##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 (Mark One)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 For the transition period from  to
 Commission file number: 000-50596
 LINKTONE LTD.
 (Exact name of Registrant as specified in its charter)
 N/A
 (Translation of Registrants name into English)
 Cayman Islands
 (Jurisdiction of incorporation or organization)
 Unit C-D, 10F Long Life Building
1566 West Yan An Road
Shanghai 200052, Peoples Republic of China
 (Address of principal executive offices)
 Peck Joo Tan
Unit C-D, 10F Long Life Building
1566 West Yan An Road
Shanghai 200052, Peoples Republic of China
Phone: 86-21-6167; Fax: 86-21-6167-1740
 Email: pjtan@mncgroup.com
 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act.
 Name of each exchange and Title of each class on which registered:
 American Depositary Shares, each representing 10 ordinary shares, par value US$0.0001 per share,  NASDAQ Global Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act.
 NONE
 (Title of Class)
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
 NONE
 (Title of Class)
  Yes o No þ
 o þ
 þ o
 Yes o No o
  Large Accelerated Filer o
    
    Accelerated Filer o
    
    Non-Accelerated Filer þ
  U.S. GAAP þ
    
    International Financial Reporting
Standards as issued by the
International Accounting Standards
Board o
    
    Other o
  o o
 o þ




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##### 



TABLE OF CONTENTS
 INTRODUCTIONPART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    3Item 2. Offer Statistics and Expected Timetable
    
    
    3Item 3. Key Information
    
    
    3Item 4. Information on the Company
    
    
    39Item 4A. Unresolved Staff Comments
    
    
    72Item 5. Operating and Financial Review and Prospects
    
    
    72Item 6. Directors, Senior Management and Employees
    
    
    100Item 7. Major Shareholders and Related Party Transactions
    
    
    108Item 8. Financial Information
    
    
    111Item 9. The Offer and Listing
    
    
    112Item 10. Additional Information
    
    
    112Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    127Item 12. Description of Securities Other than Equity Securities
    
    
    128PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    129Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    129Item 15. Controls and Procedures
    
    
    130Item 16. ReservedItem 16A. Audit Committee Financial Expert
    
    
    130Item 16B. Code of Ethics
    
    
    130Item 16C. Principal Accountant Fees and Services
    
    
    131Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    132Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    132Item 16F. Change in Registrants Certifying Accountant
    
    
    132Item 16G. Corporate Governance
    
    
    132PART IIIItem 17. Financial Statements
    
    
    132Item 18. Financial Statements
    
    
    133Item 19. Exhibits
    
    
    133Exhibit 4.30Exhibit 4.31Exhibit 4.32Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2Exhibit 15.3Exhibit 15.4
   2




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INTRODUCTION
  Forward-Looking Information
   
 PART I
 
 Item 1.
    
    Identity of Directors, Senior Management and Advisers
  
 Item 2.
    
    Offer Statistics and Expected Timetable
  
 Item 3.
    
    Key Information
 A. Selected Financial Data
   3




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For the year ended December 31,2006(1)
    
    
    2007(1)
    
    
    2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Statements of Operations
and Comprehensive Income Data:Gross revenue from
non-related parties
    
    
    79,507,654
    
    
    
    49,714,795
    
    
    
    67,025,802
    
    
    
    61,516,694
    
    
    
    69,878,417Gross revenue from related
parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    700,000
    
    
    
    1,829,608Sales tax
    
    
    (3,280,012
    )
    
    
    (1,751,517
    )
    
    
    (2,520,119
    )
    
    
    (2,303,289
    )
    
    
    (2,087,121
    )Net revenue
    
    
    76,227,642
    
    
    
    47,963,278
    
    
    
    64,505,683
    
    
    
    59,913,405
    
    
    
    69,620,904Cost of revenue
    
    
    (28,654,437
    )
    
    
    (20,377,795
    )
    
    
    (33,837,630
    )
    
    
    (38,941,272
    )
    
    
    (47,137,394
    )Gross profit
    
    
    47,573,205
    
    
    
    27,585,483
    
    
    
    30,668,053
    
    
    
    20,972,133
    
    
    
    22,483,510Operating expenses:Product development
    
    
    (7,372,074
    )
    
    
    (5,506,938
    )
    
    
    (3,177,071
    )
    
    
    (3,316,507
    )
    
    
    (2,811,783
    )Selling and marketing
    
    
    (22,592,886
    )
    
    
    (13,787,153
    )
    
    
    (13,130,513
    )
    
    
    (9,318,469
    )
    
    
    (8,377,743
    )General and administrative
    
    
    (11,789,984
    )
    
    
    (11,762,028
    )
    
    
    (9,901,474
    )
    
    
    (8,220,999
    )
    
    
    (12,325,334
    )Provision for impairment
    
    
    
    
    
    
    (5,142,396
    )
    
    
    
    
    
    
    (2,068,127
    )
    
    
    (1,102,265
    )Total operating expenses
    
    
    (41,754,944
    )
    
    
    (36,198,515
    )
    
    
    (26,209,058
    )
    
    
    (22,924,102
    )
    
    
    (24,617,125
    )Income (loss) from continuing
operations
    
    
    5,818,261
    
    
    
    (8,613,032
    )
    
    
    4,458,995
    
    
    
    (1,951,969
    )
    
    
    (2,133,615
    )Interest income, net of
financial expenses (2)
    
    
    1,589,180
    
    
    
    1,111,337
    
    
    
    1,728,654
    
    
    
    1,614,575
    
    
    
    2,278,593Other income, net
of other expenses
    
    
    862,830
    
    
    
    467,690
    
    
    
    384,553
    
    
    
    431,005
    
    
    
    701,884Other-than-temporary
impairment loss on
investments
    
    
    
    
    
    
    
    
    
    
    (1,476,937
    )
    
    
    
    
    
    
    Income tax expense
    
    
    (1,267,183
    )
    
    
    (433,657
    )
    
    
    (786,057
    )
    
    
    (579,270
    )
    
    
    (1,439,261
    )Net income (loss) from
continuing operations
    
    
    7,003,088
    
    
    
    (7,467,662
    )
    
    
    4,309,208
    
    
    
    (485,659
    )
    
    
    (592,399
    )Income (loss) from
discontinued operations
    
    
    (155,902
    )
    
    
    (8,936,340
    )
    
    
    (20,807,008
    )
    
    
    596,551
    
    
    
    315,256Net income (loss)
    
    
    6,847,186
    
    
    
    (16,404,002
    )
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (277,143
    )Net income attributable to
non-controlling interest
    
    
    (54,595
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (301,582
    )Net income (loss)
attributable to the
shareholders of the Company
    
    
    6,792,591
    
    
    
    (16,404,002
    )
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (578,725
    )Earnings (loss) per share:Basic:Continuing operations
    
    
    0.03
    
    
    
    (0.03
    )
    
    
    0.01
    
    
    
    (0.00
    )
    
    
    (0.00
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.04
    )
    
    
    (0.05
    )
    
    
    0.00
    
    
    
    0.00Total net income (loss)
    
    
    0.03
    
    
    
    (0.07
    )
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    (0.00
    )Diluted:Continuing operations
    
    
    0.03
    
    
    
    (0.03
    )
    
    
    0.01
    
    
    
    (0.00
    )
    
    
    (0.00
    )Discontinued operations
    
    
    (0.00
    )
    
    
    (0.04
    )
    
    
    (0.05
    )
    
    
    0.00
    
    
    
    0.00Total net income (loss)
    
    
    0.03
    
    
    
    (0.07
    )
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    (0.00
    )Weighted-average number of ordinary
shares:Basic
    
    
    253,850,193
    
    
    
    239,499,334
    
    
    
    374,285,807
    
    
    
    420,677,724
    
    
    
    420,980,146Diluted
    
    
    259,529,531
    
    
    
    239,499,334
    
    
    
    374,847,328
    
    
    
    420,677,724
    
    
    
    420,980,146Statements of Cash Flows Data:Cash flows from:Operating activities of
continuing operations
    
    
    15,280,775
    
    
    
    4,592,626
    
    
    
    7,970,372
    
    
    
    546,684
    
    
    
    1,237,562Operating activities of
discontinued operations
    
    
    (1,157,443
    )
    
    
    (14,779,630
    )
    
    
    (10,799,804
    )
    
    
    4,395,367
    
    
    
    Investing activities of
continuing operations
    
    
    25,929,895
    
    
    
    (3,042,125
    )
    
    
    (12,887,561
    )
    
    
    (6,480,967
    )
    
    
    (25,686,289
    )Investing activities of
discontinued operations
    
    
    (5,110,031
    )
    
    
    (566,181
    )
    
    
    (16,210
    )
    
    
    
    
    
    
    Financing activities of
continuing operations
    
    
    (20,670,822
    )
    
    
    25,847
    
    
    
    57,359,539
    
    
    
    (438,160
    )
    
    
    3,188,321
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(1)
    
    The statements of operations and comprehensive income data for the years ended December 31,
2006 and 2007 have been adjusted to show the financial results of our advertising business (which
included various cross-media advertising arrangements as described in Item 4.B. Information on the
Company  Business Overview  Cross-Media Advertising Business) as discontinued operations. That
business segment started in the fourth quarter of 2006 and was terminated in the third quarter of
2008.(2)
    
    Interest income includes $64,773, $325,080 and $85,594 from related parties for the years ended
December 31, 2008, 2009 and 2010, respectively. As of December 31,2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance Sheet Data:Cash, cash equivalents
and restricted cash
    
    
    51,445,086
    
    
    
    39,646,522
    
    
    
    81,593,823
    
    
    
    79,477,153
    
    
    
    59,449,183Short-term investments
    
    
    1,012,230
    
    
    
    2,315,334
    
    
    
    14,372,646
    
    
    
    19,702,747
    
    
    
    33,809,913Accounts receivable, net
    
    
    12,371,700
    
    
    
    10,164,756
    
    
    
    15,245,030
    
    
    
    11,838,597
    
    
    
    15,491,479Due from related parties
    
    
    
    
    
    
    
    
    
    
    7,984,450
    
    
    
    10,812,178
    
    
    
    2,398,114Tax refund, other
receivables and other
current assets
    
    
    5,618,676
    
    
    
    14,644,396
    
    
    
    7,827,173
    
    
    
    5,488,297
    
    
    
    10,605,859Inventories
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,304,716Property and equipment,
net and non-current
assets held for sale
    
    
    2,852,735
    
    
    
    2,258,814
    
    
    
    1,031,543
    
    
    
    530,769
    
    
    
    12,615,968Goodwill, intangible
assets and other
long-term assets
    
    
    24,848,843
    
    
    
    21,315,116
    
    
    
    15,348,053
    
    
    
    12,577,791
    
    
    
    54,601,488Total assets
    
    
    98,149,270
    
    
    
    90,344,938
    
    
    
    143,402,718
    
    
    
    140,427,532
    
    
    
    191,276,720Total liabilities
    
    
    9,000,427
    
    
    
    13,551,129
    
    
    
    15,192,667
    
    
    
    11,536,511
    
    
    
    37,569,112Non-controlling interests
    
    
    
    
    
    
    108,066
    
    
    
    
    
    
    
    
    
    
    
    21,623,084Total Linktone Ltd. shareholders equity
    
    
    89,148,843
    
    
    
    76,685,743
    
    
    
    128,210,051
    
    
    
    128,891,021
    
    
    
    132,084,524Total liabilities
and shareholders equity
    
    
    98,149,270
    
    
    
    90,344,938
    
    
    
    143,402,718
    
    
    
    140,427,532
    
    
    
    191,276,720
 Exchange Rate Information
   5




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Year Average (1)
    
    RMB
    
    
    SGD
    
    
    IDR2006
    
    
    7.9579
    
    
    
    N/A
    
    
    
    N/A2007
    
    
    7.6040
    
    
    
    N/A
    
    
    
    N/A2008
    
    
    6.9451
    
    
    
    N/A
    
    
    
    N/A2009
    
    
    6.8310
    
    
    
    N/A
    
    
    
    N/A2010
    
    
    6.7695
    
    
    
    1.3434
    (2)
    
    
    8,966
    (3)
 (1)
    
    Determined by averaging the middle rate between buying and selling rates on the last business
day of each month during the relevant period.(2)
    
    From April 1, 2010 to
December 31, 2010 as we acquired our initial 50% interest in our Singapore-based subsidiary, InnoForm Media Pte. Ltd. in late March
2010.(3)
    
    From September 1, 2010
to December 31, 2010 as we acquired our 51% interest in our Indonesian-based subsidiary, PT Linktone Indonesia in early September 2010.  RMB
    
    
    SGD
    
    
    IDRMonth Ended
    
    High
    
    
    Low
    
    
    High
    
    
    Low
    
    
    High
    
    
    LowDecember 31, 2010
    
    
    6.6786
    
    
    
    6.6227
    
    
    
    1.3177
    
    
    
    1.2834
    
    
    
    9,095
    
    
    
    8,933January 31, 2011
    
    
    6.6349
    
    
    
    6.5883
    
    
    
    1.2987
    
    
    
    1.2793
    
    
    
    9,133
    
    
    
    8,931February 28, 2011
    
    
    6.5985
    
    
    
    6.5752
    
    
    
    1.2816
    
    
    
    1.2713
    
    
    
    9,087
    
    
    
    8,801March 31, 20101
    
    
    6.5748
    
    
    
    6.5564
    
    
    
    1.2821
    
    
    
    1.2602
    
    
    
    8,868
    
    
    
    8,664April 30, 2011
    
    
    6.5527
    
    
    
    6.4990
    
    
    
    1.2606
    
    
    
    1.2241
    
    
    
    8,742
    
    
    
    8,531May 31, 2011
    
    
    6.5108
    
    
    
    6.4845
    
    
    
    1.2503
    
    
    
    1.2234
    
    
    
    8,620
    
    
    
    8,491
 B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
 RISKS RELATED TO OUR BUSINESS IN CHINA
 Risks Related to Our Contractual Relationships with the Mobile and Fixed Line Operators in China
 We depend on the principal mobile and fixed line telecommunication network operators in China for
delivery of our China-based telecom value-added services, and the termination or alteration of our
various contracts with any of them or their provincial or local affiliates could materially and
adversely impact our business.
   6




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
    
    we fail to achieve performance standards which are established by the
applicable operator from time to time,
    
    we breach our obligations under the contracts, which include, in many cases,
the obligation not to deliver content that violates the operators policies
and applicable law, and exclusivity provisions prohibiting us from offering
services which are the same as the services we provide to any other
telecommunications service providers,
    
    the operator receives high levels of customer complaints about our services, or
    
    the operator sends us written notice that it wishes to terminate the contract
at the end of the applicable notice period.
 Changes in the policies and procedures
of the operators and in their enforcement of their policies and procedures  have resulted
in our company having to pay additional charges to the operators and have negatively affected our
revenue. Further changes could materially and adversely impact our revenue, profitability and
financial condition in the future.
    7




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Our business has been adversely affected and will continue to be adversely affected if the
operators continue to expand their own portfolio of telecom value-added services that compete with
our services.
    8




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We depend on the operators to maintain accurate records and to pay us for services we provide.
  Our revenue and cost of revenue are affected by billing and transmission failures which are often
beyond our control.
  
    
    the delivery of our service to a customer is prevented because his or her
phone is turned off for an extended period of time, the customers prepaid
phone card has run out of value or the customer has ceased to be a customer
of the applicable operator,
    
    the operator experiences technical problems with its network that prevent
the delivery of our services to the customer,
    
    we experience technical problems with our technology platform that prevent
delivery of our services, or
    
    the customer refuses to pay for our service due to quality or other problems.
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Because the operators do not supply us with revenue and transmission information on a
service-by-service basis, we can only estimate our actual gross revenue and our cost of revenue by
service type, and as a result, which of our services are or may be profitable, all of which make it
difficult to analyze the factors affecting our financial performance.
  The operators charge us if their customers default in payment of our service fees and
may also impose higher service or network fees on us if we are unable to satisfy customer usage and
other performance criteria.
    The operators may not authorize our services to be offered on their networks or restrict the
service fees we may charge if we fail to achieve minimum customer usage, revenue and other
criteria.
   10




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The services we offer and the prices we charge are subject to approval by the operators, and if
requested approvals are not granted in a timely manner, our business could be adversely affected.
  We recognize a portion of our revenue for our services through the use of estimates of
monthly revenue to the extent we are unable to obtain actual figures from the operators before we
finalize our financial statements. To the extent our estimates differ from actual figures reported by the operators, this could  require us to make adjustments to our
financial statements and cause delay in the announcement of our quarterly earnings.
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We face intense competition in China.
  
    
    dedicated service providers similar to Linktone whose business focus
is to offer a variety of telecom content directly to mobile and
fixed-line phone users,
    
    the national internet portal operators in China, which offer internet
access and content aggregation services on a nationwide basis in
addition to telecom services, and
    
    niche service providers, which focus primarily on a particular market
segment or application that often builds on a pre-existing sector
competency.
   A substantial portion of our revenue is derived from the relatively wealthier coastal and southern
provinces in China, and the termination or alteration of our contracts with the operators or a
general economic downturn in those areas could have a particularly adverse effect on our business.
    12




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RISKS RELATED TO OUR OPERATIONS OUTSIDE OF CHINA
 We may face increasing risks relating to conducting business internationally.
     
    
    political and economic instability in countries where we offer our products and services;
    
    different user preferences and usage habits with respect to
telecom value-added and other
services, and consumption of video, audio and print content in other markets;
    
    different or changing
policies and procedures of operators;
    
    legal or regulatory restrictions;
    
    potentially negative consequences from changes in tax laws;
    
    fluctuations in currency exchange rates;
    
    difficulty in staffing and managing widespread operations;
    
    differing protection of intellectual property; and
    
    difficulties in collecting accounts receivable because of distance and different legal rules.
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We face intense competition in Indonesia.
  We rely on MNC and its affiliate to operate our VAS business in Indonesia, and the termination or
alteration of our arrangements with them, including our use of their short codes, could materially
adversely affect our business and results of operation.
  Our expansion into the entertainment and edutainment products distribution market through our
acquisition of InnoForm may not be successful.
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
    
    high rental rates in Southeast Asian cities which has caused many retailers
to decrease the number of outlets they operate,
 
    
    the availability of parallel-imported video products from lower-cost
countries such as China, Malaysia and Indonesia,
 
    
    consistent with the industry trend worldwide, relatively slow sales of
Blu-ray discs,
 
    
    a reluctance among many major content producers to change their distributors
which limits InnoForms ability to increase market share,
 
    
    increasing competition from online portals and movie theaters, and
 
    
    increasing costs to acquire desirable content.
   Additional Risks Related to Our Company
 The VAS industry in China and Indonesia is rapidly evolving, which may make it difficult for
investors to evaluate our business.
  
    
    attract and retain users for our telecom value-added services,
especially for our 2.5G and audio-related services, and mobile online
games which have increased in 2010 following our acquisition of a
50.01% interest in Letang Game Limited, or Letang, a private Chinese
company specializing in the development of mobile games and PC games,
in January 2010,
    
    expand the content and services that we offer and, in particular,
develop and aggregate innovative new content and service offerings,
and sources of revenue which are not dependent on the operators,
    
    procure effective distribution channels to promote our services,
    
    respond effectively to rapidly evolving competitive and market
dynamics and address the effects of mergers and acquisitions among our
competitors,
    
    maintain, expand and enhance our relationships with international
media companies and other strategic partners and to generate
meaningful returns from such partnerships, and
    
    increase awareness of our brand and user loyalty.
  15




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The success of some of our telecom value-added services is significantly dependent on our ability to obtain, customize
and localize desirable content and technology from third parties and distribute our services
effectively.
     Our acquisitions or ventures with strategic partners may have an adverse effect on our ability to
manage our business.
   16




