | 11,048,500 | ||||||
Short term investments | 10,000,000 | — | ||||||
Prepaid expenses and other current assets | 134,436 | 241,017 | ||||||
Amount due from subsidiaries and variable interest entities | — | 31,959,213 | ||||||
Amount due from related parties | — | 3,841,766 | ||||||
Total current assets | 33,895,280 | 47,090,496 | ||||||
Investments in subsidiaries and variable interest entities | 22,838,722 | — | ||||||
Total assets | 56,734,002 | 47,090,496 | ||||||
Liabilities and shareholders’ equity | ||||||||
Accrued expenses and other current liabilities | 1,280,993 | 1,266,380 | ||||||
Amounts due to subsidiaries and variable interest entities | 376,605 | 77,833 | ||||||
Total current liabilities | 1,657,598 | 1,344,213 | ||||||
Shareholders’ equity: | ||||||||
Ordinary shares ($0.00005 par value; 4,560,000,000 shares authorized; 2,200,194,040 and 3,481,174,498 shares issued and outstanding as of December 31, 2009 and 2010, respectively) | 109,959 | 174,008 | ||||||
Additional paid-in capital | 76,605,958 | 130,100,153 | ||||||
Accumulated deficit | (31,595,200 | ) | (83,105,464 | ) | ||||
Accumulated other comprehensive income (loss) | 9,955,687 | (1,422,414 | ) | |||||
Total shareholders’ equity | 55,076,404 | 45,746,283 | ||||||
Total liabilities and shareholders’ equity | 56,734,002 | 47,090,496 | ||||||
F-58
Table of Contents
ADDITIONAL INFORMATION — FINANCIAL STATEMENT SCHEDULE I
STATEMENT OF OPERATIONS
(In U.S. dollars)
Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
(Adjusted) | ||||||||||||
(Note (2(1)) | ||||||||||||
(in U.S. dollars, except number of shares) | ||||||||||||
Operating expenses: | ||||||||||||
Product development | 105,283 | — | 150,584 | |||||||||
Selling and marketing | 622,846 | 118,521 | 160,231 | |||||||||
General and administrative | 1,666,532 | 5,520,453 | 4,072,134 | |||||||||
Total operating expenses | 2,394,661 | 5,638,974 | 4,382,949 | |||||||||
Loss from operations | (2,394,661 | ) | (5,638,974 | ) | (4,382,949 | ) | ||||||
Interest income | 1,429,837 | 355,616 | 9,404 | |||||||||
Interest expense | — | — | — | |||||||||
Other income | 5,000,000 | — | 205,043 | |||||||||
Foreign exchange loss (gain) | (8,990,067 | ) | 1,085 | (38,767 | ) | |||||||
Gain from disposal of subsidiary | 412,530 | 221,899 | — | |||||||||
Equity in loss of subsidiaries, VIEs and affiliate | (7,410,235 | ) | (18,334,487 | ) | (47,302,995 | ) | ||||||
Net loss | (11,952,596 | ) | (23,394,861 | ) | (51,510,264 | ) | ||||||
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ADDITIONAL INFORMATION — FINANCIAL STATEMENT SCHEDULE I
STATEMENTS OF CASH FLOWS
(In U.S. dollars)
Year ended | Year ended | Year ended | ||||||||||
December 31, 2008 | December 31, 2009 | December 31, 2010 | ||||||||||
Adjusted | ||||||||||||
(Note 2(1)) | ||||||||||||
(In U.S. dollars) | ||||||||||||
Net loss | ||||||||||||
Operating activities: | ||||||||||||
Net loss | (11,952,596 | ) | (23,394,861 | ) | (51,510,264 | ) | ||||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Stock-based compensation | 945,282 | 169,310 | 1,891,931 | |||||||||
Equity in profit of subsidiary companies | 7,410,235 | 18,334,487 | 47,302,995 | |||||||||
Gain from disposal of subsidiary | (412,530 | ) | (221,899 | ) | — | |||||||
Receivable from disposal of subsidiary | — | — | — | |||||||||
Gain on reduction of acquisition payable | (5,000,000 | ) | — | — | ||||||||
Prepaid expenses and other current assets | 56,064 | 40,047 | (106,581 | ) | ||||||||
Amount due from related parties | — | — | (942,919 | ) | ||||||||
Other payables and accruals | (322,804 | ) | 1,008,149 | 4,738 | ||||||||
Amounts due to subsidiaries and variable interest entities | (189,080 | ) | 34,929 | 2,381 | ||||||||
Net cash provided by (used in) operating activities | (9,465,429 | ) | (4,029,838 | ) | (3,357,719 | ) | ||||||
Investing activities: | ||||||||||||
Decrease/(Increase) of short-term investments | — | (10,000,000 | ) | 10,000,000 | ||||||||