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We have incurred net losses for a significant portion of our history.
  We have been required to record charges to earnings because the value of certain of our assets was
deemed to have been impaired, and we may record such charges in future periods.
   17




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Our
mobile games business has a short operating history, and the mobile
games market in the PRC and Indonesia is
subject to many uncertainties.
  
    
    respond to market developments, including the development of new
platforms and technologies, and changes in pricing and distribution models;
 
    
    maintain and diversify our distribution channels, including through
China Mobile and the other  telecommunications operators and handset manufacturers;
 
    
    develop new high-quality mobile games that can achieve significant
market acceptance, and timely improve our existing mobile games to extend their life spans
and to maintain their competitiveness in the mobile games market;
 
    
    supplement our internally developed mobile games by acquiring mobile
games from third-party mobile games developers or cooperating with third-party mobile games
developers to jointly develop mobile games;
 
    
    develop and upgrade our technologies; and
 
    
    execute our business and marketing strategies successfully.
  
    
    the growth rate of mobile data services in the PRC and
Indonesia;
 
    
    changes in consumer demographics, tastes and preferences;
 
    
    changes in handset platform technologies and mobile games
distribution channels;
 
    
    potential competition from established companies that develop
and operate personal computer-based online games and may enter the mobile
online games market; and
 
    
    the popularity and price of new mobile games and merchandise
and premium features embedded in games that we and our competitors may
launch and distribute in the future.
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We depend on key personnel for the success of our business. Our business may be severely disrupted
if we lose the services of our key executives and employees or fail to add new senior and middle
managers to our management.
   We may need additional capital and may not be able to obtain such capital on acceptable terms. Even
if we are able to obtain capital on acceptable terms, it may result in operating and financial
covenants that would restrict our operations and/or additional dilution to our shareholders.
  
    
    investors perceptions of, and demand for, securities of telecommunications
value-added services companies;
    
    conditions of the U.S. and other capital markets in which may seek to raise funds;
    
    our future results of operations, financial conditions and cash flows;
    
    governmental regulations of foreign investment in value-added
telecommunications companies;
    
    economic, political and
other conditions in the PRC and other countries in which we operate; and
    
    governmental policies relating to foreign currency borrowings.
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Business growth and a rapidly changing operating environment may strain our limited resources.
  
    
    develop and quickly introduce new services, adapt our existing services and
maintain and improve the quality of all of our services, particularly as new
mobile technologies such as 3G or 4G are introduced;
    
    effectively maintain our relationships with the operators and our other partners;
    
    expand the percentage of our revenue which are recurring and are derived from
monthly subscription based services;
    
    develop sources of revenue which are not dependent on the operators;
    
    enter into and maintain relationships with desirable content providers;
    
    continue training, motivating and retaining our existing employees and attract
and integrate new employees, including our senior management, some of whom have
been with our company for less than one year;
    
    develop and improve our operational, financial, accounting and other
internal systems and controls; and
    
    maintain adequate controls and procedures to ensure that our periodic
public disclosure under applicable laws, including U.S. securities
laws, is complete and accurate.
 Any
failure of the  telecommunications networks in the markets in which
we operate, the internet or our technology platform may
reduce use of our services.
  If our exclusive providers of bandwidth and server custody service fail to provide these services
or increase their prices, our business could be adversely affected.
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We
have been generating declining levels of revenue from our media
advertising in China.
  Our corporate structure could be deemed to be in violation of current or future Chinese laws and
regulations which could adversely affect our ability to operate our business effectively or at all.
  (i)
    
    Shanghai Weilan Computer Co., Ltd., or Weilan;(ii)
    
    Shanghai Unilink Company Ltd., or Unilink;(iii)
    
    Shenzhen Yuan Hang Technology Co., Ltd., or Yuan Hang;(iv)
    
    Beijing Cosmos Digital Technology Co., Ltd., or Cosmos;(v)
    
    Hainan Zhong Tong Computer Network Co., Ltd., or Zhong Tong;(vi)
    
    Beijing Lian Fei Wireless Communication Technology Co., Ltd., or Lian Fei;(vii)
    
    Shanghai Qimingxing E-commerce Co., Ltd., or Qimingxing;(viii)
    
    Beijing Ojava Wireless Information Technology Co. Ltd., or Beijing Ojava;(ix)
    
    Zhong Qing Wei Lian Cultural Communication Co., Ltd., or Wei Lian;(x)
    
    Beijing Lianyu Interactive Technology Development Co., Ltd., or Lianyu;(xi)
    
    Shanghai Ling Yu Cultural and Communication Co., Ltd., or Ling Yu;(xii)
    
    Shanghai Lang Yi Advertising Co., Ltd., or Lang Yi;(xiii)
    
    Beijing Xian Feng Li Liang Co., Ltd., or Xian Feng; and(xiv)
    
    Letang.
   21




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We may be unable to collect long-term loans to shareholders of our affiliated Chinese entities.
   22




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We depend upon contractual arrangements with our affiliated Chinese entities for the success of our
business. These arrangements may not be as effective in providing operational control as direct
ownership of these businesses and may be difficult to enforce.
  Contractual arrangements with our affiliated Chinese entities may cause a transfer pricing
adjustment and may be subject to scrutiny by the PRC tax authorities.
  We generate our internal funds almost exclusively from our subsidiaries. If those entities are
restricted from paying dividends to us, we may lose almost all of our internal sources of funds.
   23




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If any of our subsidiaries incurs any debt, it could impact our ability to pay dividends on our
ordinary shares or ADSs.
  Computer viruses and hacking may cause delays or interruptions on our systems and may reduce use of
our services and harm our reputation.
  Our revenue fluctuates significantly and may adversely impact the trading price of our ADSs or any
other securities which become publicly traded.
  
    
    attract and retain users in the increasingly competitive telecom
value-added services markets in China and Indonesia,
    
    successfully implement our business strategies, and
    
    update and develop our services, technologies and content, including
aggregating, customizing and localizing third party technologies and
content for the China market and other Asian markets we are entering.
   24




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We may be held liable for information displayed on or retrieved from our service offerings.
  We may not be able to adequately protect our intellectual property, and we may be exposed to
infringement claims by third parties.
   Prolonged disruptions to the global credit and capital markets and the global economy may
materially and adversely affect our results of operations, financial conditions, prospects and
future expansion plans.
   25




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Implementation of the PRC Labor Contract Law has increased and may further increase our operating
expenses and have a material adverse effect on our results of operations.
  Natural disasters such as earthquakes may affect our telecom value-added services.
  We have limited business insurance coverage.
  We may be or become a passive foreign investment company, which could result in adverse U.S.
federal income tax consequences to U.S. investors.
   26




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We may have to constrain our business activities to avoid being deemed an investment company under
the U.S. Investment Company Act of 1940.
    27




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Failure to achieve and maintain effective internal controls could have a material adverse effect on the trading price
of our ADSs. We are subject to the reporting obligations under the U.S. securities laws, and are required by the Securities and
Exchange Commission, or the SEC, as directed by Section 404 of the Sarbanes-Oxley Act of 2002, to include a report of
management on the effectiveness of our internal control over financial reporting. In addition, if we become an
accelerated filer as such term is defined in the U.S. Securities Exchange Act of 1934, or the Exchange Act, our
independent registered public accounting firm would be required to report on the effectiveness of our internal control
over financial reporting in future annual reports on Form 20-F. Although our management concluded that our internal
controls are effective in this annual report, our management may not conclude that our internal controls are effective
in the future. Moreover, even if our management concludes that our internal control over our financial reporting is
effective, our independent registered public accounting firm may disagree. If our independent registered public
accounting firm is required to report on the effectiveness of our internal control over financial reporting but it is
not satisfied with such control or the level at which our controls are documented, designed, operated or reviewed, or
if the independent registered public accounting firm interprets the requirements, rules or regulations differently from
us, then it may decline to report on such effectiveness or may issue an adverse opinion. Any of these possible outcomes
could result in the loss of investor confidence in the reliability of our financial statements, which in turn could
negatively impact the trading price of our ADSs. Furthermore, we have incurred, and expect to continue to incur,
significant costs and use significant management and other resources in an effort to comply with Section 404 of the
Sarbanes-Oxley Act of 2002 and other requirements. We are controlled by MNC, whose interests may differ from other shareholders.
  We may not be able to collect our loans to PT Cakrawala Alam Semesta, such arrangements could be
deemed to be in violation of existing or future Indonesian regulations, and depreciation in the
value of Indonesian rupiah may adversely affect our results of operations.
   28




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Our business may be adversely affected due to public concerns over the security and privacy of
confidential user information.
  RISKS RELATED TO OUR INDUSTRY
 Our business and results of operations may be adversely affected by the restructuring of the
Chinese telecommunications industry and the launch of 3G mobile networks.
    29




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The Chinese government or one or more of the operators may prevent us from distributing, and we may
be subject to liability for, content that any of them believe is inappropriate.
   Telecommunication laws and regulations in China are evolving and subject to interpretation and may
change in the future. If we are found to be in violation of current or future Chinese laws or
regulations, we could be subject to severe penalties.
   30




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
    
    levy fines and prohibit new product and service offerings;
    
    confiscate our income or the income of our subsidiaries and affiliates;
    
    revoke our business license or the business license of our subsidiaries and affiliates;
    
    shut down our servers or the servers of our subsidiaries and affiliates and/or blocking
any websites that we operate; and
    
    require us to discontinue any portion or all of our telecom value-added services business.
 The regulation of internet website operators is also unclear in China, and our business could be
adversely affected if we are deemed to have violated applicable laws and regulations.
    31




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RISKS RELATED TO DOING BUSINESS IN CHINA
 A slowdown in the Chinese economy may reduce our growth and profitability.
  Government regulation of the telecommunications, television and internet industries may become more
burdensome.
  Any changes to our tax incentives could have a material adverse effect on our operating results.
Our foreign ADS holders may be subject to PRC withholding tax on the dividends payable by us and
upon gains realized on their sales of our ADSs if we are classified as a PRC resident enterprise.
  de
facto de facto
  32




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33




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All participants in our existing equity compensation plans who are PRC citizens may be required to
register with the State Administration of Foreign Exchange of the PRC, or SAFE. We may also face
regulatory uncertainties that could restrict our ability to adopt additional equity compensation
plans for our directors, employees and other parties under PRC law.
   The uncertain legal environment in China could limit the legal protection available to our
investors.
  Any recurrence of severe acute respiratory syndrome, or SARS, an outbreak of the H5N1 strain of
bird flu (avian influenza) or the H1N1 strain of swine influenza or another widespread public
health problem could adversely affect our business and results of operations.
   34




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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 or in any of the other
markets where we operate directly or through strategic partnerships.
  Changes in Chinas political and economic policies could harm our business.
  
    
    economic structure;
    
    level of government involvement in the economy;
    
    level of development;
    
    level of capital reinvestment;
    
    control of foreign exchange;
    
    methods of allocating resources; and
    
    balance of payments position.
   35




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Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.
  Chinese regulations relating to foreign exchange and acquisitions of Chinese companies by foreign
entities may limit our ability to acquire Chinese companies and adversely affect the implementation
of our acquisition strategy as well as our business and business prospects.
     36




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The value of our ordinary shares and ADSs will be affected by the foreign exchange rate between
U.S. dollars and Renminbi.
   37




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As we are a Cayman Islands company, you may face difficulties in protecting your interests, and our
ability to protect our rights through the U.S. federal courts may be limited.
    
    
    to recognize or enforce against us judgments of courts of the United
States based on certain civil liability provisions of U.S. securities laws; and
 
    
    to impose liabilities against us, in original actions brought in the
Cayman Islands, based on certain civil liability provisions of U.S. securities
laws that are penal in nature.
     38




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Item 4.
    
    Information on the Company
 A. History and Development of the Company
     39




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##### Table of Contents



Note 1
    
    75% subsidiary owned by Linktone International Limited (50% acquired in March 2010 and 25% acquired in June 2010)Note 2
    
    51% subsidiary owned by Linktone International Limited (acquired in June 2010). 39% is owned by MIMEL and 10% by MNCNote 3
    
    Shenzhen Yuan Hang Technology Co., Ltd.Note 4
    
    Beijing Xian Feng Li Liang Media Co., Ltd.Note 5
    
    Shanghai Weilan Computer Co., Ltd., Shanghai Unilink Company Ltd.,
Beijing Cosmos Digital Technology Co., Ltd., Hainan Zhong Tong Computer Network Communication
Technology Co., Ltd, Beijing Lian Fei Wireless Communication Technology Co., Ltd., Shanghai
Qimingxing E-commerce Co., Ltd., Beijing Ojava Wireless Information Technology Co., Ltd. and
Beijing Lianyu Interactive Technology Development Co., Ltd.Note 6
    
    100% owned by PRC individuals: Shanghai Lang Yi Advertising Co., Ltd.Note 7
    
    50.01% subsidiary owned by VIE, Shanghai Weilan Computer Co.,Ltd.: Letang Game Limited (acquired in January 2010)Note 8
    
    60% owned by VIE, Shanghai Weilan Computer Co. Ltd., and 40%
owned by VIE, Beijing Lian Fei Wireless Communication Technology Co. Ltd.: Zhong Qing Wei Lian
Cultural Communication Co. Ltd.Note 9
    
    50% owned by VIE, Shanghai Unilink Company Ltd., and 50% owned by VIE,
Shanghai Qimingxing E-commerce Co. Ltd.: Shanghai Ling Yu Culture and Communication Co. Ltd.Note 10
    
    100% owned by InnoForm Media Pte. Ltd. (acquired remaining 49% in July 2010)Note 11
    
    100% owned by InnoForm Media Pte. Ltd. (acquired in September 2010)(LINE)
    
    Represents equity interest(BROKEN LINE)
    
    Represents contractual arrangements between the parties  40




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##### Table of Contents



B. Business Overview
 TELECOMMUNICATION VALUE-ADDED BUSINESS
    41




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##### Table of Contents



TM TM
   Technologies
    
    
    
    Type of User Service and ContentData-related ServicesSMS (2G)
    
        Monophonic
and Polyphonic
Ringtones
    Icons and
Screen Savers    Endless Battle
Space Game    Mobile Pet    Crystal Ball
Fortune Telling Game
    
        SMS
Interactive
Television Messaging
    SMS Call TV
Quiz    SMS Info
    SMS Quiz
    SMS Polling
    SMS Survey
    SMS Opinion
    SMS Auction
    


        Horoscopes
    Shio
    Feng Shui
    Luck Tips
    Jokes
    Fan Clubs
    Event-driven
or Entertainment NewsMMS/WAP/JavaTM(2.5G)
    
        Customizable
Monophonic and
Polyphonic Ringtones    Color and
Animated Icons and
Screen Savers
    
       
JavaTM-based
Action, Role-Playing
and Adventure Games    WAP-based Card
Games and Games of
Chance   Television
Station WAP
   
Newspaper/Tabloid/Magazine
Mobile
Application Version
  42




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##### Table of Contents



Technologies
    
    
    
    Type of User Service and ContentAudio-related
Services
    
        CRBT
    
        Music    Sound Effects    IVR Services
    
        Music
    Jokes
    Stories
    Chat Services
    Mobile Novels
    Mobile Blogs
    Gossip
    Lifestyle Advice
  DATA-RELATED SERVICES
 SMS
 Ringtones, Icons and Screen Savers.
  Games.
 TV Quizzes and Polling
 Auction
  43




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##### Table of Contents



MMS/WAP/Java TM
 Ringtones, Icons and Screen Savers
 Games. TM TM Category 3 Mission in the Supernatural World, Monkey King Westward Journey, The Goddess
Dancer Qijue Maken
 News and Entertainment Downloads.
 WAP
 Mobile Applications
 3G Services
  AUDIO-RELATED SERVICES
 CRBTs.
 Voice Entertainment Services.
 MOBILE GAMES
     44




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##### Table of Contents



PC GAMES
  MEDIA CONTENT  VIDEO AND AUDIO DISTRIBUTION AND RELATED SERVICES
  Home Entertainment
  Singapore
 
    
    Warner Home Video and Twentieth Century Fox- InnoForm has exclusive
licenses from Warner Home Video and Twentieth Century Fox for sale and distribution of
certain of their content. InnoForm pays a minimum guaranteed amount as well as a
royalty based on sales revenue earned after it has recouped a minimum guaranteed
amount. The current licensing contracts with Warner Home Video and Twentieth Century
Fox will expire in December 2011 and May 2012, respectively.
 
    
    Theatrical Exhibitors- InnoForm has video output arrangements with
theatrical exhibitors such as Shaw Renters (Singapore) Pte Ltd and Golden Village
Pictures Pte Ltd which grant a sub-license to InnoForm to sell and distribute in
Singapore for a period of time the videos of certain movies that these theatrical
exhibitors screen in cinemas. The current agreement with Golden Village will expire in
December 2012. The agreement with Shaw Renters is on a per title basis and is for
three years after the release date of the particular movie for which InnoForm receives
the sub-license.
 Malaysia
 
    
    In Malaysia, InnoForm contracts with smaller, independent studios for a
sub-license to sell and distribute in Malaysia videos of certain Western films, Asian
and local featured films, pre-school edutainment and animation series for children.
  45




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##### Table of Contents



Hong Kong
 
    
    In Hong Kong, InnoForm sub-licenses  from  movie distributors for the right to sell and
distribute in Hong Kong videos for childrens edutainment,
animation series and documentary titles.
 Vietnam
 
    
    In Vietnam, InnoForm has exclusive licenses to distribute VCD/DVD/Blu-ray
discs through a local agent from three Hollywood studios.
 VOD
  Music
   Cinemas/Films
  REVENUE
  Year ended December 31,2008
    
    
    2009
    
    
    2010$m
    
    
    $m
    
    
    $mData-related servicesChina
    
    
    33.6
    
    
    
    34.0
    
    
    
    35.7Indonesia
    
    
    
    
    
    
    
    
    
    
    1.833.6
    
    
    
    34.0
    
    
    
    37.5Audio-related servicesChina
    
    
    28.1
    
    
    
    26.0
    
    
    
    18.7Indonesia
    
    
    
    
    
    
    
    
    
    
    28.1
    
    
    
    26.0
    
    
    
    18.7Media content
    
    
    
    
    
    
    
    
    
    
    12.2Mobile games
    
    
    
    
    
    
    
    
    
    
    2.0PC games
    
    
    2.0
    
    
    
    1.1
    
    
    
    1.3Others
    
    
    3.3
    
    
    
    1.1
    
    
    
    Total revenue
    
    
    67.0
    
    
    
    62.2
    
    
    
    71.7
  46




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##### Table of Contents



Cross-Media Advertising Business
  OPERATOR SERVICE AGREEMENTS
 China
  Indonesia
   Service Fee Arrangements and Network Fees
   47




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##### Table of Contents



Service Fee Arrangements.
  Network Fees.
  
    
    the delivery of our service to a customer is prevented because his or her mobile
phone is turned off for an extended period of time, the customers prepaid phone card
has run out or the customer has ceased to be a customer of the applicable operator,
    
    the operators experience technical problems with its network which prevent delivery
of our services to the customer,
    
    we experience technical problems with our technology platform that prevent delivery
of our services,
    
    the customer refuses to pay for our service due to quality or other problems, or
    
    the customer is being quarantined by the telecom operator for some reason.
   48




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Term and Termination and Other Material Provisions
   CONTENT RELATIONSHIPS
 Data-related Services
  
    
    SMS, MMS, WAP & Java
 China
 
    
    We have exclusive licenses from Letang to use some of its games in our
services where we pay Letang a percentage of the revenue received for each
game. For certain games, we buy the copyrights of these games outright and pay
a fixed fee for each copyright.
 Indonesia
 
    
    Letang We also have exclusive licenses from Letang to use its games in
our services in Indonesia where we pay a fixed fee for each copyright. For
other games, we pay Letang a percentage of the revenue received for each game.
 