Proceeds from disposal of subsidiary | 4,517,070 | 268,759 | 37,243,901 | |||||||||
Loan to subsidiaries | — | — | (53,418,876 | ) | ||||||||
Loan to related parties | — | — | (3,200,000 | ) | ||||||||
Payments related to acquisitions consummated | (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 | — | — | — | |||||||||
Net cash used in (provided by) investing activities | 21,702 | (11,731,241 | ) | (9,374,975 | ) | |||||||
Financing activities: | ||||||||||||
Proceeds from exercise of options | 1,500 | 2,500 | 20,350 | |||||||||
Net cash provided by financing activities | 1,500 | 2,500 | 20,350 | |||||||||
Effect of exchange rate changes on cash and cash equivalents | (99,879 | ) | — | — | ||||||||
Net increase (decrease) in cash and cash equivalents | (9,442,227 | ) | (15,758,579 | ) | (12,712,344 | ) | ||||||
Cash and cash equivalents, beginning of year | 49,061,529 | 39,519,423 | 23,760,844 | |||||||||
Cash and cash equivalents, end of the year | 39,519,423 | 23,760,844 | 11,048,500 | |||||||||
F-60
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KU6 HOLDING LIMITED:
Shanghai, the People’s Republic of China
June 28, 2011
F-61
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December 31, | December 31, | |||||||||||
Note | 2008 | 2009 | ||||||||||
US$ | US$ | |||||||||||
ASSETS | ||||||||||||
Current assets: | ||||||||||||
Cash and cash equivalents | 2(5), 3 | 11,401,733 | 4,035,454 | |||||||||
Accounts receivable, net of allowance | �� | 2(6), 4 | 2,516,845 | 3,160,757 | ||||||||
Prepayments and other current assets | 119,587 | 273,259 | ||||||||||
Total current assets | 14,038,165 | 7,469,470 | ||||||||||
Property and equipment, net | 2(7), 5 | 3,154,020 | 2,197,165 | |||||||||
Total assets | 17,192,185 | 9,666,635 | ||||||||||
LIABILITIES | ||||||||||||
Current liabilities: | ||||||||||||
Accounts payable | 1,052,439 | 2,415,507 | ||||||||||
Taxes payable | 6 | 233,357 | 304,898 | |||||||||
Other payables and accruals | 7 | 3,930,770 | 4,957,976 | |||||||||
Total current liabilities | 5,216,566 | 7,678,381 | ||||||||||
Warrant liability | 8, 10 | 228,886 | 42,481 | |||||||||
Total liabilities | 5,445,452 | 7,720,862 | ||||||||||
Commitments and contingencies | 15 | — | — | |||||||||
MEZZANINE EQUITY | ||||||||||||
Series A Convertible Preferred Shares, US$0.0001 par value; 55,555,555 shares authorized; issued and outstanding as of December 31, 2008 and 2009 (Liquidation value: US$4,736,842 as of December 31, 2008 and 2009) | 8 | 4,736,842 | 4,736,842 | |||||||||
Series A-1 Convertible Preferred Shares, US$0.0001 par value; 10,198,604 shares authorized; issued and outstanding as of December 31, 2008 and 2009 (Liquidation value: US$1,000,000 as of December 31, 2008 and 2009) | 8 | 1,000,000 | 1,000,000 | |||||||||
Series B Convertible Preferred Shares,US$0.0001 par value; 80,000,000 shares authorized; 74,880,455 issued and outstanding as of December 31, 2008 and 2009(Liquidation value: US$20,890,631 as of December 31, 2008 and 2009) | 8 | 14,150,634 | 15,810,338 | |||||||||
Series B-1 Convertible Preferred Shares,US$0.0001 par value; 32,967,402 shares authorized; 22,967,402 issued and outstanding as of December 31, 2008 and 2009(Liquidation value: US$7,500,005 as of December 31, 2008 and 2009) | 8 | 5,281,372 | 5,846,367 | |||||||||
SHAREHOLDERS’ DEFICIT | ||||||||||||
Ordinary shares (US$0.0001 par value; 321,278,439 shares authorized, 100,701,104 shares issued and outstanding as of December 31, 2008 and 2009) | 10,070 | 10,070 | ||||||||||
Additional paid-in capital | 774,423 | 978,759 | ||||||||||
Subscription receivable | (10,070 | ) | (10,070 | ) | ||||||||
Accumulated loss | (14,010,821 | ) | (26,247,228 | ) | ||||||||
Accumulated comprehensive loss | (185,717 | ) | (179,305 | ) | ||||||||
Total shareholders’ deficit | (13,422,115 | ) | (25,447,774 | ) | ||||||||
Total liabilities and shareholders’ deficit | 17,192,185 | 9,666,635 | ||||||||||
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Note | For the years ended December 31 | |||||||||||