    
    Television Stations We cooperate with three television stations within the
MNC Group  RCTI, MNC TV and Global TV  in order to make their content
available to mobile users. We also provide SMS services, such as SMS polling
for their entertainment programs. We pay them a percentage of the revenues
generated by such services.
  49




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##### Table of Contents




    
    Print Media (Newspaper/Tabloid/Magazine) We cooperate with two print
media companies within the MNC Group. Pursuant to this cooperation, we support
their self-branded mobile applications which allow users to access newspaper
and magazine content via mobile phones and other mobile devices such as
BlackBerry. We also enable digital access to their content using
e-paper/e-reader services embedded on tablet devices. We pay them a percentage
of the revenues generated by such services.
 
    
    Online Media We have a partnership with OkeZone, a news and entertainment
online media provider within the MNC Group. We cooperate with them to supply
news and entertainment content through SMS channels. We pay OkeZone a
percentage of the revenues generated by such services.
 
    
    Talent Management We cooperate with Star Media Nusantara, a company within the MNC
Group, to provide SMS communities for particular artists and talents. These
communities offer information and tips, photos and video from the particular
artists for their fans. We pay such companies a percentage of the revenues
generated by such services.
 
    
    Individual Partners We have arrangements with several individuals who
provide us with content such as fortunetelling, love tips, and religious
content. We pay such partners a percentage of the revenue generated
from such services.
 Audio-related Services
 
    
    CRBT
 China
 
    
    Ocean ButterflyWe are a non-exclusive
provider of Ocean Butterflys
catalog of music for CRBT services. We pay Ocean Butterfly a minimum
guaranteed amount as well as a percentage of the profit we earn with respect to
the related services after we have recouped the minimum guaranteed amount. Our
agreement with Ocean Butterfly  expired in June 2011, and we are currently
negotiating with them regarding renewal.
 
    
    Universal MusicWe have a non-exclusive license from Universal Music
through its local registered company in Beijing to provide a catalog of 30
songs via CRBT tones. Under the agreement, we pay Universal Music a lump sum
amount to use these songs for a period of two years. The term of our agreement
with Universal Music will expire in October 2011.
 
    
    Beijing Le Hai Sheng ShiWe have a non-exclusive license from Beijing Le
Hai Sheng Shi to provide a catalog of 100 songs via CRBT tones. Under the
agreement, we pay a lump sum amount to use these songs for a period of two
years. Our agreement with Beijing Le Hai Sheng Shi will expire in October
2011.
 
    
    Beijing Ding Le Sheng ShiWe have a non-exclusive license from Beijing
Ding Le Sheng Shi to provide a catalog of 145 songs for WAP, MMS, SMS, CRBT and
IVR services. Under the agreement, we pay a lump sum amount to use these songs
for a period of two years. Our agreement with Beijing Ding Le Sheng Shi will expire
in January 2012.
  50




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Indonesia
 
    
    We enter into programs and partnerships with various producers, including
Sony Music, Musica and Universal, in order to sell CRBT tones exclusively for
certain songs, discographies and artist pictures. Our arrangements with
these producers vary and can be either on a per project or per artist basis or
under one year contracts with automatic renewals.
 
    
    IVR
 China
 
    
    Our IVR products are developed in-house, with a small percentage being
outsourced only in the final stage of development.
 
    
    Sing Sung We have an agreement with Beijing SingSung Media Technology Co.,
Ltd., the producer of several radio programs, to provide telecom value-added
services during the airing of these programs. Under the agreement, we are
obligated to pay a deposit amount as well as a percentage of the revenue we
receive with respect to the related services after we have recouped the deposit
amount. Our agreement with SingSung expired in December 2010, and we are in
the process of renewing this agreement.
 Media Content
       51




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SALES AND MARKETING
 Telecommunication Value-added Business
  
 Operator Channels
 General.
 China
 Indonesia
 Non-Operator Channels
  
    
    cooperating with manufacturers and designers of mobile handsets to offer our
services to purchasers,
 
    
    conducting integrated marketing campaigns with traditional media companies and
multi-national corporations,
 
    
    cooperating with radio stations with effective promotion channels to provide
wireless services on music downloads, ringtones and news alerts, and
 
    
    cooperating with television stations and other partners to provide wireless services
on popular programs including interactive quizzes and news alerts, through a robust and
highly scalable technology platform.
   52




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##### Table of Contents



Media Content
  
    
    displaying our products on stands and posters at major retail stores,
 
    
    promoting our products to customers with popular mascots,
 
    
    advertising our products in lifestyle magazines, motherhood magazines and
newspapers,
 
    
    bundling our products with those products from hardware suppliers and
marketing creative packages, such as Blu-ray/DVD combinations, box
sets and special
collectors editions, and
 
    
    conducting warehouse sales and fairs with major supermarket chains.
 INFRASTRUCTURE AND TECHNOLOGY
      53




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COMPETITION
 China
         54




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Indonesia
   Singapore and Other Markets
      55




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##### Table of Contents



GOVERNMENT REGULATION
 China
  Regulation of Telecommunication Services
   
    
    Telecommunications Regulations(2000), or the Telecom Regulations. The
Telecom Regulations categorize all telecommunications businesses in China as either
infrastructure telecommunications businesses or value-added telecommunications
businesses. The latter category includes SMS and other telecom value-added services.
Under the Telecom Regulations, certain services are classified as being of a
value-added nature and require the commercial operator of such services to obtain an
operating license, including telecommunication information services, online data
processing and translation processing, call centers and internet access. The Telecom
Regulations also set forth extensive guidelines with respect to different aspects of
telecommunications operations in China.
 
    
    Regulations for the Administration of Foreign-Invested Telecommunications
Enterprises(amended in 2008), or the FI Telecom Regulations. The FI Telecom
Regulations set forth detailed requirements with respect to capitalization, investor
qualifications and application procedures in connection with the establishment of a
foreign-invested telecom enterprise. Under the FI Telecom Regulations, a foreign
entity is prohibited from owning more than 50% of the total equity in any value-added
telecommunications business in China. The FI Telecom Regulations were amended in 2008.
A primary amendment relates to the registered capital of the foreign-invested
enterprise engaging in infrastructure telecom business. For an enterprise engaging in
infrastructure telecom business nationwide or beyond a single province, autonomous
region or municipality, it must have a minimum registered capital of RMB1 billion. For
an enterprise engaging in infrastructure telecom business within one province,
autonomous region or municipality, it must have a minimum registered capital of RMB100
million.
  56




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
    
    Administrative Measures for Telecommunications Business Operating Permit
(effective on April 10, 2009), or the Telecom Permit Measures. The Telecom Permit
Measures supersede the Administrative Measures for Telecommunications Business
Operating License, or the Telecom License Measures (issued by the MII in 2001). The
Telecom Permit Measures specifies, among others, the application, approval,
modification and deregistration requirements in relation to telecom business operating
licenses. In addition, the Telecom Permit Measures require that an approved value-added
telecommunications service provider must conduct its business in accordance with the
specifications recorded on its Telecom Business Operating License.
 Regulation of SMS Services
     57




---



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Regulation
of Internet Culture Activities i.e.
   Other Laws and their Application
 Regulation of Information Security.
 
    
    gaining improper entry into a computer or system of strategic
importance;
 
    
    disseminating politically disruptive information;
 
    
    leaking state secrets;
 
    
    spreading false commercial information;
 
    
    infringing intellectual property rights;
  58




---



##### Table of Contents




    
    spreading computer viruses;
 
    
    spreading false financial news or information;
 
    
    defaming others; or
 
    
    spreading obscene content.
  ,
 Regulation
of Internet Content Services.
   
    
    opposes the fundamental principles determined in Chinas Constitution;
 
    
    compromises state security, divulges state secrets, subverts state power
or damages national unity;
 
    
    harms the dignity or interests of the state;
 
    
    incites ethnic hatred or racial discrimination or damages inter-ethnic
unity;
  59




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##### Table of Contents




    
    sabotages Chinas religious policy or propagates heretical teachings or
feudal superstitions;
 
    
    disseminates rumors, disturbs social order or disrupts social stability;
 
    
    propagates obscenity, pornography, gambling, violence, murder or fear or
incites the commission of crimes;
 
    
    insults or slanders a third party or infringes upon the lawful rights
and interests of a third party; or
 
    
    includes other content prohibited by laws or administrative
regulations.
  Regulation of Foreign Direct Investment in Internet and Telecommunications Businesses.
 Regulation of News Dissemination through SMS Services.
  
  60




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Regulation of Online Publication
 
  Regulations of Copyrights Relating to Online Transmissions.
    61




---



##### Table of Contents



Regulation of Advertisements.
   62




---



##### Table of Contents



Regulation of Online Game Products
    63




---



##### Table of Contents



Foreign Exchange Controls
 
  64




---



##### Table of Contents



SAFE Regulations on Mergers and Acquisitions and Employee Stock Options
       65




---



##### Table of Contents



Mergers and Acquisitions Rules
    Labor Contract Law and the Implementing Regulations
   66




---



##### Table of Contents



Indonesia
  Telecommunication Industry Related Regulations
   Licensing
of Value-Added Service
  Premium
Messaging Service and SMS/MMS
  67




---



##### Table of Contents



Color Ring Back Tone
 Wireless Access Protocol
 Internet Content Regulation
  
    
    any content that is against moral decency;
 
    
    gambling;
 
    
    humiliation or defamation;
 
    
    threats or blackmail; or
 
    
    any content that causes hatred for a certain group or intergroup of community based
on tribe, race or religion.
  Intellectual Property Rights
 Copyright
 
    
    making copies, publishing a product or granting permission to make copies or to
publish a product without consent from the author;
  68




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##### Table of Contents




    
    broadcasting, exhibiting, distributing or selling to the public works or goods
resulting from infringement of the copyright;
 
    
    reproducing without consent from the author a computer program for commercial
purposes; and
 
    
    omitting the name of the author on his work, changing the content of the work, the
title, subtitle or the name of the author without consent from the author.
 Investment Related Regulations
  Negative List of Investments
 Investment License. Izin Usaha
 M&A Regulation
    69




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Foreign Exchange Control
    70




---



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71




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##### Table of Contents



C. Organizational Structure
   
 D. Property, Plant and Equipment
  
 Item 4A.
    
    Unresolved Staff Comments
  
 Item 5.
    
    Operating and Financial Review and Prospects
 The following discussion of our financial condition and results of operations is based upon
and should be read in conjunction with our consolidated financial statements and their related
notes included in this annual report. This report contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and
Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including,
without limitation, statements regarding our expectations, beliefs, intentions or future strategies
that are signified by the words expect, anticipate, intend, believe, or similar language.
All forward-looking statements included in this annual report are based on information available to
us on the date hereof, and we assume no obligation to update any such forward-looking statements.
Actual results could differ materially from those projected in the forward-looking statements. We
caution you that our business and financial performance are subject to substantial risks and
uncertainties.
  72




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Overview
     Year ended December 31,2008
    
    
    2009
    
    
    2010Data-related servicesChina
    
    
    33.6
    
    
    
    34.0
    
    
    
    35.7Indonesia
    
    
    
    
    
    
    
    
    
    
    1.833.6
    
    
    
    34.0
    
    
    
    37.5Audio-related servicesChina
    
    
    28.1
    
    
    
    26.0
    
    
    
    18.7Indonesia
    
    
    
    
    
    
    
    
    
    
    28.1
    
    
    
    26.0
    
    
    
    18.7Media content
    
    
    
    
    
    
    
    
    
    
    12.2Mobile games
    
    
    
    
    
    
    
    
    
    
    2.0PC games
    
    
    2.0
    
    
    
    1.1
    
    
    
    1.3Others
    
    
    3.3
    
    
    
    1.1
    
    
    
    Total revenue
    
    
    67.0
    
    
    
    62.2
    
    
    
    71.7
  
    
    Changes in Mobile Operator Policies or the Manner in Which They are
Enforced. The operators regularly introduce changes to their operating policies. For
instance, in 2008, in order to improve its oversight of service providers, China
Mobile started to rank SMS and IVR service providers based on certain performance
criteria, and those service providers that fall into a lower rank are subject to
restrictions in service fees they may charge. Furthermore, in 2010, China Mobile, China
Unicom and China Telecom began requiring additional notices and confirmations to end
consumers during the purchase of embedded services in mobile
handsets, requiring that SMS short codes which
are used for ordering VAS and other activities, such as voting in
television program contests, be more tailored to the specific
service offering or service partner. In addition, in that year, the operators in China imposed additional restrictions on IVR
services offered in connection with interactive programs. Such policy changes by the mobile operators have
negatively affected our revenue in the past. The telecom network operators may
implement further measures in response to current or future policy directives of MII or
due to changes in their internal management and control policies and procedures with
respect to service providers such as our company, which may have a material negative
impact on our business, results of operations and financial position.
  73




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
    
    Operator Service Agreements.Our ability to generate revenue and the
terms under which we deliver our services depend to a large extent on our ability to
maintain good relationships with the national, provincial and local offices of China
Mobile and to a lesser extent, China Unicom and China Telecom and to differentiate our
services through, among other things, innovative product development and appealing
content from domestic and international content providers. Each operator charges us
service fees from the gross revenue generated by our services. In addition, to the
extent the number of SMS or MMS messages sent by us over China Mobiles network exceeds
the number of SMS or MMS messages our customers send to us, we must also pay a per
message network fee. We also pay China Unicom and China Telecom network fees in most
provinces on the same basis. These service and network fees are reflected in our cost
of revenue and totaled $16.3 million, $15.2 million and $13.1 million for 2008, 2009
and 2010, respectively. Each operator could alter any of the terms of our service
agreements with them or terminate the agreements for a variety of reasons in the
future, including, for example, to increase their service or network fees to enhance
their profitability at the expense of service providers. In addition, the future
growth of our value-added services business in Indonesia will depend to a large extent
on the terms of our agreements with the telecommunication operators in that market.
    
    Costs Associated with Content and Distribution Channel Provider Relationships.
  
    
    Our telecom value-added services include the delivery of
third-party content and services, such as certain Java games and music
downloads for ringtones and CRBTs, to our end users. We also distribute some of
our services via interactive programs broadcast over television and radio and
through embedded menus in mobile handsets. We provide this content and
services typically based on revenue-sharing arrangements under which we pay
third-party content, interactive program providers and mobile handset
manufacturers or designers (known as distribution channel providers) an agreed
percentage of the revenue realized from services incorporating their content or
embedded in their mobile handsets.
Most of our content licenses or cooperation contracts with
television and radio stations and mobile handset manufacturers or designers
have a limited term. Given the high demand for engaging, trendy content in the
markets in which we operate, we have limited leverage to negotiate
significantly more favorable terms with these parties. Payments to third-party
content and distribution channel providers were $17.4 million, $23.6 million
and $24.2 million, representing 26.0%, 37.9% and 33.8% of our total value-added
services revenue in 2008, 2009 and 2010, respectively. Our net income could be
adversely affected in future periods if revenue share payments continue to
increase, either in absolute terms or as a percentage of our gross revenue. See
Item 3.D. Risk Factors  Risks Related to our Operations Outside of China 
The success of some of our services is significantly dependent on our ability
to obtain, customize and localize desirable content and technology from third
parties and distribute our services effectively.
  74




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
    
    InnoForm, our majority owned subsidiary, obtains all of its
edutainment and entertainment content from third parties, including a number of
major Hollywood and Asian production studios, including Twentieth Century Fox
and Warner Home
Video. Our contracts with these content providers involve minimum guarantee
payments from InnoForm, which are payable in advance. Although competition in
InnoForms markets has been intensifying, including from alternate sources of
content such as video download websites, our cost of acquiring such content has
been increasing in recent years which has, and may continue to, negatively
impact the profitability this business.
 
    
    Marketing Expenses.In order to maintain visibility and demand for our
SMS and IVR products and our competitive position in the market, we need to make
continued investments in media advertising and integrated co-marketing. Our media
advertising is typically in the form of television commercials and magazine, newspaper
and website placements. Fee rates for our various marketing channels are becoming
increasingly expensive while in some cases generating lower levels of gross revenue and
thus negatively affecting our profit margin. Our advertising costs were $4.5 million,
$3.6 million and $1.9 million in 2008, 2009 and 2010, respectively. We continued to
scale down our investment in marketing expenses in 2010 due to a disappointing rate of
return from our marketing investments. Our net income could continue to be adversely
affected in future periods if we are not able to effectively manage advertising
expenses and maximize our return from our advertising spending. In addition, if we
continue to curtail or cease our spending on media advertising in the future, we may
not have other more attractive or cost-efficient methods to promote our services, which
may negatively affect our business, financial condition and results of operations. See
Item 3.D. Risk Factors  Risks Related to Our Operations Outside of China  We have
been generating declining levels of revenue from our media advertising.
 
    
    Impairment charges.We are required under U.S. GAAP to review our
receivables, intangible assets, goodwill and other assets for impairment when events or
changes in circumstances indicate that their carrying value may not be recoverable. For
the year ended December 31, 2008, in addition to impairment charges for some of the
assets of our discontinued operations, we recorded an other-than-temporary loss on
investments of $1.5 million related to our investment in a privately managed investment
fund, which is included under short-term investments in our balance sheet as of
December 31, 2008. For the year ended December 31, 2009, we recorded an impairment
charge of $2.5 million related to goodwill of our PC game reporting unit, which was
caused by a downward revision in expected future cash flows for that business resulting
from market competition. For the year ended December 31, 2010, we recorded an
impairment charge of $1.3 million related to a loan receivable. We may be required to
record further impairment charges to earnings in our financial statements in future
periods in which impairment in the carrying amount of our assets occurs.
 