2008 | 2009 | |||||||||||
US$ | US$ | |||||||||||
Total net revenues | 2(11) | 4,296,358 | 6,224,644 | |||||||||
Cost of revenue | 2(12), 11 | (7,662,012 | ) | (10,018,489 | ) | |||||||
Gross loss | (3,365,654 | ) | (3,793,845 | ) | ||||||||
Operating expenses: | ||||||||||||
Sales and marketing | 2(13) | (2,708,703 | ) | (3,790,651 | ) | |||||||
General and administrative | 2(14) | (2,748,404 | ) | (2,582,885 | ) | |||||||
Total operating expenses | (5,457,107 | ) | (6,373,536 | ) | ||||||||
Loss from operations | (8,822,761 | ) | (10,167,381 | ) | ||||||||
Interest income | 2(16) | 13,628 | 7,619 | |||||||||
Interest expense | (221,263 | ) | (40,206 | ) | ||||||||
Other income, net | — | 1,727 | ||||||||||
Beneficial conversion charge on convertible note | 8 | (508,352 | ) | — | ||||||||
Fair value changes in warrant liabilities | 8 | (46,328 | ) | 186,533 | ||||||||
Loss before income tax expenses | (9,585,076 | ) | (10,011,708 | ) | ||||||||
Income tax expenses | 2(18), 12 | — | — | |||||||||
Net loss attributable to the Company | (9,585,076 | ) | (10,011,708 | ) | ||||||||
Accretion on Convertible Redeemable Series B Preferred Shares to redemption value | (822,315 | ) | (1,659,705 | ) | ||||||||
Accretion on Convertible Redeemable Series B-1 Preferred Shares to redemption value | (281,369 | ) | (564,994 | ) | ||||||||
Net loss attributable to the Company’s ordinary shareholders | (10,688,760 | ) | (12,236,407 | ) | ||||||||
Net loss | (9,585,076 | ) | (10,011,708 | ) | ||||||||
Other comprehensive loss: | ||||||||||||
Currency translation adjustments of the Company and subsidiaries | (83,471 | ) | 6,412 | |||||||||
Comprehensive loss attributable to the Company | (9,668,547 | ) | (10,005,296 | ) | ||||||||
F-63
Table of Contents
Accumulated | Total | |||||||||||||||||||||||||||
Ordinary shares | Subscription | Additional | Accumulated | comprehensive | shareholders’ | |||||||||||||||||||||||
Shares | Amount | receivable | paid-in capital | loss | loss | deficit | ||||||||||||||||||||||
US$ | US$ | US$ | US$ | US$ | US$ | |||||||||||||||||||||||
Balance as of January 1, 2008 | 100,701,104 | 10,070 | (10,070 | ) | 133,145 | (3,322,061 | ) | (102,246 | ) | (3,291,162 | ) | |||||||||||||||||
Accretion on Convertible Redeemable Series BPreferred Shares to redemption value | — | — | — | — | (822,315 | ) | — | (822,315 | ) | |||||||||||||||||||
Accretion on Convertible Redeemable Series B-1Preferred Shares to redemption value | — | — | — | — | (281,369 | ) | — | (281,369 | ) | |||||||||||||||||||
Beneficial conversion feature on convertible note | — | — | — | 508,352 | — | — | 508,352 | |||||||||||||||||||||
Stock-based compensation expense | — | — | — | 132,926 | — | — | 132,926 | |||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | (83,471 | ) | (83,471 | ) | |||||||||||||||||||
Net loss | — | — | — | — | (9,585,076 | ) | — | (9,585,076 | ) | |||||||||||||||||||
Balance as of December 31, 2008 | 100,701,104 | 10,070 | (10,070 | ) | 774,423 | (14,010,821 | ) | (185,717 | ) | (13,422,115 | ) | |||||||||||||||||
Accretion on Convertible Redeemable Series BPreferred Shares to redemption value | — | — | — | — | (1,659,705 | ) | — | (1,659,705 | ) | |||||||||||||||||||
Accretion on Convertible Redeemable Series B-1Preferred Shares to redemption value | — | — | — | — | (564,994 | ) | — | (564,994 | ) | |||||||||||||||||||
Stock-based compensation expense | — | — | — | 204,336 | — | — | 204,336 | |||||||||||||||||||||
Cumulative currency translation adjustments of subsidiaries | — | — | — | — | — | 6,412 | 6,412 | |||||||||||||||||||||
Net loss | — | — | — | — | (10,011,708 | ) | — | (10,011,708 | ) | |||||||||||||||||||
Balance as of December 31, 2009 | 100,701,104 | 10,070 | (10,070 | ) | 978,759 | (26,247,228 | ) | (179,305 | ) | (25,447,774 | ) | |||||||||||||||||
F-64
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For the Years Ended December 31, | ||||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Cash flows from operating activities: | ||||||||