    
    Taxes.Certain of our subsidiaries and affiliated Chinese entities have
enjoyed tax exemptions and reduced tax rates. See Taxation below. Such tax
treatment increases our net income. Our future results could be materially adversely
affected if we are not able to maintain similar tax treatment, particularly as a result
of the revisions to the Chinese income tax law which became effective from January 1,
2008.
 Our Corporate Structure
   75




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76




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
     77




---



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Arrangements with Consolidated Affiliates
 China
    78




---



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Powers of Attorney.
  Operating Agreements
 Exclusive Consulting Services Agreements
 Trademark, Domain Name and Software License Agreements www.linktone.com
   79




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Domain Name Transfer Arrangements. www.linktone.com.cn
 Contracts Relating to the Exclusive Purchase Right of Equity Interest.
 Loan Agreements.
 Date of loan
    
    
    
    Affiliatedagreement
    
    Borrower
    
    entity
    
    Interest
    
    Maturity dateRMB000November 27, 2003
    
    Baoxin Yao
    
    Weilan
    
    None
    
    November 26, 2013
    
    
    2,798.7November 27, 2003
    
    Wenlei Wang
    
    Weilan
    
    None
    
    November 26, 2013
    
    
    2,365.8August 25, 2004
    
    Wenjun Hu
    
    Unilink
    
    None
    
    August 24, 2014
    
    
    5,000.0August 25, 2004
    
    Lin Lin
    
    Unilink
    
    None
    
    August 24, 2014
    
    
    5,000.0May 31, 2005
    
    Yuming Cai
    
    Yuan Hang
    
    None
    
    May 30, 2015
    
    
    2,403.9May 31, 2005
    
    Feng Gao
    
    Yuan Hang
    
    None
    
    May 30, 2015
    
    
    2,403.9June 30, 2005
    
    Hongjie Qi
    
    Cosmos
    
    None
    
    June 29, 2015
    
    
    16,953.1June 30, 2005
    
    Miao Yan
    
    Cosmos
    
    None
    
    June 29, 2015
    
    
    16,953.1June 30, 2005
    
    Hongyan Lu
    
    Lian Fei
    
    None
    
    June 29, 2015
    
    
    7,738.6June 30, 2005
    
    Yuxia Wang
    
    Lian Fei
    
    None
    
    June 29, 2015
    
    
    8,928.8June 30, 2005
    
    Teng Zhao
    
    Zhong Tong
    
    None
    
    June 29, 2015
    
    
    6,850.6June 30, 2005
    
    Yi Huang
    
    Zhong Tong
    
    None
    
    June 29, 2015
    
    
    6,850.6August 31, 2005
    
    Xing Xu
    
    Qimingxing
    
    None
    
    August 30, 2015
    
    
    7,528.5August 31, 2005
    
    Peien Zhu
    
    Qimingxing
    
    None
    
    August 30, 2015
    
    
    7,528.5August 15, 2006
    
    Yugang Wang
    
    Beijing Ojava
    
    None
    
    August 14, 2016
    
    
    4,000.0August 15, 2006
    
    Peiyu Su
    
    Beijing Ojava
    
    None
    
    August 14, 2016
    
    
    4,000.0February 9, 2007
    
    Xiao Ke Zha
    
    Lianyu
    
    None
    
    Feb 8, 2017
    
    
    700.2February 9, 2007
    
    Zhi Wang
    
    Lianyu
    
    None
    
    Feb 8, 2017
    
    
    1,031.8December 20, 2007
    
    Ai Hua Zhang
    
    Xian Feng
    
    None
    
    Dec 19, 2017
    
    
    2,550.0December 20, 2007
    
    Juan Yang
    
    Xian Feng
    
    None
    
    Dec 19, 2017
    
    
    2,450.0Total
    
    
    
    
    
    
    
    
    
    
    114,036.1
  80




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Equity Interests Pledge Agreements.
 Indonesia
    
    
    Share pledge agreements, under which the shareholders of Cakrawala pledge their shares
in that company as security for the loan from our company to Cakrawala;
    
    Irrevocable powers of attorney to sell, under which the shareholders of Cakrawala grant
a power of attorney to our company to cause the sale of their shares in Cakrawala to any
third party designated by us at any time, at such price and upon such terms and conditions
as we shall approve;
    
    Pledge of operating account, under which Cakrawala pledges to our company all of its
rights, title and interest in and to the deposit balances in all current and future bank
accounts of Cakrawala to secure the repayment of our loan to Cakrawala;
    
    Irrevocable power of attorney to manage operating account, under which Cakrawala grants
to our company a power of attorney to exercise all rights for and on behalf of Cakrawala
over its banks accounts, including depositing money into or withdrawing money from such
accounts, while our loan to Cakrawala remains outstanding; and
    
    Assignment of rights to dividends agreements, under which the shareholders of Cakrawala
assign to our company all of their rights to any dividends paid by Cakrawala.
 Critical Accounting Policies and Estimates
   Revenue recognition
  China VAS & mobile game
   81




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
    
    Our ability to adjust the
cost of our services by adjusting the design or marketing of the
services;
 
    
    Our ability to control the content of services and suppliers of that content as long as
it does not violate applicable PRC law or the relevant policies of the operators;
 
    
    Our assumption of all related legal and commercial risks arising from the content and
services provided;
 
    
    Our assumption of risk of non-payment by customers; and
 
    
    Our ability to determine prices within ranges prescribed by the operators.
    Indonesian VAS
   Media content
  PC games
   82




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Impairment Charges
 Goodwill
  Long-lived Assets and Amortizing Intangible Assets
   Income Taxes
     83




---



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Short-term Investments
  Share-based Compensation
      84




---



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Allowance for Doubtful Receivables
  Revenue
  PRC Telecommunication Value-added Services
  Indonesia Telecommunication Value-added Services
   Media Content
   Year ended December 31,2008
    
    
    2009
    
    
    2010%
    
    
    %
    
    
    %Data-related servicesChina
    
    
    50
    
    
    
    54
    
    
    
    50Indonesia
    
    
    
    
    
    
    
    
    
    
    250
    
    
    
    54
    
    
    
    52Audio-related servicesChina
    
    
    42
    
    
    
    42
    
    
    
    26Indonesia
    
    
    
    
    
    
    
    
    
    
    42
    
    
    
    42
    
    
    
    26Media content
    
    
    
    
    
    
    
    
    
    
    17Mobile games
    
    
    
    
    
    
    
    
    
    
    3PC games
    
    
    3
    
    
    
    2
    
    
    
    2Others
    
    
    5
    
    
    
    2
    
    
    
    Total revenue
    
    
    100
    
    
    
    100
    
    
    
    100
  85




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Cost of Revenue
  
    
    Service and network fees payable to the telecom network operators,
 
    
    Payments to certain content and distribution channel providers for the use
of their content and channels, and
 
    
    Payments to certain video and theatrical content and distribution channel
providers for the use of their content and channels.
   Year ended December 31,2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $Cost of revenue:Operators fees
    
    
    16,287,368
    
    
    
    15,233,712
    
    
    
    24,801,481Payments to content and distribution channel providers and others
    
    
    17,550,262
    
    
    
    23,707,560
    
    
    
    13,511,702Cost of goods sold in relation to video and theatrical products
    
    
    
    
    
    
    
    
    
    
    8,824,211Total
    
    
    33,837,630
    
    
    
    38,941,272
    
    
    
    47,137,394
 Operating Expenses
  Product Development Expenses
    86




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Year ended December 31,2008
    
    
    2009
    
    
    2010%
    
    
    %
    
    
    %Data-related services
    
    
    38
    
    
    
    29
    
    
    
    55Audio-related services
    
    
    47
    
    
    
    52
    
    
    
    29General office information support
    
    
    14
    
    
    
    15
    
    
    
    14New businesses
    
    
    1
    
    
    
    4
    
    
    
    2100
    
    
    
    100
    
    
    
    100
  Selling and Marketing Expenses
  General and Administrative Expenses
  Provision for Impairment
   87




---



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Taxation
         88




---



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 
   89




---



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
 Discontinued Operations
    90




---



##### Table of Contents



Results of Operations
  Year ended December 31,2008
    
    
    2009
    
    
    2010$
    
    
    %
    
    
    $
    
    
    %
    
    
    $
    
    
    %Gross revenue
    
    
    67,025,802
    
    
    
    100.0
    
    
    
    62,216,694
    
    
    
    100.0
    
    
    
    71,708,025
    
    
    
    100.0Sales tax
    
    
    (2,520,119
    )
    
    
    (3.8
    )
    
    
    (2,303,289
    )
    
    
    (3.7
    )
    
    
    (2,087,121
    )
    
    
    (2.9
    )Net revenue
    
    
    64,505,683
    
    
    
    96.2
    
    
    
    59,913,405
    
    
    
    96.3
    
    
    
    69,620,904
    
    
    
    97.1Cost of revenue
    
    
    (33,837,630
    )
    
    
    (50.4
    )
    
    
    (38,941,272
    )
    
    
    (62.6
    )
    
    
    (47,137,394
    )
    
    
    (65.7
    )Gross profit
    
    
    30,668,053
    
    
    
    45.8
    
    
    
    20,972,133
    
    
    
    33.7
    
    
    
    22,483,510
    
    
    
    31.4Operating expenses:Product development
    
    
    (3,177,071
    )
    
    
    (4.7
    )
    
    
    (3,316,507
    )
    
    
    (5.3
    )
    
    
    (2,811,783
    )
    
    
    (3.9
    )Selling and marketing
    
    
    (13,130,513
    )
    
    
    (19.6
    )
    
    
    (9,318,469
    )
    
    
    (15.0
    )
    
    
    (8,377,743
    )
    
    
    (11.7
    )General and
administrative
    
    
    (9,901,474
    )
    
    
    (14.8
    )
    
    
    (8,220,999
    )
    
    
    (13.2
    )
    
    
    (12,325,334
    )
    
    
    (17.2
    )Provision for impairment
    
    
    
    
    
    
    
    
    
    
    (2,068,127
    )
    
    
    (3.3
    )
    
    
    (1,102,265
    )
    
    
    (1.5
    )Total operating expenses
    
    
    (26,209,058
    )
    
    
    (39.1
    )
    
    
    (22,924,102
    )
    
    
    (36.8
    )
    
    
    (24,617,125
    )
    
    
    (34.3
    )Income (loss) from
continuing operations
    
    
    4,458,995
    
    
    
    6.7
    
    
    
    (1,951,969
    )
    
    
    (3.1
    )
    
    
    (2,133,615
    )
    
    
    (3.0
    )Interest income, net of
financial expenses (1)
    
    
    1,728,654
    
    
    
    2.5
    
    
    
    1,614,575
    
    
    
    2.6
    
    
    
    2,278,593
    
    
    
    3.2Other
income, net of other
expenses
    
    
    384,553
    
    
    
    0.6
    
    
    
    431,005
    
    
    
    0.7
    
    
    
    701,884
    
    
    
    1.0Other-than-temporary
impairment loss on
investments
    
    
    (1,476,937
    )
    
    
    (2.2
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) before tax
    
    
    5,095,265
    
    
    
    7.6
    
    
    
    93,611
    
    
    
    0.2
    
    
    
    846,862
    
    
    
    1.2Income tax expense
    
    
    (786,057
    )
    
    
    (1.2
    )
    
    
    (579,270
    )
    
    
    (0.9
    )
    
    
    (1,439,261
    )
    
    
    (2.0
    )Net income (loss) from
continuing operations
    
    
    4,309,208
    
    
    
    6.4
    
    
    
    (485,659
    )
    
    
    (0.7
    )
    
    
    (592,399
    )
    
    
    (0.8
    )Net
income (loss) from
discontinued operations
    
    
    (20,807,008
    )
    
    
    (31.0
    )
    
    
    596,551
    
    
    
    (1.0
    )
    
    
    315,256
    
    
    
    0.4Net income (loss)
    
    
    (16,497,800
    )
    
    
    (24.6
    )
    
    
    110,892
    
    
    
    (0.3
    )
    
    
    (277,143
    )
    
    
    (0.4
    )
 (1)
    
    Interest income included $64,773, $325,080 and $85,594 from related parties for the years ended December 31, 2008, 2009 and 2010,
respectively. Year Ended December 31, 2010 Compared to Year Ended December 31, 2009
 Gross Revenue
 Year ended December 31,2008
    
    
    2009
    
    
    2010$m
    
    
    $m
    
    
    $mData-related servicesChina
    
    
    33.6
    
    
    
    34.0
    
    
    
    35.7Indonesia
    
    
    
    
    
    
    
    
    
    
    1.833.6
    
    
    
    34.0
    
    
    
    37.5Audio-related servicesChina
    
    
    28.1
    
    
    
    26.0
    
    
    
    18.7Indonesia
    
    
    
    
    
    
    
    
    
    
    28.1
    
    
    
    26.0
    
    
    
    18.7Media content
    
    
    
    
    
    
    
    
    
    
    12.2Mobile games
    
    
    
    
    
    
    
    
    
    
    2.0PC games
    
    
    2.0
    
    
    
    1.1
    
    
    
    1.3Others
    
    
    3.3
    
    
    
    1.1
    
    
    
    Total revenue
    
    
    67.0
    
    
    
    62.2
    
    
    
    71.7
     91




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Cost of Revenue
  Operating Expenses
       92




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Provision For Impairment
  Interest and Other Income
   Income Tax Expense
  Discontinued Operations
  Year Ended December 31, 2009 Compared to Year Ended December 31, 2008
 Gross Revenue
    93




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Cost of Revenue
  Operating Expenses
       94




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Provision For Impairment
  Interest and Other Income
   Income Tax Expense
  Discontinued Operations
  Liquidity and Capital Resources
  Year ended December 31,2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $Net cash provided by operating activities
of continuing operations
    
    
    7,970,372
    
    
    
    546,684
    
    
    
    1,237,562Net cash (used in)/provided by operating activities
of discontinued operations
    
    
    (10,799,804
    )
    
    
    4,395,367
    
    
    
    Net cash used in investing activities of continuing
operations
    
    
    (12,887,561
    )
    
    
    (6,480,967
    )
    
    
    (25,686,289
    )Net cash used in investing activities of
discontinued operations
    
    
    (16,210
    )
    
    
    
    
    
    
    Net cash provided by/(used in) financing activities
of continuing operations
    
    
    57,359,539
    
    
    
    (438,160
    )
    
    
    3,188,321Effect of exchange rate change on cash
    
    
    641,903
    
    
    
    (139,594
    )
    
    
    658,652Net increase/(decrease) in cash and cash equivalents
    
    
    42,268,239
    
    
    
    (2,116,670
    )
    
    
    (20,601,754
    )Cash and cash equivalents, beginning of year
    
    
    39,325,584
    
    
    
    81,593,823
    
    
    
    79,477,153Cash and cash equivalents, end of year
    
    
    81,593,823
    
    
    
    79,477,153
    
    
    
    58,875,399
  95




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
 Operating Activities of Continuing Operations
  Operating Activities of Discontinued Operations
  Investing Activities of Continuing Operations
  Investing Activities of Discontinued Operations
   96




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Financing Activities of Continuing Operations
     Research and Development
     97




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Intellectual Property and Proprietary Rights
   PRC
    
    Singaporelinktone.com
    
    innoform.com.sgvrhappy.com
    
    innoform.com.myvrhappy.net
    
    innoform.com.hkmhappy.net
    
    innoform.com.twmy1828.com
    
    innokidz.com.sg(CHINESE CHARACTER).com
    
    innokidz.com.hk(CHINESE CHARACTER).com
    
    all-entertainment .com.sg(CHINESE CHARACTER).com
    
    ltongroup.comlinktone.mobigo368.netuwise.com.cnojava.com
    98




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Trend Information
  Off-Balance Sheet Arrangements
 .
 Tabular Disclosure of Contractual Obligations
  Office Premises$Less than one year
    
    
    518,093One to three years
    
    
    205,386Total
    
    
    723,479
 Inflation
   99




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##### Table of Contents



Item 6.
    
    Directors, Senior Management and Employees
 A. Directors and Senior Management
  Directors and Officers (1)
 Name
    
    Age
    
    
    Position
    
    ClassHary Tanoesoedibjo
    
    
    45
    
    
    Chairman of our board and Chief Executive Officer
    
    IIIOerianto Guyandi(2)
    
    
    43
    
    
    Director
    
    IIPeck Joo Tan
    
    
    49
    
    
    Director and Chief Financial Officer
    
    IIIBilly Hsieh (3)
    
    
    54
    
    
    Director
    
    I
 
 (1)
    
    Our director, Thomas Hubbs,
and our chief financial officer and deputy chief executive officer,
Colin Sung, resigned in January 2011.(2)
    
    Member of nominating and compensation committee.(3)
    
    Member of audit committee.  Biographical Information
 Hary Tanoesoedibjo
 Oerianto  Guyandi
  100




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Peck Joo Tan
 Billy Hsieh
  B. Compensation
 Director Compensation
   Executive Officer Compensation
   101




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Employment Agreements
     Aggregate Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
  Summary of Stock Plans
 2003 Stock Incentive Plan
  Types of Awards.
 
    
    our ordinary shares,
    
    options to purchase our ordinary shares,
    
    dividend equivalent rights, the value of which is measured by the
dividends paid with respect to our ordinary shares,
  102




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
    
    stock appreciation rights the value of which is measured by
appreciation in the value of our ordinary shares, and
    
    any other securities the value of which is derived from the value of
our ordinary shares and which can be settled for cash, our ordinary shares or
other securities or a combination of cash, our ordinary shares or other
securities.
 Plan Administration.
 Eligibility.
 Acceleration of Awards upon Corporate Transactions or Changes in Control.
   Evergreen Provision.
 Awards.
  103




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Exercise Price and Term of Stock Options.
    Termination of Service.
 Amendment or Termination of 2003 Plan.
 2000-1 Employee Stock Option Scheme
  Awards.
  104




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Evergreen Provision.
 Exercise Price.
 Acceleration of Awards upon Corporate Transactions or Changes in Control.
 C. Board Practices
        105




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D. Employees
   As of December 31,Department
    
    2008
    
    
    2009
    
    
    2010Management
    
    
    2
    
    
    
    2
    
    
    
    10Sales and Marketing
    
    
    71
    
    
    
    70
    
    
    
    130Product Development
    
    
    78
    
    
    
    72
    
    
    
    90Content Development
    
    
    
    
    
    
    
    
    
    
    51Finance
    
    
    28
    
    
    
    22
    
    
    
    34Operations
    
    
    
    
    
    
    
    
    
    
    32Warehouse and Store
    
    
    
    
    
    
    
    
    
    
    26Technical Support
    
    
    52
    
    
    
    35
    
    
    
    24Customer Service
    
    
    31
    
    
    
    27
    
    
    
    22Legal and Administrative
    
    
    18
    
    
    
    28
    
    
    
    18Human Resources
    
    
    7
    
    
    
    7
    
    
    
    11Business Development
    
    
    6
    
    
    
    3
    
    
    
    6Customer Research
    
    
    3
    
    
    
    3
    
    
    
    6Graphics
    
    
    
    
    
    
    
    
    
    
    6Translation
    
    
    
    
    
    
    
    
    
    
    4Acquisition and Distribution
    
    
    
    
    
    
    
    
    
    
    2Investor Relations
    
    
    1
    
    
    
    1
    
    
    
    Continuing operations
    
    
    297
    
    
    
    270
    
    
    
    472Discontinued operations (1)
    
    
    2
    
    
    
    
    
    
    
    Total
    
    
    299
    
    
    
    270
    
    
    
    472
  106




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##### Table of Contents



(1)
    
    Discontinued operations represents our advertising business which was terminated in the
third quarter of 2008. The remaining employees in this business as of December 31, 2008 were
focused on collecting certain account receivables related to that business.  E. Share Ownership
  
    
    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.
  Number of Ordinary SharesBeneficially OwnedName and Address of Beneficial Owners
    
    Number
    
    
    Percentage5% or more shareholdersMNC International Limited (1)
    
    
    245,000,000
    
    
    
    58.1
    %Executive Officers, Directors and Director Nominees(2)Hary Tanoesoedibjo (1)
    
    
    245,000,000
    
    
    
    58.1
    %Oerianto Guyandi
    
    
    
    
    
    
    Peck Joo Tan
    
    
    
    
    
    
    Billy Hsieh
    
    
    
    
    
    
    
 (1)
    
    Represents ordinary shares held by MNC International Limited, a wholly
owned subsidiary of MNC. MNC is an integrated media company in
Indonesia and an indirect wholly owned subsidiary of MNC. Hary
Tanoesoedibjo is the Chief Executive Officer of MNC and a director of
MNC International Limited and he disclaims beneficial ownership of
these ordinary shares. The address of MNC International Limited is in
c/o Bridge Street Services Limited, Marque Place, Suite 300, 430 West
Bay Road, P.O. Box 30691, Grand Cayman KYI-1203, Cayman Islands.(2)
    
    The address of our current executive officers and directors is c/o
Linktone Ltd., Unit C-D, 10F Long Life Building, 1566 West Yan An
Road, Shanghai 200052, Peoples Republic of China.  107




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Item 7.
    
    Major Shareholders and Related Party Transactions
 A. Major Shareholders
  B. Related Party Transactions
   
    108




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109




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)
    Seputar Indonesia Genie Mom & Kiddie
     110




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C. Interests of Experts and Counsel
  
 Item 8.
    
    Financial Information
 A. Consolidated Statements and Other Financial Information
  A.7 Legal Proceedings
  A.8 Dividend Policy
  B. Significant Changes
   111




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##### Table of Contents



Item 9.
    
    The Offer and Listing
    Price Per ADS (US$)High
    
    
    LowAnnual highs and lows2006
    
    
    10.92
    
    
    
    3.562007
    
    
    5.40
    
    
    
    2.032008
    
    
    3.58
    
    
    
    0.572009
    
    
    3.21
    
    
    
    1.012010
    
    
    2.07
    
    
    
    1.20Quarterly highs and lowsFirst Quarter 2009
    
    
    1.66
    
    
    
    1.01Second Quarter 2009
    
    
    3.04
    
    
    
    1.40Third Quarter 2009
    
    
    2.60
    
    
    
    1.81Fourth Quarter 2009
    
    
    3.21
    
    
    
    1.67First Quarter 2010
    
    
    2.07
    
    
    
    1.64Second Quarter 2010
    
    
    1.75
    
    
    
    1.20Third Quarter 2010
    
    
    1.81
    
    
    
    1.25Fourth Quarter 2010
    
    
    1.74
    
    
    
    1.31First Quarter 2011
    
    
    1.77
    
    
    
    1.31Monthly highs and lowsDecember 2010
    
    
    2.02
    
    
    
    1.47January 2011
    
    
    1.77
    
    
    
    1.45February 2011
    
    
    1.65
    
    
    
    1.40March 2011
    
    
    1.61
    
    
    
    1.31April 2011
    
    
    1.39
    
    
    
    1.18May 2011
    
    
    1.27
    
    
    
    0.97
 
 Item 10.
    
    Additional Information
 A. Share Capital
  B. Memorandum and Articles of Association
   112




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Directors
 Interested Transactions.
 Remuneration and Borrowing.
 Qualifications.
 Classes of Directors.
    Rights, Preferences and Restrictions of our Ordinary Shares
 General.
 Dividends.
 Voting Rights.
  113




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Liquidation.
 Calls on our Ordinary Shares and Forfeiture of our Ordinary Shares.
 Redemption of our Ordinary Shares.
 Preferred Shares
  Variations of Rights of Shares
  Related Party Transactions
   114




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General Meetings of Shareholders
  Limitations on the Right to Own Shares
  Limitations on Transfer of Shares
  Disclosure of Shareholder Ownership
  Changes in Capital
  (a)
    
    consolidate and divide all or any of our share capital into shares of
larger amount than our existing shares;(b)
    
    sub-divide 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 12 of
the 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.
   115




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Differences in Corporate Law
  Mergers and Similar Arrangements.
  
    
    the statutory provisions as to majority vote have been complied with;
    
    the shareholders have been fairly represented at the meeting in question;
    
    the arrangement is such as a businessman would reasonably approve; and
    
    the arrangement is not one that would more properly be sanctioned under
some other provision of the Companies Law.
    116




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Shareholders Suits.
 
    
    a company is acting or proposing to act illegally or ultra vires;
    
    the act complained of, although not ultra vires, could be effected only
if authorized by more than a simple majority vote;
    
    the individual rights of the plaintiff shareholder have been infringed
or are about to be infringed; or
    
    those who control the company are perpetrating a fraud on the minority.
 Indemnification.
 C. Material Contracts
  D. Exchange Controls
    117




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118




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##### Table of Contents



E. Taxation
  Cayman Islands Taxation
  Peoples Republic of China Taxation
 PRC taxation of us and our corporate group
  de facto
  119




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##### Table of Contents



PRC taxation of our overseas shareholders
  United States Federal Income Taxation
   
    
    dealers in stocks, securities or currencies;
    
    securities traders that use a mark-to-market accounting method;
    
    banks and financial institutions;
    
    insurance companies;
    
    regulated investment companies;
    
    real estate investment trusts;
    
    tax-exempt organizations;
    
    persons holding shares or ADSs as part of a hedging or conversion transaction or a straddle;
    
    persons deemed to sell shares or ADSs under the constructive sale provisions of the Code;
    
    persons who or that are, or may become, subject to the expatriation provisions of the Code;
    
    persons whose functional currency is not the United States dollar; and
    
    direct, indirect or constructive owners of 10% or more of the total combined voting power of
all classes of our voting stock.
   120




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##### Table of Contents




    
    an individual citizen or resident of the United States;
 
    
    a corporation or other entity classified as a corporation for United States federal income
tax purposes created or organized in or under the laws of the United States, any state thereof or
the District of Columbia;
 
    
    an estate, the income of which is subject to United States federal income taxation
regardless of its source; or
 
    
    a trust, if a court within the United States is able to exercise primary supervision over
the administration of such trust and one or more U.S. persons (within the meaning of the Code)
have the authority to control all substantial decisions of the trust, or if a valid election is in
effect to be treated as a U.S. person.
   U.S. Holders
 Taxation of dividends and other distributions on the shares or ADSs
    121




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Taxation of disposition of shares or ADSs
  Passive foreign investment company considerations
    122




---



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123




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##### Table of Contents



Since the PFIC rules are complex, U.S. Holders should consult their tax advisors regarding the
potential application of the PFIC regime, including eligibility for and the manner and advisability
of making a mark-to-market election.
 Information reporting and backup withholding
    Enforcement of Civil Liabilities
 We are incorporated in the Cayman Islands due to the following benefits found there:
 
    
    political and economic stability;
 
    
    an effective judicial system;
  124




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##### Table of Contents




    
    a favorable tax system;
 
    
    the absence of exchange control or currency restrictions; and
 
    
    the availability of professional and support services.
  (1)
    
    the Cayman Islands has a less developed body of securities laws as compared to
the United States and provides significantly less protection to investors; and
 (2)
    
    Cayman Islands companies may not have standing to sue before the federal courts
of the United States.
    (1)
    
    the judgment debtor was, at the time the foreign proceedings were instituted,
present in the foreign country (which could be presence through an agent or
representative office);
 (2)
    
    the judgment debtor was plaintiff, or counter-claimed, in the proceedings in
the foreign country;
 (3)
    
    the judgment debtor, being a defendant in the foreign court, voluntarily
submitted to the jurisdiction of that court by participating in the foreign
proceedings; or
 (4)
    
    if the judgment debtor had, before the commencement of the foreign proceedings
agreed, in respect of the subject matter of the proceedings, to submit to the
jurisdiction of that court or the courts of that country.
   125




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##### Table of Contents



(1)
    
    recognize or enforce judgments of United States courts obtained against us or
our directors or officers predicated upon the civil liability provisions of the
securities laws of the United States or any state in the United States; or
 (2)
    
    entertain original actions brought in China against us or our directors or
officers predicated upon the securities laws of the United States or any state in the
United States.
  F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
  www.sec.gov
  126




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##### Table of Contents



I. Subsidiary Information
  
 Item 11.
    
    Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Foreign Currency Risk
    127




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##### Table of Contents



Change in the Value of
    
    
    
    
    AdditionalForeign Currency against the
    
    Additional Translation Adjustments to Comprehensive
    
    
    TransactionU.S. Dollar from Actual
    
    Income
    
    
    Gain/(Loss)Value as of December 31, 2010
    
    ($)
    
    
    ($)Chinese
    
    
    Singapore
    
    
    IndonesianRenminbi
    
    
    Dollar
    
    
    Rupiah
    
    
    Total2.5% Appreciation
    
    
    (2,784,144
    )
    
    
    (405,156
    )
    
    
    (185,866
    )
    
    
    (3,375,166
    )
    
    
    14,4695% Appreciation
    
    
    (5,568,288
    )
    
    
    (810,312
    )
    
    
    (371,731
    )
    
    
    (6,750,331
    )
    
    
    28,9382.5% Depreciation
    
    
    2,784,144
    
    
    
    405,156
    
    
    
    185,866
    
    
    
    3,375,166
    
    
    
    (14,496
    )5% Depreciation
    
    
    5,568,288
    
    
    
    810,312
    
    
    
    371,731
    
    
    
    6,750,331
    
    
    
    (28,938
    )
 
 Item 12.
    
    Description of Securities Other than Equity Securities
 A. Debt Securities
  B. Warrants and Rights
  C. Other Securities
  D. American Depositary Shares
 Fees and charges our ADS holders may have to pay
   128




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##### Table of Contents



ADS holders may have to pay:
    
    For:US$5 per 100 ADS
    
        Issuance of ADSs, including
issuances resulting from a distribution of
ordinary shares or rights or other
property    Cancellation or withdrawals of ADSs    Distribution of ADSs pursuant to
stock dividends or stock split    Distributions of securities other
than ADSs or rights to purchase additional
ADSsUp to US$0.02 per ADS
    
        Distributions of cash dividends or
other cash distributions    Annual depositary servicesUS$1.5 per certificate presented for transfer
    
        Transfer of American depositary
receipts, or ADRsTaxes 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 necessaryAny charges, fees or expenses incurred by the depositary or its agents for servicing the deposited securities
    
       As necessary
 Fees and other payments made by the depositary to us
   
 PART II
 
 Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
  
 Item 14.
    
    Material Modifications to the Rights of Security Holders and Use of Proceeds
   129




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Item 15.
    
    Controls and Procedures
 Evaluation of Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
    Changes in Internal Control Over Financial Reporting
  
 Item 16A.
    
    Audit Committee Financial Expert
  
 Item 16B.
    
    Code of Ethics
   130




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##### Table of Contents



Item 16C.
    
    Principal Accountant Fees and Services
 Disclosure of Fees Charged by Independent Accountants
  For the year ended December 31,2009
    
    
    2010$
    
    
    $Audit fees (1)
    
    
    642,852
    
    
    
    823,556Audit-related fees (2)
    
    
    
    
    
    
    Tax-related fees (3)
    
    
    
    
    
    
    59,089Other fees (4)
    
    
    99,000
    
    
    
    
 
 (1)
    
    Audit fees means the aggregate fees charged in each of the fiscal years listed for our
calendar year audits and reviews of financial statements. In 2009, the audit fees billed by
E&Y and Grant Thornton amounted to $187,527 and $455,325, respectively. In 2010, the audit
fees billed by E&Y and Grant Thornton amounted to $769,786 and $25,770, respectively.(2)
    
    Audit-related fees means the aggregate fees charged 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-related fees means the aggregate fees charged by E&Y in 2010 for professional
services rendered for tax compliance and tax advisor.(4)
    
    Other fees in 2009 means fees for advisory services charged by SGV & Co, a member firm of
E&Y, in the Republic of the Philippines. Audit Committee Pre-approval Policies and Procedures
  
    
    Any audit or non-audit service to be provided to us by the independent accountant
must be submitted to our audit committee for review and approval, with a description of
the services to be performed and the fees to be charged.
 
    
    Our 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.
  131




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Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
  
 Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 16F.
    
    Change in Registrants Certifying Accountant
  
 Item 16G.
    
    Corporate Governance
    
 PART III
 
 Item 17.
    
    Financial Statements
   132




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##### Table of Contents



Item 18.
    
    Financial Statements
  
 Item 19.
    
    Exhibits
 1.1
    
    
    Amended and Restated Memorandum and
Articles of Association of the Company with
an amendment dated April 3, 2008
(incorporated by reference to Exhibit 1.1
to Amendment No. 1 to the companys Annual
Report on Form 20F for the year ended
December 31, 2007 filed with the SEC on
July 17, 2008).1.2
    
    
    Amendment dated November 4, 2009 to the
Amended and Restated Memorandum and
Articles of Association of the Company
(incorporated by reference to Exhibit 1.2
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2009 filed
with the SEC on June 29, 2010).2.1
    
    
    Specimen American Depositary Receipt of the
Company (incorporated by reference to
Exhibit 1 to the Companys Registration
Statement on Form F-6 (Registration No.
333-112897) as filed with the SEC on
February 17, 2004).2.2
    
    
    Specimen Share Certificate of the Company
(incorporated by reference to Exhibit 4.2
to the Companys Registration Statement on
Form F-1 (Registration No. 333-112903) as
filed with the SEC on February 17, 2004).2.3
    
    
    Amended and Restated Deposit Agreement
dated April 26, 2007 among the Company,
JPMorgan Chase Bank, N.A. and owners and
beneficial owners of the American
Depositary Receipts issued thereunder
(incorporated by reference to Exhibit A to
the Companys Registration Statement on
Form F-6 (Registration No. 333-142133) as
filed with the SEC on April 16, 2007).4.1
    
    
    Form of 2000-1 Employee Stock Option Scheme
(incorporated by reference to Exhibit 10.1
to the Companys Registration Statement on
Form F-1 (Registration No. 333-112903) as
filed with the SEC on February 17, 2004).4.2
    
    
    Form of 2003 Stock Incentive Plan
(incorporated by reference to Exhibit 10.2
to the Companys Registration Statement on
Form F-1 (Registration No. 333-112903) as
filed with the SEC on February 17, 2004).4.3
    
    
    Form of Employment Agreement with the
Companys executive officers (incorporated
by reference to Exhibit 4.3 to the
Companys Annual Report on Form 20-F for
the year ended December 31, 2009 filed with
the SEC on June 29, 2010).4.4
    
    
    Form of Indemnification Agreement with the
Companys directors and officers
(incorporated by reference to Exhibit 10.3
to the Companys Registration Statement on
Form F-1 (Registration No. 333-112903) as
filed with the SEC on February 17, 2004).
  133




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4.5
    
    
    Translation of Domain Name License
Agreement dated as of November 27, 2003
between the Company and Shanghai Weilan
Computer Co., Ltd. (incorporated by
reference to Exhibit 10.32 to the Companys
Registration Statement on Form F-1
(Registration No. 333-112903) as filed with
the SEC on February 17, 2004).4.6
    
    
    Translation of Domain Name License
Agreement dated as of November 27, 2003
between the Company and Shanghai Weilan
Computer Co., Ltd, (incorporated by
reference to Exhibit 10.32 to the Companys
Registration Statement on Form F-1
(Registration No. 333-112903) as filed with
the SEC on February 17, 2004).4.7
    
    
    Translation of Domain Name License
Agreement dated as of November 27, 2003
between Shanghai Linktone Consulting Co.,
Ltd. and Shanghai Unilink Computer Co.,
Ltd. (incorporated by reference to Exhibit
10.33 to the Companys Registration
Statement on Form F-1 (Registration No.
333-112903) as filed with the SEC on
February 17, 2004).4.8
    
    
    Translation of Domain Name Assignment
Agreement dated as of November 27, 2003
between Shanghai Weilan Computer Co., Ltd.
and Shanghai Linktone Consulting Co., Ltd.
(incorporated by reference to Exhibit 10.34
to the Companys Registration Statement on
Form F-1 (Registration No. 333-112903) as
filed with the SEC on February 17, 2004).4.9
    
    
    Translation of Domain Name License
Agreement dated as of November 27, 2003
between Shanghai Linktone Consulting Co.,
Ltd. and Shanghai Weilan Computer Co., Ltd.
(incorporated by reference to Exhibit 10.35
to the Companys Registration Statement on
Form F-1 (Registration No. 333-112903) as
filed with the SEC on February 17, 2004).4.10
    
    
    Translation of Trademark License Agreement
dated as of November 27, 2003 between the
Company and Shanghai Weilan Computer Co.,
Ltd. (incorporated by reference to Exhibit
10.36 to the Companys Registration
Statement on Form F-1 (Registration No.
333-112903) as filed with the SEC on
February 17, 2004).4.11
    
    
    Translation of Trademark License Agreement
dated as of November 27, 2003 between the
Company and Shanghai Unilink Computer Co.,
Ltd. (incorporated by reference to Exhibit
10.37 to the Companys Registration
Statement on Form F-1 (Registration No.
333-112903) as filed with the SEC on
February 17, 2004).4.12
    
    
    Translation of Equity Interests Pledge
Agreement dated May 12, 2006 between
Shanghai Linktone Consulting Co., Ltd. and
Yao Baoxin (incorporated by reference to
Exhibit 4.48 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2006 filed with the SEC on July 13,
2007).4.13
    
    
    Translation of Equity Interests Pledge
Agreement dated October 16, 2006 between
Shanghai Linktone Consulting Co., Ltd. and
Wang Wenlei (incorporated by reference to
Exhibit 4.49 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2006 filed with the SEC on July 13,
2007).4.14
    
    
    Translation of Contract Relating to the
Exclusive Purchase Right of Equity Interest
dated May 12, 2006 among Shanghai Weilan
Computer Co., Ltd., Linktone Ltd. and Yao
Baoxin (incorporated by reference to
Exhibit 4.50 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2006 filed with the SEC on July 13,
2007).
  134




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4.15
    
    
    Translation of Contract Relating to the
Exclusive Purchase Right of Equity Interest
dated October 16, 2006 among Shanghai
Weilan Computer Co., Ltd., Linktone Ltd.
and Wang Wenlei (incorporated by reference
to Exhibit 4.51 to the Companys Annual
Report on Form 20-F for the year ended
December 31, 2006 filed with the SEC on
July 13, 2007).4.16
    
    
    Translation of Loan Agreement dated May 12,
2006 between Linktone Ltd. and Yao Baoxin
(incorporated by reference to Exhibit 4.52
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2006 filed
with the SEC on July 13, 2007).4.17
    
    
    Translation of Loan Agreement dated October
16, 2006 between Linktone Ltd. and Wang
Wenlei (incorporated by reference to
Exhibit 4.53 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2006 filed with the SEC on July 13,
2007).4.18
    
    
    Translation of Operating Agreement dated
October 16, 2006 among Shanghai Linktone
Consulting Co., Ltd., Shanghai Weilan
Computer Co., Ltd., Wang Wenlei and Yao
Baoxin (incorporated by reference to
Exhibit 4.54 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2006 filed with the SEC on July 13,
2007).4.19
    
    
    Translation of Power of Attorney made by
Yao Baoxin on May 12, 2006 (incorporated by
reference to Exhibit 4.55 to the Companys
Annual Report on Form 20-F for the year
ended December 31, 2006 filed with the SEC
on July 13, 2007).4.20
    
    
    Translation of Power of Attorney made by
Wang Wenlei on October 16, 2006
(incorporated by reference to Exhibit 4.56
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2006 filed
with the SEC on July 13, 2007).4.21
    
    
    Translation of Agreement on Aftermath of
the Cooperation dated February 4, 2009
between Tianjin TV Satellite Channel and
Shanghai Lang Yi Advertising Co., Ltd.
(incorporated by reference to Exhibit 4.23
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2008 filed
with the SEC on June 19, 2009).4.22
    
    
    Translation of Agreement on Termination of
Qinghai Satellite TV Project dated July 30,
2008 among CCYL Central Network Film and TV
Center, Beijing Lianfei Wireless
Communication Technology Co., Ltd. and
Shanghai Lingyu Culture and Communication
Co., Ltd. (incorporated by reference to
Exhibit 4.26 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2008 filed with the SEC on June 19,
2009).4.23
    