Net loss | (9,585,076 | ) | (10,011,708 | ) | ||||
Adjustments for: | ||||||||
Share-based compensation | 132,926 | 204,336 | ||||||
Depreciation of property and equipment | 921,408 | 1,413,150 | ||||||
Amortization and write-down of video copyrights | 1,533,326 | 1,747,350 | ||||||
Interest expense | 221,263 | 40,206 | ||||||
Bad debt provision for receivables and other assets | 73,554 | 101,415 | ||||||
Loss from disposal of property and equipment | — | 53,106 | ||||||
Foreign exchange loss | 40,249 | 18,177 | ||||||
Beneficial conversion charge on convertible loan | 508,352 | |||||||
Fair value changes in warrant liabilities | 46,328 | (186,533 | ) | |||||
Changes in assets and liabilities: | ||||||||
Accounts receivable | (2,063,507 | ) | (742,668 | ) | ||||
Prepayments and other current assets | 45,894 | (153,488 | ) | |||||
Accounts payable | 402,356 | 928,002 | ||||||
Taxes payable | 137,708 | 71,289 | ||||||
Other payables and accruals | 3,329,990 | 982,836 | ||||||
Net cash used in operating activities | (4,255,229 | ) | (5,534,530 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (1,823,016 | ) | (905,528 | ) | ||||
Purchase of video copyrights | (1,514,305 | ) | (915,275 | ) | ||||
Net cash used in investing activities | (3,337,321 | ) | (1,820,803 | ) | ||||
Cash flows from financing activities: | ||||||||
Cash received from issuance of convertible note | 3,000,001 | — | ||||||
Proceeds from issuance of convertible redeemable preferred shares | 15,873,282 | — | ||||||
Issuance cost paid in connection with the issuance of the redeemable convertible preferred shares | (598,769 | ) | — | |||||
Net cash provided by financing activities | 18,274,514 | — | ||||||
Effect of exchange rate changes on cash | (179,109 | ) | (10,946 | ) | ||||
Net increase/(decrease) in cash and cash equivalents | 10,502,855 | (7,366,279 | ) | |||||
Cash, beginning of year | 898,878 | 11,401,733 | ||||||
Cash, end of year | 11,401,733 | 4,035,454 | ||||||
Supplemental disclosure of cash flow information: | ||||||||
Cash (received) paid during the year for income tax | — | — | ||||||
Supplemental disclosure of non-cash investing and financing activities: | ||||||||
Accounts payable related to purchase of property and equipment and video copyrights | 464,855 | 898,297 | ||||||
Conversion of the convertible notes to redeemable convertible preferred shares | 3,053,809 | — |
F-65
Table of Contents
Date of | Percentage | |||||
Name of Subsidiaries | incorporation | of ownership | ||||
Subsidiaries | ||||||
Ku6 (Beijing) Technology Co., Ltd. (“Beijing WOFE”) | March 5, 2007 | 100 | % | |||
Wei Mo San Yi (Tianjin) Science and Technology Co., Ltd. (“Tianjin WOFE”) | December 23, 2008 | 100 | % | |||
Variable Interest Entities | ||||||
Ku6 (Beijing) Information Technology Co., Ltd. (“Beijing VIE”) | April 20, 2006 | 100 | % | |||
Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (“Tianjin VIE”) | March 20, 2009 | 100 | % |
F-66
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-67
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-68
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-69
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
Computer equipment | 3 years | |
Leasehold improvements | Lesser of the term of the lease or the estimated useful lives of the assets | |
Furniture and fixtures | 3 years |
F-70
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-71
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-72
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-73
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-74
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-75
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Accounts receivable | 2,516,845 | 3,262,220 | ||||||
Less: Allowance for doubtful accounts | — | (101,463 | ) | |||||
2,516,845 | 3,160,757 | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Balance at beginning of year | — | — | ||||||
Add: Current year additions | — | (101,463 | ) | |||||