    
    Translation of Cooperative Agreement on
Voice Magazine Service for the period from
November 1, 2008 to October 31, 2009
between China Mobile Group Beijing Co.,
Ltd. and Shanghai Weilan Computer Co., Ltd.
(incorporated by reference to Exhibit 4.28
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2008 filed
with the SEC on June 19, 2009).4.24
    
    
    Loan agreement dated October 10, 2008
between Linktone Ltd. and GLD Investments
Pte. Ltd. (incorporated by reference to
Exhibit 4.36 to the Companys Annual Report
on Form 20-F for the year ended December
31, 2008 filed with the SEC on June 19,
2009).
  135




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4.25
    
    
    Translation of Exclusive Consulting and
Services Agreement dated January 1, 2009
between Shanghai Linktone Consulting Co.,
Ltd. and Shanghai Weilan Computer Co., Ltd.
(incorporated by reference to Exhibit 4.24
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2009 filed
with the SEC on June 29, 2010).4.26
    
    
    Translation of Software License Agreement
dated January 1, 2009 between Shanghai
Huitong Information Co., Ltd. and Shanghai
Weilan Computer Co., Ltd. (PETS
Cellphone Games Software)
(incorporated by reference to Exhibit 4.25
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2009 filed
with the SEC on June 29, 2010).4.27
    
    
    Translation of Software License Agreement
dated January 1, 2009 between Shanghai
Huitong Information Co., Ltd. and Shanghai
Qimingxing E-commerce Co., Ltd. (PETS
Cellphone Games Software) (incorporated by
reference to Exhibit 4.26 to the Companys
Annual Report on Form 20-F for the year
ended December 31, 2009 filed with the SEC
on June 29, 2010).4.28
    
    
    Translation of Software License Agreement
dated January 1, 2009 between Shanghai
Linktone Internet Technology Co., Ltd. and
Shanghai Weilan Computer Co., Ltd. (IVR
Background Operating Software System V1.0)
(incorporated by reference to Exhibit 4.27
to the Companys Annual Report on Form 20-F
for the year ended December 31, 2009 filed
with the SEC on June 29, 2010).4.29
    
    
    Translation of Software License Agreement
dated January 1, 2009 between Shanghai
Huitong Information Co., Ltd. and Beijing
Lianfei Wireless Communications Technology
Company Limited (Linktone Photos and Tones
Cellphone Software V1.0) (incorporated by
reference to Exhibit 4.28 to the Companys
Annual Report on Form 20-F for the year
ended December 31, 2009 filed with the SEC
on June 29, 2010).4.30
    
    
    Equity Interest Purchase and Capital
Increase Agreement dated January 6, 2010
among Shanghai Weilan Computer Co., Ltd.,
Hefei Baofeng Cartoon Information
Technology Co., Ltd. and Hefei Letang
Cartoon Information Technology Co., Ltd.4.31
    
    
    Equityholders Agreement dated January 6,
2010 among Shanghai Weilan Computer Co.,
Ltd., Hefei Baofeng Cartoon Information
Technology Co., Ltd. and Hefei Letang
Cartoon Information Technology Co., Ltd.4.32
    
    
    Appointment Letter dated May 1, 2010
between InnoForm Media Pte Ltd and Peck Joo
Tan.8.1
    
    
    List of Principal Subsidiaries and Affiliated Variable Interest Entities of the Company.11.1
    
    
    Code of Business Conduct (incorporated by reference to Exhibit 11.1 to the Companys Annual
Report on Form 20-F for the year ended December 31, 2004 filed with the SEC on June 30,
2005).12.1
    
    
    Certification of Chief Executive Officer Required by Rule 13a-14(a).12.2
    
    
    Certification of Chief Financial Officer Required by Rule 13a-14(a).
  136




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13.1
    
    
    Certification of Chief Executive Officer Required by Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code.13.2
    
    
    Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code.15.1
    
    
    Consent of Ernst & Young Hua Ming, Independent Registered Public Accounting Firm.15.2
    
    
    Consent of JBPB & Co. (formerly known as Grant Thornton), Independent Registered Public
Accounting Firm.15.3
    
    
    Consent of Walkers15.4
    
    
    Consent of Jun He Law Offices
  137




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SIGNATURES
  LINKTONE LTD.By:
    /s/ Hary TanoesoedibjoHary TanoesoedibjoChief Executive OfficerDate: June 30, 2011  138




---



##### 



LINKTONE LTD. AND SUBSIDIARIES
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm for the years ended December 31, 2009
and 2010
    
    
    F-2Report of Independent Registered Public Accounting Firm for the year ended December 31, 2008
    
    
    F-3Consolidated Balance Sheets as of December 31, 2009 and 2010
    
    
    F-4Consolidated Statements of Operations and Comprehensive Income/(Loss) for the years ended
December 31, 2008, 2009 and 2010
    
    
    F-5Consolidated Statements of Changes in Shareholders Equity for the years ended December 31,
2008, 2009 and 2010
    
    
    F-6Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010
    
    
    F-7Notes to the Consolidated Financial Statements
    
    
    F-8
   F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    
   F-2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    /s/ JBPB & Co (formerly known as Grant Thornton)
 
  F-3




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LINKTONE LTD. AND SUBSIDIARIES
 
 CONSOLIDATED BALANCE SHEETS
 (In U.S. dollars, except number of shares)
 As of December 31,Note
    
    
    2009
    
    
    2010$
    
    
    $AssetsCurrent assets:Cash and cash equivalents
    
    
    7
    
    
    
    79,477,153
    
    
    
    58,875,399Restricted cash
    
    
    8
    
    
    
    
    
    
    
    573,784Short-term investments
    
    
    9
    
    
    
    19,702,747
    
    
    
    33,809,913Accounts receivable, net
    
    
    11
    
    
    
    11,838,597
    
    
    
    15,491,479Tax refund receivable
    
    
    
    
    
    
    1,953,740
    
    
    
    2,767,084Inventories
    
    
    12
    
    
    
    
    
    
    
    2,304,716Due from related parties
    
    
    26
    
    
    
    10,812,178
    
    
    
    2,398,114Deferred tax assets
    
    
    24
    
    
    
    1,176,933
    
    
    
    1,254,529Deposits and other current assets
    
    
    13
    
    
    
    2,357,624
    
    
    
    6,584,246Total current assets
    
    
    
    
    
    
    127,318,972
    
    
    
    124,059,264Property and equipment, net
    
    
    14
    
    
    
    530,769
    
    
    
    11,796,390Non-current assets held for sale
    
    
    14
    
    
    
    
    
    
    
    819,578Intangible assets, net
    
    
    15
    
    
    
    106,039
    
    
    
    11,546,227Goodwill
    
    
    6, 16
    
    
    
    12,084,212
    
    
    
    40,483,355Deferred tax assets
    
    
    24
    
    
    
    23,264
    
    
    
    72,480Other long-term assets
    
    
    17
    
    
    
    364,276
    
    
    
    2,499,426Total assets
    
    
    
    
    
    
    140,427,532
    
    
    
    191,276,720Liabilities and shareholders equityCurrent liabilities:Account payable, accrued liabilities and other payables
    
    
    18
    
    
    
    7,915,352
    
    
    
    22,971,156Due to related parties
    
    
    26
    
    
    
    
    
    
    
    1,074,250Short-term loan
    
    
    
    
    
    
    
    
    
    
    4,191,591Taxes payable
    
    
    
    
    
    
    3,013,374
    
    
    
    3,696,039Deferred revenue
    
    
    
    
    
    
    351,049
    
    
    
    402,139Deferred tax liabilities
    
    
    24
    
    
    
    256,736
    
    
    
    1,078,403Total current liabilities
    
    
    
    
    
    
    11,536,511
    
    
    
    33,413,578Deferred tax liabilities
    
    
    24
    
    
    
    
    
    
    
    1,743,466Other long-term liabilities
    
    
    19
    
    
    
    
    
    
    
    2,412,068Total liabilities
    
    
    
    
    
    
    11,536,511
    
    
    
    37,569,112Commitments and contingencies
    
    
    27Shareholders equityLinktone Ltd. shareholdersequityOrdinary shares ($0.0001 par value; 500,000,000 shares authorized,
420,756,430 shares issued and outstanding as of December 31, 2009
and 421,130,130 shares issued and outstanding as of December 31, 2010)
    
    
    
    
    
    
    42,075
    
    
    
    42,113Additional paid-in capital
    
    
    
    
    
    
    137,838,890
    
    
    
    137,581,956Statutory reserves
    
    
    23
    
    
    
    2,466,165
    
    
    
    2,466,165Accumulated other comprehensive income:Unrealized gain on investment in marketable securities
    
    
    
    
    
    
    437,250
    
    
    
    2,376,723Cumulative translation adjustments
    
    
    
    
    
    
    7,217,287
    
    
    
    9,306,938Accumulated losses
    
    
    
    
    
    
    (19,110,646
    )
    
    
    (19,689,371
    )Total Linktone Ltd. shareholders equity
    
    
    
    
    
    
    128,891,021
    
    
    
    132,084,524Non-controlling interest
    
    
    
    
    
    
    
    
    
    
    21,623,084Total shareholders equity
    
    
    
    
    
    
    128,891,021
    
    
    
    153,707,608Total liabilities and shareholders equity
    
    
    
    
    
    
    140,427,532
    
    
    
    191,276,720
   F-4




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LINKTONE LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(In U.S. dollars, except number of shares)
 For the year ended December 31,Note
    
    
    2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $Gross revenue from non-related parties
    
    
    
    
    
    
    67,025,802
    
    
    
    61,516,694
    
    
    
    69,878,417Gross revenue from related parties
    
    
    26
    
    
    
    
    
    
    
    700,000
    
    
    
    1,829,608Gross revenue
    
    
    20
    
    
    
    67,025,802
    
    
    
    62,216,694
    
    
    
    71,708,025Sales tax
    
    
    
    
    
    
    (2,520,119
    )
    
    
    (2,303,289
    )
    
    
    (2,087,121
    )Net revenue
    
    
    
    
    
    
    64,505,683
    
    
    
    59,913,405
    
    
    
    69,620,904Cost of
revenue
    
    
    
    
    
    
    (33,837,630
    )
    
    
    (38,941,272
    )
    
    
    (47,137,394
    )Gross profit
    
    
    
    
    
    
    30,668,053
    
    
    
    20,972,133
    
    
    
    22,483,510Operating expenses:Product development
    
    
    
    
    
    
    (3,177,071
    )
    
    
    (3,316,507
    )
    
    
    (2,811,783
    )Selling and marketing
    
    
    
    
    
    
    (13,130,513
    )
    
    
    (9,318,469
    )
    
    
    (8,377,743
    )General and administrative
    
    
    
    
    
    
    (9,901,474
    )
    
    
    (8,220,999
    )
    
    
    (12,325,334
    )Provision for impairment
    
    
    
    
    
    
    
    
    
    
    (2,068,127
    )
    
    
    (1,102,265
    )Total operating expenses
    
    
    
    
    
    
    (26,209,058
    )
    
    
    (22,924,102
    )
    
    
    (24,617,125
    )Operating income/(loss)
    
    
    
    
    
    
    4,458,995
    
    
    
    (1,951,969
    )
    
    
    (2,133,615
    )Interest income, net of financial expenses from non-related
parties
    
    
    
    
    
    
    1,663,881
    
    
    
    1,289,495
    
    
    
    2,192,999Interest income, net of financial expenses from related parties
    
    
    
    
    
    
    64,773
    
    
    
    325,080
    
    
    
    85,594Other income, net of other expenses
    
    
    
    
    
    
    384,553
    
    
    
    431,005
    
    
    
    701,884Other-than-temporary impairment loss on investments
    
    
    9
    
    
    
    (1,476,937
    )
    
    
    
    
    
    
    Income from continuing operations before income tax
    
    
    
    
    
    
    5,095,265
    
    
    
    93,611
    
    
    
    846,862Income tax expense
    
    
    24
    
    
    
    (786,057
    )
    
    
    (579,270
    )
    
    
    (1,439,261
    )Income/(loss) from continuing operations
    
    
    
    
    
    
    4,309,208
    
    
    
    (485,659
    )
    
    
    (592,399
    )Income/(loss) from discontinued operations
    
    
    5
    
    
    
    (20,807,008
    )
    
    
    596,551
    
    
    
    315,256Net income/(loss)
    
    
    
    
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (277,143
    )Net income attributable to non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (301,582
    )Net income/(loss) attributable to ordinary shareholders
of the Company
    
    
    
    
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (578,725
    )Basic earnings/(loss) per ordinary share:Continuing operations
    
    
    
    
    
    
    0.01
    
    
    
    (0.00
    )
    
    
    (0.00
    )Discontinued operations
    
    
    
    
    
    
    (0.05
    )
    
    
    0.00
    
    
    
    0.00Net income/(loss)
    
    
    
    
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    (0.00
    )Diluted earnings/(loss) per ordinary share:Continuing operations
    
    
    
    
    
    
    0.01
    
    
    
    (0.00
    )
    
    
    (0.00
    )Discontinued operations
    
    
    
    
    
    
    (0.05
    )
    
    
    0.00
    
    
    
    0.00Net income/(loss)
    
    
    
    
    
    
    (0.04
    )
    
    
    0.00
    
    
    
    (0.00
    )Weighted-average number of ordinary shares:Basic
    
    
    
    
    
    
    374,285,807
    
    
    
    420,677,724
    
    
    
    420,980,146Diluted
    
    
    
    
    
    
    374,847,328
    
    
    
    420,677,724
    
    
    
    420,980,146Comprehensive income /(loss):Net income/(loss)
    
    
    
    
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (277,143
    )Other comprehensive income/(loss):Foreign currency translation adjustment
    
    
    
    
    
    
    2,646,071
    
    
    
    (145,899
    )
    
    
    2,298,216Unrealized gain on investment in marketable securities
    
    
    
    
    
    
    
    
    
    
    437,250
    
    
    
    1,939,473Comprehensive income/(loss)
    
    
    
    
    
    
    (13,851,729
    )
    
    
    402,243
    
    
    
    3,960,546Comprehensive income attributable to non-controlling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (510,147
    )Comprehensive income/(loss) attributable to ordinary
shareholders of the Company
    
    
    
    
    
    
    (13,851,729
    )
    
    
    402,243
    
    
    
    3,450,399
   F-5




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
(In U.S. dollars, except share data)
 AccumulatedAdditional
    
    
    
    
    
    
    other
    
    
    
    
    
    
    
    
    
    
    TotalOrdinary shares
    
    
    paid-in
    
    
    Statutory
    
    
    comprehensive
    
    
    Accumulated
    
    
    Non-controlling
    
    
    shareholdersShares
    
    
    Amount
    
    
    capital
    
    
    reserves
    
    
    income
    
    
    losses
    
    
    interest
    
    
    equityBalance as of December 31, 2007
    
    
    240,291,330
    
    
    $
    24,029
    
    
    $
    72,202,172
    
    
    $
    2,360,408
    
    
    $
    4,717,115
    
    
    $
    (2,617,981
    )
    
    
    
    
    
    $
    76,685,743Issuance of ordinary shares
    
    
    180,000,000
    
    
    
    18,000
    
    
    
    68,382,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,400,000Issuance of ordinary shares from
exercise of stock options
    
    
    344,900
    
    
    
    34
    
    
    
    33,938
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,972Cost of issuance of ordinary shares
    
    
    
    
    
    
    
    
    
    
    (3,786,070
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,786,070
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    728,135
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    728,135Other comprehensive income:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,646,071
    
    
    
    
    
    
    
    
    
    
    
    2,646,071Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (16,497,800
    )
    
    
    
    
    
    
    (16,497,800
    )Appropriation to statutory reserves
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    105,757
    
    
    
    
    
    
    
    (105,757
    )
    
    
    
    
    
    
    Balance as of December 31, 2008
    
    
    420,636,230
    
    
    
    42,063
    
    
    
    137,560,175
    
    
    
    2,466,165
    
    
    
    7,363,186
    
    
    
    (19,221,538
    )
    
    
    
    
    
    
    128,210,051Issuance of ordinary shares from
exercise of stock options
    
    
    120,200
    
    
    
    12
    
    
    
    11,828
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,840Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    266,887
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    266,887Other comprehensive income/(loss):Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (145,899
    )
    
    
    
    
    
    
    
    
    
    
    (145,899
    )Unrealized gain on investment in
marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    437,250
    
    
    
    
    
    
    
    
    
    
    
    437,250Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    110,892
    
    
    
    
    
    
    
    110,892Balance as of December 31, 2009
    
    
    420,756,430
    
    
    
    42,075
    
    
    
    137,838,890
    
    
    
    2,466,165
    
    
    
    7,654,537
    
    
    
    (19,110,646
    )
    
    
    
    
    
    
    128,891,021Issuance of ordinary shares from
exercise of stock options
    
    
    373,700
    
    
    
    38
    
    
    
    36,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,810Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    204,949
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,949Acquisition of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,614,282
    
    
    
    20,614,282Capital contributed to subsidiaries
(Note 6)
    
    
    
    
    
    
    
    
    
    
    (498,655
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    498,655
    
    
    
    Other comprehensive income:Translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,089,651
    
    
    
    
    
    
    
    208,565
    
    
    
    2,298,216Unrealized gain on investment
in marketable securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,939,473
    
    
    
    
    
    
    
    
    
    
    
    1,939,473Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (578,725
    )
    
    
    301,582
    
    
    
    (277,143
    )Balance as of December 31, 2010
    
    
    421,130,130
    
    
    $
    42,113
    
    
    $
    137,581,956
    
    
    $
    2,466,165
    
    
    $
    11,683,661
    
    
    $
    (19,689,371
    )
    
    $
    21,623,084
    
    
    $
    153,707,608
   F-6




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(In U.S. dollars)
 For the year ended December 31,2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $Cash flow from operating activitiesNet income/(loss)
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (277,143
    )Less: Income/(loss) from discontinued operations
    
    
    (20,807,008
    )
    
    
    596,551
    
    
    
    315,256Income/(loss) from continuing operations
    
    
    4,309,208
    
    
    
    (485,659
    )
    
    
    (592,399
    )Adjustments to reconcile net income/(loss) from continuing operations to
net
cash provided by/(used in) continuing operating activities:Stock-based compensation expense
    
    
    722,248
    
    
    
    266,887
    
    
    
    204,949Loss/(gain) on disposal of property and equipment
    
    
    (19,302
    )
    
    
    41,964
    
    
    
    12,828Provision for impairment, net
    
    
    1,476,937
    
    
    
    2,068,127
    
    
    
    1,102,264Depreciation
    
    
    946,058
    
    
    
    556,239
    
    
    
    721,451Amortization of intangible assets
    
    
    624,186
    
    
    
    65,199
    
    
    
    1,550,691Amortization of other long-term assets
    
    
    86,973
    
    
    
    112,092
    
    
    
    Provision for doubtful debts
    
    
    628,692
    
    
    
    697,247
    
    
    
    118,594Deferred income tax expense/(benefit)
    
    
    (378,403
    )
    
    
    564,381
    
    
    
    (365,966
    )Foreign exchange gain
    
    
    (54,815
    )
    
    
    (222,887
    )
    
    
    (706,033
    )Realized gain on short-term investments
    
    
    (276,637
    )
    
    
    
    
    
    
    Changes in assets and liabilities, net of effect of acquisitions:(Increase)/decrease in accounts receivable
    
    
    (3,268,035
    )
    