Less: Current year reversal | — | — | ||||||
Balance at end of year | — | (101,463 | ) | |||||
F-76
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Computer equipment (including servers) | 4,022,606 | 3,923,815 | ||||||
Leasehold improvements | 72,837 | 72,905 | ||||||
Furniture and fixtures | 278,882 | 311,922 | ||||||
Total | 4,374,325 | 4,308,642 | ||||||
Less: Accumulated depreciation | (1,220,305 | ) | (2,111,477 | ) | ||||
Net book value | 3,154,020 | 2,197,165 | ||||||
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Business tax payable | 192,138 | 249,924 | ||||||
Others | 41,219 | 54,974 | ||||||
Total | 233,357 | 304,898 | ||||||
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Accrued payroll and welfare | 709,112 | 1,410,013 | ||||||
Accrued litigation provision (Note 15) | 1,593,199 | 1,644,200 | ||||||
Accrued advertising and promotion expenses | 860,816 | 1,437,372 | ||||||
Accrued professional consulting fee | — | 325,446 | ||||||
Payable to a third party company | 585,257 | — | ||||||
Others | 182,386 | 140,945 | ||||||
Total | 3,930,770 | 4,957,976 | ||||||
F-77
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-78
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
Proceeds | ||||||||||||||||||||||
Issuance | Outstanding | net of issuance | Carrying amount | Carrying amount | ||||||||||||||||||
Series | date | Shares | Issue Price | costs | December 31, 2008 | December 31, 2009 | ||||||||||||||||
US$ | US$ | US$ | US$ | |||||||||||||||||||
A | April 2007 | 55,555,555 | 0.08526 | 4,595,888 | 4,736,842 | 4,736,842 | ||||||||||||||||
A-1 | June 2007 | 10,198,604 | 0.0981 | 1,000,000 | 1,000,000 | 1,000,000 | ||||||||||||||||
B | June 2008 | 67,810,295 | 0.19049 | 12,318,204 | 12,814,541 | 14,317,537 | ||||||||||||||||
B | June 2008 | 7,070,160 | 0.14287 | 1,010,114 | 1,336,093 | 1,492,801 | ||||||||||||||||
B-1 | July 2008 | 22,967,402 | 0.21770 | 5,000,003 | 5,281,372 | 15,810,338 | ||||||||||||||||
163,602,016 | 25,168,848 | 27,393,547 | ||||||||||||||||||||
F-79
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
F-80
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
Note I Warrant | Note III Warrant | |||||||
Fair value of Series B Preferred Shares (US$) | 0.1905 | 0.1905 | ||||||
Exercise price | 0.1905 | 0.1905 | ||||||
Expected volatility (%) | 49%~82 | % | 57 | % | ||||
Expected dividend yield (%) | 0 | % | 0 | % | ||||
Expected term(years) | 3 | 3 | ||||||
Risk-free interest rate (per annum) (%) | 4.419%~4.283 | % | 2.746 | % |
• | Expected volatility was estimated based on average annualized standard deviation of the share price of comparable listed companies and applied certain discount for a period equal to the expected term preceding the valuation date. |
• | Expected dividends are considered as zero because the Company has no history or expectation of paying dividends on its ordinary shares. |
• | The expected term was considered as equal to the term of the warrants pursuant to the agreement. |
• | Risk-free interest rates are based on the derived market yield of the US$ denominated Chinese government bonds for the term approximating the expected life of the warrants at the time of valuation. |
F-81
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
Weighted | ||||||||||||||||
Weighted | average | |||||||||||||||
Options | Average | remaining | Aggregate | |||||||||||||
Outstanding | Exercise Price | contractual life | Intrinsicvalue | |||||||||||||
US$ | US$ | |||||||||||||||
Outstanding at January 1, 2008 | 922,000 | 0.00853 | ||||||||||||||
Granted | 8,611,000 | 0.09166 | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Outstanding at January 1, 2009 | 9,533,000 | 0.08362 | ||||||||||||||
Granted | — | — | ||||||||||||||
Forfeited | — | — | ||||||||||||||
Outstanding at December 31,2009 | 9,533,000 | 0.08362 | 8.3 | 175,230 | ||||||||||||
Vested and expected to vest at December 31, 2009 | 9,306,500 | 0.08399 | 8.3 | 167,629 | ||||||||||||