    
    1,231,262
    
    
    
    2,265,145Increase in tax refund receivable
    
    
    (444,714
    )
    
    
    (711,191
    )
    
    
    (727,482
    )(Increase)/decrease in deposits and other assets
    
    
    1,171,394
    
    
    
    (790,023
    )
    
    
    1,598,515Increase in inventories
    
    
    
    
    
    
    
    
    
    
    (217,868
    )Increase in restricted cash
    
    
    
    
    
    
    
    
    
    
    (573,784
    )Increase in other assets
    
    
    (672,520
    )
    
    
    
    
    
    
    (742,423
    )Increase/(decrease) in taxes payable
    
    
    1,117,186
    
    
    
    (1,076,765
    )
    
    
    481,766Increase in long-term liabilities
    
    
    
    
    
    
    
    
    
    
    735,718Increase (decrease) in accounts payable, accrued liabilities and other
payables
    
    
    2,001,916
    
    
    
    (1,770,189
    )
    
    
    (3,628,404
    )Net cash provided by operating activities of continuing operations
    
    
    7,970,372
    
    
    
    546,684
    
    
    
    1,237,562Net cash provided by/(used in) operating activities of discontinued
operations
    
    
    (10,799,804
    )
    
    
    4,395,367
    
    
    
    Net cash provided by/(used in) operating activities
    
    
    (2,829,432
    )
    
    
    4,942,051
    
    
    
    1,237,562Cash flow from investing activities:Proceeds from sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    7,584,758Proceeds from disposal of property and equipment
    
    
    21,733
    
    
    
    5,990
    
    
    
    1,997,317Loans repayment from related party
    
    
    
    
    
    
    
    
    
    
    10,087,400Settlement of loans receivable
    
    
    
    
    
    
    395,257
    
    
    
    Loan to associates
    
    
    
    
    
    
    
    
    
    
    (1,250,000
    )Purchase of property and equipment
    
    
    (296,218
    )
    
    
    (102,920
    )
    
    
    (1,013,333
    )Loans advanced to related parties
    
    
    
    
    
    
    (1,901,700
    )
    
    
    Loan
repayment to related parties
    
    
    
    
    
    
    
    
    
    
    (9,214,669
    )Cash paid for short-term investments
    
    
    (12,613,076
    )
    
    
    (4,877,594
    )
    
    
    (20,118,750
    )Cash paid for business acquisitions, net of cash acquired (Note 6)
    
    
    
    
    
    
    
    
    
    
    (13,759,012
    )Net cash provided by/(used in) investing activities of continuing operations
    
    
    (12,887,561
    )
    
    
    (6,480,967
    )
    
    
    (25,686,289
    )Net cash used in investing activities of discontinued operations
    
    
    (16,210
    )
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (12,903,771
    )
    
    
    (6,480,967
    )
    
    
    (25,686,289
    )Cash flow from financing activities:Cash received from bank borrowings
    
    
    
    
    
    
    
    
    
    
    3,188,283Proceeds from the exercise of stock options
    
    
    33,972
    
    
    
    11,840
    
    
    
    38Proceeds from issuance of new shares
    
    
    68,400,000
    
    
    
    
    
    
    
    Cash paid for cost incurred in connection with issuance of new shares
    
    
    (3,274,540
    )
    
    
    (450,000
    )
    
    
    Cash paid for related-party loans
    
    
    (7,799,893
    )
    
    
    
    
    
    
    Net cash provided by/(used in) financing activities of continuing operations
    
    
    57,359,539
    
    
    
    (438,160
    )
    
    
    3,188,321Effect of exchange rate change on cash and cash equivalents
    
    
    641,903
    
    
    
    (139,594
    )
    
    
    658,652Net (decrease)/increase in cash and cash equivalents
    
    
    42,268,239
    
    
    
    (2,116,670
    )
    
    
    (20,601,754
    )Cash and cash equivalents, beginning of year
    
    
    39,325,584
    
    
    
    81,593,823
    
    
    
    79,477,153Cash and cash equivalents, end of year
    
    
    81,593,823
    
    
    
    79,477,153
    
    
    
    58,875,399Supplemental disclosures of cash flow informationBusiness and other taxes on revenues
    
    
    (5,711,548
    )
    
    
    (5,648,133
    )
    
    
    (3,717,443
    )Value-added tax refund
    
    
    2,989,710
    
    
    
    2,326,649
    
    
    
    1,642,170Income tax paid
    
    
    (516,984
    )
    
    
    (993,747
    )
    
    
    (426,256
    )Interest paid
    
    
    
    
    
    
    
    
    
    
    (41,365
    )Supplemental disclosures of non-cash activitiesConversion of MCB to the interests in PT Linktone (Note 6 (c))
    
    
    
    
    
    
    
    
    
    
    13,168,568Business acquisitions included in the other payables (Note 6)
    
    
    
    
    
    
    
    
    
    
    8,123,835
   F-7




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 1 Organization and Nature of Operations
   Name in
    
    
    
    
    
    
    
    Country  ofName of Subsidiary
    
    Short Form
    
    Note
    
    Principal  Business
    
    Group Equity Interest
    
    IncorporationBrilliant Concept Investments Ltd
    
    Brilliant
    
    
    
    Intermediary holding company
    
    100% by Linktone
    
    British Virgin
IslandsNoveltech Enterprises Limited
    
    Noveltech
    
    
    
    Intermediary holding company
    
    100% by Linktone
    
    Hong KongLinktone Media Limited
    
    Linktone Media
    
    
    
    Intermediary holding company
    
    100% by Linktone
    
    Hong KongOjava Overseas Ltd
    
    Ojava Overseas
    
    
    
    Intermediary holding
company; Dormant
    
    100% by Linktone
    
    British Virgin
IslandsLinktone International Limited
    
    Linktone
International
    
    
    
    Intermediary holding company
    
    100% by Linktone
    
    United Arab EmiratesWang You Digital Technology Co., Ltd.
    
    Wang You
    
    (1)
    
    Provides PC games
    
    100% by Brilliant
Concept Investments
Ltd
    
    PRCShanghai Linktone Consulting Co., Ltd.
    
    Linktone Consulting
    
    (1)
    
    Provides internet and VAS
consulting services
    
    100% by Noveltech
Enterprise Limited
    
    PRCShanghai Huitong Information Co., Ltd.
    
    Huitong
    
    (1)
    
    Software development
    
    100% by Noveltech
Enterprise Limited
    
    PRCShanghai Linktone Internet Technology
Co., Ltd.
    
    Linktone Internet
    
    
    
    Software development
    
    100% by Noveltech
Enterprise Limited
    
    PRCShanghai Xintong Information Technology
Co., Ltd.
    
    Xintong
    
    
    
    Software development;
Dormant
    
    100% by Noveltech
Enterprise Limited
    
    PRCShanghai Linktone Software Co., Ltd.
    
    Linktone Software
    
    
    
    Software development
    
    100% by Linktone
    
    PRCBeijing Ruida Internet Technology Co.,
Ltd.
    
    Ruida
    
    
    
    Software development;
Dormant
    
    100% by Ojava
Overseas Ltd
    
    PRCInnoForm Media Pte Ltd
    
    InnoForm Media
    
    
    
    Publisher, licensee,
importer, exporter and
distribution of
entertainment programs
    
    75% by Linktone
International
Limited; Acquired in
March 2010
    
    SingaporeInnoForm Media (HK) Limited
    
    InnoForm HK
    
    
    
    Publisher, licensee,
importer, exporter and
distribution of compact
discs and DVDs of all
kinds
    
    100% by InnoForm
Media Pte Ltd
    
    Hong KongInnoForm Media (Taiwan) Co. Limited
    
    InnoForm Taiwan
    
    
    
    Importer, exporter and
distribution of compact
discs, tapes and records
    
    100% by InnoForm
Media Pte Ltd
    
    TaiwanInnoForm Media (M) Sdn Bhd
    
    InnoForm Malaysia
    
    
    
    Production and distribution
of tapes, DVD and compact
discs
    
    100% by InnoForm
Media Pte Ltd
    
    MalaysiaInnoForm Entertainment Pte Ltd
    
    InnoForm
Entertainment
    
    
    
    Exclusive collective
licensing agent for music
label companies for karaoke
music and songs
    
    100% by InnoForm
Media Pte Ltd
    
    SingaporeInnoForm Digital Media Pte Ltd
    
    InnoForm Digitial
    
    
    
    Supplying and leasing of
karaoke-on-demand hardware
and software
    
    100% by InnoForm
Media Pte Ltd
    
    Singapore
 (1)
    
    Wholly foreign owned entity (WFOE) of the Company.  F-8




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 1 Organization and Nature of Operations (continued)
 Name in
    
    
    
    
    
    
    
    Country ofName of Subsidiary
    
    Short Form
    
    Note
    
    Principal Business
    
    Group Equity Interest
    
    IncorporationAlliance Entertainment Singapore Pte Ltd
    
    Alliance
    
    
    
    Motion picture, video
distribution and services
related to motion picture,
video production and
distribution
    
    100% by InnoForm
Media Pte Ltd
    
    SingaporeGLD Investments Pte Ltd
    
    GLD
    
    
    
    Provides information
technology and publishing
services
    
    98.7% by InnoForm
Media Pte Ltd
    
    SingaporePT Linktone Indonesia
    
    PT Linktone
    
    
    
    Provides telecom VAS
    
    51% by Linktone
International
Acquired in June
2010
    
    Indonesia
 Loan to NomineeName of Variable Interest Entity
    
    Name in
    
    
    
    
    
    
    
    Shareholders
    
    Country of(VIE)
    
    Short Form
    
    Note
    
    Principal Business
    
    Group Equity Interest
    
    $000
    
    IncorporationShanghai Weilan Computer Co., Ltd.
    
    Weilan
    
    (i)
    
    Provides telecom VAS
    
    Baoxin Yao and
Wenlei Wang
    
    338.1 and 285.8,
respectively
    
    PRCShanghai Unilink Computer Co., Ltd.
    
    Unilink
    
    (i)
    
    Provides telecom VAS
    
    Lin Lin and Wenju Hu
    
    604.1 each
    
    PRCShenzhen Yuan Hang Technology Co., Ltd.
    
    Yuan Hang
    
    (i)
    
    Provides PC games
    
    Yuming Cai and Feng
Gao
    
    290.4 each
    
    PRCBeijing Cosmos Digital Technology Co., Ltd.
    
    Cosmos
    
    (i)
    
    Provides telecom VAS
    
    Hongjie Qi and Miao
Yan
    
    2,073.8 each
    
    PRCHainan Zhong Tong Computer Network Co., Ltd.
    
    Zhong Tong
    
    (i)
    
    Provides telecom VAS
    
    Yi Juang and Teng
Zhao
    
    826.9 each
    
    PRCBeijing Lian Fei Wireless Communications Technology Co.,
Ltd.
    
    Lian Fei
    
    (i)
    
    Provides telecom VAS
    
    Hongyan Lu and
Yuxia Wang
    
    939.5 and 1,083.3,
respectively
    
    PRCShanghai Qimingxing E-commerce Co., Ltd.
    
    Qimingxing
    
    (i)
    
    Provides telecom VAS
    
    Xing Xu and Peien
Zhu
    
    933.9 each
    
    PRCBeijing Ojava Wireless Information Technology Co., Ltd.
    
    Beijing Ojava
    
    (i)
    
    Provides telecom VAS
    
    Yugang Wang and
Peiyu Su
    
    501.7 each
    
    PRCShanghai Ling Yu Cultural and Communication Ltd.
    
    Ling Yu
    
    
    
    Provides advertising
services; Dormant
    
    50% by Shanghai
Unilink Computer
Co., Ltd. and 50%
by Shanghai
Qimingxing
E-commerce Co.,
Ltd.
    
    Nil each
    
    PRCZhong Qing Wei Lian Cultural Communication Co., Ltd.
    
    Wei Lian
    
    
    
    Provides telecom VAS;
Dormant
    
    60% by Shanghai
Weilan Computer
Co., Ltd. and 40%
by Beijing Lian Fei
Wireless
Communications
Technology Co.,
Ltd.
    
    Nil each
    
    PRCBeijing Lian Yu Interactive Technology Development Co., Ltd.
    
    Lian Yu
    
    (i)
    
    Provides telecom VAS;
Dormant
    
    Zhi Wang and Xiaoke
Zha
    
    90.3 and 133.0,
respectively
    
    PRCShanghai Lang Yi Advertising Co., Ltd.
    
    Lang Yi
    
    (i)
    
    Provides advertising
services; Dormant
    
    Fei Tong and Jing
Chen
    
    Nil each
    
    PRCBeijing Xian Feng Li Liang Media Co., Ltd.
    
    Xian Feng
    
    (i)
    
    Distributes electronic
publications
    
    Ai Hua Zhang and
Juan Yang
    
    346.2 and 332.7,
respectively
    
    PRCLetang Game Limited
    
    Letang
    
    
    
    Develops mobile games
    
    50.01% by Shanghai
Weilan Computer
Co., Ltd.; Acquired
in January 2010
    
    
    
    PRCPT Cakrawala Alam Semesta
    
    Cakrawala
    
    
    
    Investment holding company
    
    100% by Indonesian
individuals
affiliated with
Linktone
    
    Nil each
    
    Indonesia
 (i)
    
    Controlled through contractual agreements and is 50% owned by each of two of the Companys
employees / former employees.  F-9




---



##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 1 Organization and Nature of Operations (continued)
      Powers of Attorney
  Operating Agreements
   F-10




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Exclusive Consulting Services Agreements
  Trademark, Domain Name and Software License Agreements
  Domain Name Transfer Arrangements
  Contracts Relating to the Exclusive Purchase Right of Equity Interest
  Loan Agreements
  Equity Interests Pledge Agreements
    F-11




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
    2009
    
    
    2010PRCTotal assets
    
    
    46.4
    
    
    
    53.5Total liabilities
    
    
    10.7
    
    
    
    9.3IndonesiaTotal assets
    
    
    35.3
    
    
    
    15.8Total liabilities
    
    
    0.1
    
    
    
    0.5
  2 Basis of presentation
  Basis of consolidation
  Foreign currency
    F-12




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 3 Use of estimates
  4 Summary of significant accounting policies
 (a) Cash equivalents and restricted cash
   (b) Short-term investments
    (c) Accounts receivable
   F-13




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 (d) Prepaid minimum guarantees
  (e) Inventories
  (f) Property and equipment, net
  Office equipment
    
    1-3 yearsComputer hardware and other equipment
    
    3-5 yearsMotor vehicles
    
    7-10 yearsLeasehold improvements
    
    the shorter of their estimated
useful lives or the lease termBuildings
    
    45 years
  (g) Intangible assets
  Technology
    
    1 - 4 yearsVAS short codes licensed to PT Linktone
    
    24 yearsCustomer base
    
    1 - 4 yearsLicenses
    
    1 - 4 yearsPartnership and non-compete agreements
    
    1 - 4 yearsDomain names
    
    1 - 4 years
 (h) Goodwill
   F-14




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
  (i) Impairment of long-lived assets
  (j) Revenue recognition
  China VAS & mobile game
 TM
  F-15




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
  
    
    The Groups ability to adjust the cost of revenue by adjusting the design or marketing
of the services;
 

    
    The Groups ability to control the content of services and suppliers of that content as
long as it does not violate applicable PRC law or the relevant policies of the Operators;
 

    
    The Groups assumption of all related legal and commercial risks arising from the
content and services provided;

    
    The Groups assumption of risk of non-payment by customers; and

    
    The Groups ability to determine prices within ranges prescribed by the Operators.
    Indonesian VAS
   F-16




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
  Media contents
  PC game
  (k) Income and other taxes
   PRC
   Singapore
   F-17




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Indonesia
  (l) Advertising expenses
  (m) Stock-based compensation
  (n) Subsidy income
  (o) Comprehensive income/(loss)
  (p) Earnings per share
   F-18




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 (q) Fair value of financial instruments
   (r) Segment reporting
  (s) Recent accounting pronouncements
    F-19




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 5 Discontinued operations
  Year ended December 31,2008
    
    
    2009
    
    
    2010Gross revenues
    
    
    12,693,685
    
    
    
    
    
    
    
    Sales tax
    
    
    (171,873
    )
    
    
    
    
    
    
    Cost of revenue
    
    
    (22,668,154
    )
    
    
    
    
    
    
    Gross loss
    
    
    (10,146,342
    )
    
    
    
    
    
    
    Operating (expenses)/income
    
    
    (4,076,540
    )
    
    
    596,551
    
    
    
    315,256Provision for impairment
    
    
    (6,588,195
    )
    
    
    
    
    
    
    Net income/(loss) from discontinued operations before tax
    
    
    (20,811,077
    )
    
    
    596,551
    
    
    
    315,256Tax benefit
    
    
    4,069
    
    
    
    
    
    
    
    Net income/(loss) from discontinued operations
    
    
    (20,807,008
    )
    
    
    596,551
    
    
    
    315,256
     As of December 31,2009
    
    
    2010Assets
    
    
    
    
    
    
    Total assets of discontinued operations
    
    
    
    
    
    
    Liabilities:Accounts payable, accrued liabilities and other payables
    
    
    499,136
    
    
    
    160,643Taxes payable
    
    
    89,991
    
    
    
    92,784Total liabilities of discontinued operations
    
    
    589,127
    
    
    
    253,427
   F-20




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 6 Business Combinations
  (a) Acquisition of Letang
  Purchase consideration
 Cash
consideration (Note (a))
    
    
    3,295,115Contingent
consideration in cash (Note (b))
    
    
    3,514,836Total fair value of purchase price consideration
    
    
    6,809,951
  (a)
    
    The cash consideration was paid in January 2010.
 (b)
    
    The contingent consideration payable in cash is determined based on the achievement by
Letang of
certain net income targets in accordance with the sales and purchase agreement for the
15-month period ended March 31, 2011 and the following 12-month period ending March 31,
2012. The above contingent consideration amounts are derived from the Companys assessment of
whether Letang will meet the certain contractually stipulated targets and the fair value is
determined using the income approach through application of the discounted cash flow method.
  Cash
    
    
    713,576Other current assets
    
    
    69,124Fixed assets
    
    
    77,326Intangible assets
    
    
    2,420,843Total assets acquired
    
    
    3,280,869Deferred tax liabilities
    
    
    283,063Total liabilities assumed
    
    
    283,063Net assets acquired
    
    
    2,997,806Aggregate of:Purchase consideration
    
    
    6,809,951Non-controlling interest
    
    
    5,377,698Total
    
    
    12,187,649Goodwill (Note 16)
    
    
    9,189,843
  F-21




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
   (b) Acquisition of InnoForm
   Cash
    
    
    1,597,420Accounts receivable
    
    
    3,328,785Inventory
    
    
    2,086,848Other current assets
    
    
    4,931,419Fixed assets
    
    
    3,143,274Intangible assets
    
    
    3,288,080Other non-current assets
    
    
    1,174,859Total assets acquired
    
    
    19,550,685Current liabilities
    
    
    12,577,366Total liabilities assumed
    
    
    12,577,366Net assets acquired
    
    
    6,973,319Aggregate of:Purchase consideration
    
    
    4,737,880Non-controlling interest
    
    
    4,596,097Total
    
    
    9,333,977Goodwill (Note 16)
    
    
    2,360,658
    F-22




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
  (c) Acquisition of PT Linktone
   Cash
    