Vested and exercisable at December 31, 2009 | 2,613,750 | 0.07700 | 8.2 | 65,352 | ||||||||||||
F-82
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
2007 | 2008 | |||||||
Fair value of ordinary shares (US$) | 0.067~0.077 | 0.123~0.128 | ||||||
Exercise price (US$) | 0.00853 | 0.042632~0.0981 | ||||||
Expected volatility (%) | 40%~45 | % | 55%~65 | % | ||||
Expected dividend yield (%) | 0 | % | 0 | % | ||||
Expected term(years) | 5.5~7 | 5.5~7 | ||||||
Risk-free interest rate (per annum) (%) | 5.16%~5.38 | % | 4.52%~5.05 | % |
• | Expected volatility was estimated based on average annualized standard deviation of the share price of comparable listed companies and applied certain discount for a period equal to the expected term preceding the valuation date. |
• | Expected dividends are considered as zero because the Company has no history or expectation of paying dividends on its ordinary shares. |
• | The expected term was considered as equal to the term of the options pursuant to the agreement. |
• | Risk-free interest rates are based on the derived market yield of the US$ denominated Chinese government bonds for the term approximating the expected life of the warrants at the time of valuation. |
F-83
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
2008 | 2009 | |||||||
US$ | US$ | |||||||
Balance at beginning of year | — | 228,886 | ||||||
Issuance of warrants | 173,765 | — | ||||||
Change in fair value of warrant liability | 46,328 | (186,533 | ) | |||||
Effect of exchange rate changes | 8,793 | 128 | ||||||
Balance at end of year | 228,886 | 42,481 | ||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Payroll | 1,703,558 | 2,505,645 | ||||||
Internet bandwidth cost | 2,790,243 | 3,709,045 | ||||||
Depreciation of servers and other equipments | 835,661 | 1,277,816 | ||||||
Amortization and write-down of licensed video copyright cost | 1,533,326 | 1,747,350 | ||||||
Share based compensation | 33,184 | 43,799 | ||||||
Others | 766,040 | 734,834 | ||||||
Total | 7,662,012 | 10,018,489 | ||||||
F-84
Table of Contents
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
2008 | 2009 | |||||||
US$ | US$ | |||||||
Current income tax expenses | — | — | ||||||
Deferred income tax expense | — | — | ||||||
Income tax expenses | — | — | ||||||
2008 | 2009 | |||||||
Statutory income tax rate | 25 | % | 25 | % | ||||
Differential statutory tax rate | (3 | %) | (2 | %) | ||||
Change in valuation allowance | (22 | %) | (23 | %) | ||||
Effect of non-deductible expenses | 0 | % | 0 | % | ||||
Effective EIT rate | 0 | % | 0 | % | ||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
December 31, | December 31, | |||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Deferred tax assets: | ||||||||
Temporary differences in relation to accruals | 853,654 | 1,237,682 | ||||||
Less: Valuation allowance | (700,676 | ) | (1,094,781 | ) | ||||
Current deferred tax assets | 152,978 | 142,901 | ||||||
Depreciation and amortization | 152,570 | 433,761 | ||||||
Tax loss carry-forwards | 1,901,479 | 3,611,293 | ||||||
Less: Valuation allowance | (2,054,049 | ) | (3,919,418 | ) | ||||
Non-current deferred tax assets | — | 125,636 | ||||||
Deferred tax liabilities: | ||||||||
Revenue recognition | (152,978 | ) | (268,537 | ) | ||||
Current deferred tax liabilities | (152,978 | ) | (268,537 | ) | ||||
Net deferred tax assets | — | — | ||||||
2008 | 2009 | |||||||
US$ | US$ | |||||||
Balance at the beginning of year | (536,252 | ) | (2,754,725 | ) | ||||
Current year additions | (2,109,077 | ) | (2,255,835 | ) | ||||
Effect of exchange rate changes | (109,396 | ) | (3,639 | ) | ||||
Balance at the end of year | (2,754,725 | ) | (5,014,199 | ) | ||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
Total | ||||
operating | ||||
lease | ||||
commitments | ||||
US$ | ||||
2010 | 2,573,602 | |||
2011 | 13,421 | |||
2,587,023 | ||||
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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
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