    
    360,164Accounts receivable
    
    
    3,233,488Other current assets
    
    
    801,933Fixed assets
    
    
    383,964Intangible assets
    
    
    7,062,668Total assets acquired
    
    
    11,842,217Current liabilities
    
    
    3,207,944Deferred tax liabilities
    
    
    1,765,667Non-current liabilities
    
    
    47,405Total liabilities assumed
    
    
    5,021,016Net assets acquired
    
    
    6,821,201Aggregate of:Purchase consideration
    
    
    13,168,568Non-controlling interest
    
    
    10,501,275Total
    
    
    23,669,843Goodwill (Note 16)
    
    
    16,848,642
    F-23




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 (d) Acquisition of GLD Investment Pte Ltd
   Cash
    
    
    9,294,802Receivables
    
    
    37,864Building
    
    
    9,438,328Payables and accruals
    
    
    (68,012
    )Related-party borrowings
    
    
    (9,252,532
    )Non-controlling interest
    
    
    (139,212
    )Purchase consideration
    
    
    9,311,238
 7 Cash and cash equivalents
 As of December 31,2009
    
    
    2010Cash
    
    
    64,919,289
    
    
    
    53,687,227Investment in money market accounts
    
    
    14,557,864
    
    
    
    5,188,172Total
    
    
    79,477,153
    
    
    
    58,875,399
  8 Restricted cash
  9 Short-term investments
 As of December 31,2009
    
    
    2010Available-for-sale investments:- Secured notes, at market value
    
    
    
    
    
    
    19,800,000- Privately managed fund, at market value
    
    
    3,862,377
    
    
    
    6,001,8503,862,377
    
    
    
    25,801,850Time deposits
    
    
    15,840,370
    
    
    
    8,008,063Total
    
    
    19,702,747
    
    
    
    33,809,913
   F-24




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
   10 Fair value measurement
      Assets and liabilities measured at fair value on a recurring basis
   Fair value measurement at December 31, 2009using:Quoted prices in
    
    
    Significantactive markets
    
    
    otherfor identical
    
    
    observable
    
    
    Unobservableassets
    
    
    inputs
    
    
    inputs
    
    
    Fair value at December(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    31, 2009Cash equivalents:Time deposits
    
    
    35,250,000
    
    
    
    
    
    
    
    
    
    
    
    35,250,000Money market fund
    
    
    14,557,864
    
    
    
    
    
    
    
    
    
    
    
    14,557,864Short-term investments:Fixed-rate investments
    
    
    
    
    
    
    15,840,370
    
    
    
    
    
    
    
    15,840,370Available-for-sale
investments
    
    
    3,862,377
    
    
    
    
    
    
    
    
    
    
    
    3,862,37753,670,241
    
    
    
    15,840,370
    
    
    
    
    
    
    
    69,510,611
  F-25




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Fair value measurement at December 31, 2010using:Quoted prices in
    
    
    Significantactive markets
    
    
    otherfor identical
    
    
    observable
    
    
    Unobservableassets
    
    
    inputs
    
    
    inputs
    
    
    Fair value at December(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    31, 2010Cash equivalents:Time deposits
    
    
    15,571,126
    
    
    
    
    
    
    
    
    
    
    
    15,571,126Money market fund
    
    
    5,188,172
    
    
    
    
    
    
    
    
    
    
    
    5,188,172Short-term investments:Fixed-rate investments
    
    
    
    
    
    
    8,008,063
    
    
    
    
    
    
    
    8,008,063Available-for-sale
investments
    
    
    25,801,850
    
    
    
    
    
    
    
    
    
    
    
    25,801,850Accounts payable, accrued
liabilities and other
payables:Contingent consideration
payable in connection with
Letang acquisition
    
    
    
    
    
    
    
    
    
    
    3,623,899
    
    
    
    3,623,89946,561,148
    
    
    
    8,008,063
    
    
    
    3,623,899
    
    
    
    58,193,110
  Significant unobservableinputs (Level 3)Fair value at January 1, 2010
    
    
    Contingent consideration payable in
connection with Letang acquisition
    
    
    3,623,899Changes in the fair value
    
    
    Transfers in and/or out of Level 3
    
    
    Fair value at December 31, 2010
    
    
    3,623,899
 Assets and liabilities measured at fair value on a nonrecurring basis
   F-26




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 11 Accounts receivable, net
 As of December 31,2009
    
    
    2010Accounts receivable
    
    
    13,965,543
    
    
    
    17,737,019Less: Allowance for doubtful accounts
    
    
    (2,126,946
    )
    
    
    (2,245,540
    )11,838,597
    
    
    
    15,491,479Movement in allowance for doubtful accounts:Balance at beginning of year
    
    
    (1,819,021
    )
    
    
    (2,126,946
    )Write-offs
    
    
    389,322
    
    
    
    Additional provision
    
    
    (697,247
    )
    
    
    (118,594
    )Balance at end of year
    
    
    (2,126,946
    )
    
    
    (2,245,540
    )
  12 Inventory
 As of December 31,2009
    
    
    2010Raw materials
    
    
    
    
    
    
    263,318Finished goods
    
    
    
    
    
    
    2,093,123
    
    
    
    2,356,441Allowance for inventory obsolescence
    
    
    
    
    
    
    (51,725
    )Total
    
    
    
    
    
    
    2,304,716
  13 Deposits and other current assets
 As of December 31,2009
    
    
    2010Prepaid minimum guarantees
    
    
    
    
    
    
    2,837,186Rental and other deposits
    
    
    1,083,279
    
    
    
    715,340Staff advances
    
    
    292,652
    
    
    
    323,794Prepayments to VAS advertising, content and other suppliers
    
    
    735,655
    
    
    
    1,954,469Interest income receivable from non-related parties
    
    
    105,438
    
    
    
    Others
    
    
    380,741
    
    
    
    845,8632,597,765
    
    
    
    6,676,652Less: Allowance for doubtful receivables
    
    
    (240,141
    )
    
    
    (92,406
    )Total
    
    
    2,357,624
    
    
    
    6,584,246
  F-27




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 14 Property and equipment, net
 As of December 31,2009
    
    
    2010CostLeasehold property  held for sale
    
    
    
    
    
    
    819,578Buildings
    
    
    
    
    
    
    10,285,440Computer hardware and other equipment
    
    
    3,559,421
    
    
    
    3,972,530Office equipment
    
    
    831,225
    
    
    
    1,962,539Leasehold improvements
    
    
    187,479
    
    
    
    Motor vehicles
    
    
    
    
    
    
    344,5674,578,125
    
    
    
    17,384,654Less: Accumulated depreciation
    
    
    (4,047,356
    )
    
    
    (4,768,686
    )530,769
    
    
    
    12,615,968
   15 Intangible assets, net
  As of December 312009
    
    
    2010CostTechnology
    
    
    1,831,344
    
    
    
    2,559,208Customer base
    
    
    28,000
    
    
    
    171,523Licenses
    
    
    525,671
    
    
    
    525,671Partnership and non-compete agreements
    
    
    2,501,285
    
    
    
    7,360,921Domain names
    
    
    82,347
    
    
    
    82,347VAS Short Codes licensed to PT Linktone
    
    
    
    
    
    
    7,076,792Software
    
    
    
    
    
    
    183,0644,968,647
    
    
    
    17,959,526Accumulated amortization
    
    
    (4,862,608
    )
    
    
    (6,413,299
    )Acquired intangible assets, net
    
    
    106,039
    
    
    
    11,546,227
   2011
    
    
    1,975,2782012
    
    
    1,819,4512013
    
    
    1,267,1282014
    
    
    708,9462015
    
    
    308,7956,079,598
  F-28




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 16 Goodwill
  2009China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalBalance at
beginning of year
    
    
    8,550,715
    
    
    
    
    
    
    
    
    
    
    
    6,033,497
    
    
    
    14,584,212Goodwill recognized
from acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,500,000
    )
    
    
    (2,500,000
    )Balance at end of
year
    
    
    8,550,715
    
    
    
    
    
    
    
    
    
    
    
    3,533,497
    
    
    
    12,084,212
 2010China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalBalance at
beginning of year
    
    
    8,550,715
    
    
    
    
    
    
    
    
    
    
    
    3,533,497
    
    
    
    12,084,212Goodwill recognized
from acquisitions
    
    
    9,189,843
    
    
    
    16,848,642
    
    
    
    2,360,658
    
    
    
    
    
    
    
    28,399,143Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at end of
year
    
    
    17,740,558
    
    
    
    16,848,642
    
    
    
    2,360,658
    
    
    
    3,533,497
    
    
    
    40,483,355
    F-29




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 17 Other long-term assets
 As of December 31,2009
    
    
    2010Investment deposit (a)
    
    
    2,470,382
    
    
    
    2,470,382Prepaid minimum guarantees
    
    
    
    
    
    
    1,101,231Prepayment for insurance policy
    
    
    364,276
    
    
    
    1,398,1952,834,658
    
    
    
    4,969,808Less: Impairment loss on investment deposit (a)
    
    
    (2,470,382
    )
    
    
    (2,470,382
    )Total
    
    
    364,276
    
    
    
    2,499,426
 (a)
    
    In April 2007, the Company paid an investment deposit of $3 million to eChinaCash Inc.
(eCC) to purchase 49% of the equity in eChinaMobile (BVI) Ltd. (eCM), a wholly owned subsidiary
of eCC. eCM is a U.S. incorporated, Beijing-based company that builds and maintains customer
loyalty affinity programs and payment card programs for large corporations and financial
institutions, including Chinese blue chip companies. The primary objective of eCM was to establish
a platform to provide VAS service and original content to customers of Linktone and eCM through
cross-selling opportunities that arise through having access to each others extensive database of
users. Because of certain disputes over the resources to be made available for use by eCM, eCM
refunded $529,618 of Linktones investment deposit of $3 million in January 2008. Linktone has
sought legal remedies to recover the
remaining amount. In view of the uncertainty of recovering this remaining amount, the Company
recorded an impairment provision of $2,470,382 in 2007 against the remaining investment deposit. 18 Accounts payable, accrued liabilities and other payables
 As of December 31,2009
    
    
    2010Accounts payable
    
    
    806,297
    
    
    
    4,333,146Accrued payroll and welfare benefits
    
    
    192,458
    
    
    
    592,258Accrued professional and consulting fees
    
    
    280,165
    
    
    
    71,863Payable for acquisition of Letang (Note 6(a))
    
    
    
    
    
    
    2,083,742Payable for acquisition of PT Linktone MCB (Note 6(c))
    
    
    
    
    
    
    4,608,983Accrued VAS content fees
    
    
    5,138,487
    
    
    
    7,413,215Accrued expenses
    
    
    1,113,883
    
    
    
    2,221,885Other payables
    
    
    384,062
    
    
    
    1,646,064Total
    
    
    7,915,352
    
    
    
    22,971,156
 19 Other long-term liabilities
 As of December 31,2009
    
    
    2010Payable for acquisition of Letang (Note 6(a))
    
    
    
    
    
    
    1,540,157Other long-term payables
    
    
    
    
    
    
    871,911
    
    
    
    2,412,068
 20 Segment information
   F-30




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Statement of Operations Information:
 2008China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalGross revenues
    
    
    65,054,065
    
    
    
    
    
    
    
    
    
    
    
    1,971,737
    
    
    
    67,025,802Sales tax
    
    
    (2,417,247
    )
    
    
    
    
    
    
    
    
    
    
    (102,872
    )
    
    
    (2,520,119
    )Segment cost of revenue
    
    
    (33,764,103
    )
    
    
    
    
    
    
    
    
    
    
    (73,527
    )
    
    
    (33,837,630
    )Segment gross profit
    
    
    28,872,715
    
    
    
    
    
    
    
    
    
    
    
    1,795,338
    
    
    
    30,668,053Segment operating expenses
    
    
    (25,551,911
    )
    
    
    
    
    
    
    
    
    
    
    (657,147
    )
    
    
    (26,209,058
    )Segment
profit from
operations
    
    
    3,320,804
    
    
    
    
    
    
    
    
    
    
    
    1,138,191
    
    
    
    4,458,995
 2009China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalGross revenues
    
    
    61,120,605
    
    
    
    
    
    
    
    
    
    
    
    1,096,089
    
    
    
    62,216,694Sales tax
    
    
    (2,236,198
    )
    
    
    
    
    
    
    
    
    
    
    (67,091
    )
    
    
    (2,303,289
    )Segment cost of revenue
    
    
    (38,842,429
    )
    
    
    
    
    
    
    
    
    
    
    (98,843
    )
    
    
    (38,941,272
    )Segment gross profit
    
    
    20,041,978
    
    
    
    
    
    
    
    
    
    
    
    930,155
    
    
    
    20,972,133Segment operating expenses
    
    
    (19,983,960
    )
    
    
    
    
    
    
    
    
    
    
    (872,015
    )
    
    
    (20,855,975
    )Segment impairment charge
    
    
    431,873
    
    
    
    
    
    
    
    
    
    
    
    (2,500,000
    )
    
    
    (2,068,127
    )Segment
profit/(loss) from operations
    
    
    489,891
    
    
    
    
    
    
    
    
    
    
    
    (2,441,860
    )
    
    
    (1,951,969
    )
 2010China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalGross revenues
    
    
    56,578,054
    
    
    
    1,805,746
    
    
    
    12,210,519
    
    
    
    1,113,706
    
    
    
    71,708,025Sales tax
    
    
    (2,035,197
    )
    
    
    
    
    
    
    
    
    
    
    (51,924
    )
    
    
    (2,087,121
    )Segment cost of revenue
    
    
    (37,616,795
    )
    
    
    (587,532
    )
    
    
    (8,824,211
    )
    
    
    (108,856
    )
    
    
    (47,137,394
    )Segment gross profit
    
    
    16,926,062
    
    
    
    1,218,214
    
    
    
    3,386,308
    
    
    
    952,926
    
    
    
    22,483,510Segment operating expenses
    
    
    (18,966,796
    )
    
    
    (266,867
    )
    
    
    (4,691,928
    )
    
    
    (691,534
    )
    
    
    (24,617,125
    )Segment profit/(loss) from operations
    
    
    (2,040,734
    )
    
    
    951,347
    
    
    
    (1,305,620
    )
    
    
    261,392
    
    
    
    (2,133,615
    )
  F-31




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LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Balance Sheet Information:
 As of December 31, 2009China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalCurrent assets
    
    
    122,253,192
    
    
    
    
    
    
    
    
    
    
    
    5,065,780
    
    
    
    127,318,972Non-current assets
    
    
    12,926,989
    
    
    
    
    
    
    
    
    
    
    
    181,571
    
    
    
    13,108,560Total assets
    
    
    135,180,181
    
    
    
    
    
    
    
    
    
    
    
    5,247,351
    
    
    
    140,427,532Current liabilities
    
    
    (11,028,838
    )
    
    
    
    
    
    
    
    
    
    
    (507,673
    )
    
    
    (11,536,511
    )Total liabilities
    
    
    (11,028,838
    )
    
    
    
    
    
    
    
    
    
    
    (507,673
    )
    
    
    (11,536,511
    )Net assets
    
    
    124,151,343
    
    
    
    
    
    
    
    
    
    
    
    4,739,678
    
    
    
    128,891,021
 As of December 31, 2010China VAS &mobile game
    
    
    Indonesia VAS
    
    
    Media content
    
    
    PC game
    
    
    TotalCurrent assets
    
    
    101,532,213
    
    
    
    5,618,519
    
    
    
    12,298,493
    
    
    
    4,610,039
    
    
    
    124,059,264Non-current assets
    
    
    23,832,210
    
    
    
    25,793,506
    
    
    
    17,535,705
    
    
    
    56,035
    
    
    
    67,217,456Total assets
    
    
    125,364,423
    
    
    
    31,412,025
    
    
    
    29,834,198
    
    
    
    4,666,074
    
    
    
    191,276,720Current liabilities
    
    
    (17,459,454
    )
    
    
    (4,326,123
    )
    
    
    (10,884,252
    )
    
    
    (743,749
    )
    
    
    (33,413,578
    )Non-current liabilities
    
    
    (1,540,157
    )
    
    
    (2,615,377
    )
    
    
    
    
    
    
    
    
    
    
    (4,155,534
    )Total liabilities
    
    
    (18,999,611
    )
    
    
    (6,941,500
    )
    
    
    (10,884,252
    )
    
    
    (743,749
    )
    
    
    (37,569,112
    )Net assets
    
    
    106,364,812
    
    
    
    24,470,525
    
    
    
    18,949,946
    
    
    
    3,922,325
    
    
    
    153,707,608
  2008
    
    
    2009
    
    
    2010PRC
    
    
    67,025,802
    
    
    
    62,216,694
    
    
    
    57,691,760Indonesia
    
    
    
    
    
    
    
    
    
    
    1,805,746Singapore
    
    
    
    
    
    
    
    
    
    
    11,596,837Malaysia
    
    
    
    
    
    
    
    
    
    
    613,682
  As of December 31,2009
    
    
    2010PRC
    
    
    105,083,092
    
    
    
    114,218,378Indonesia
    
    
    35,344,440
    
    
    
    47,224,144Singapore
    
    
    
    
    
    
    27,785,182Malaysia
    
    
    
    
    
    
    2,049,016
 21 Risks and uncertainties
 (a) Dependence on the Operators
  
    
    Revenues earned from China Mobile for the years ended December 31, 2008, 2009 and 2010
were $49.0 million, $46.3 million and $37.6 million, respectively, representing 73%, 74%
and 52% of gross revenues, respectively.
 
    
    Amounts due from China Mobile as of 2009 and 2010 amounted to $10.8 million and $10.4
million, respectively, representing 75% and 82% of accounts receivable, respectively.
 
    
    Revenues earned from China Telecom for the years ended December 31, 2008, 2009 and 2010
were $7.5 million, $7.9 million and $9.6 million, respectively, representing 11%, 13% and
13% of gross revenues, respectively.
 
    
    Amounts due from China Telecom as of December 31, 2009 and 2010 amounted to $1.3 million
and $1.2 million, respectively, representing 9% and 10% of accounts receivable,
respectively.
  F-32




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 
 (b) Credit risk
   (c) Foreign exchange risk
   (d) Legal and regulatory uncertainties
 PRC
   F-33




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Indonesia
  22 Employee Benefits
 PRC contribution plan
  Singapore contribution plan
  Indonesian contribution plan
  23 Statutory Reserves
   F-34




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
   24 Income taxes
 Cayman Islands, British Virgin Islands and UAE
  Hong Kong
  Indonesia
  Singapore
  Malaysia
  PRC
      F-35




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
      Year ended December 31,2008
    
    
    2009
    
    
    2010Cayman
    
    
    (1,960,664
    )
    
    
    (75,287
    )
    
    
    (2,879,085
    )Indonesia
    
    
    
    
    
    
    314,378
    
    
    
    2,673,218Singapore
    
    
    
    
    
    
    
    
    
    
    (1,710,126
    )Malaysia
    
    
    
    
    
    
    
    
    
    
    223,771PRC
    
    
    7,055,929
    
    
    
    (145,480
    )
    
    
    2,539,084Total income before taxes from continued operations
    
    
    5,095,265
    
    
    
    93,611
    
    
    
    846,862
  Year ended December 31,2008
    
    
    2009
    
    
    2010Current
    
    
    (1,164,460
    )
    
    
    (14,889
    )
    
    
    (1,805,227
    )Deferred
    
    
    378,403
    
    
    
    (564,381
    )
    
    
    365,966Total
    
    
    (786,057
    )
    
    
    (579,270
    )
    
    
    (1,439,261
    )
  F-36




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
  Year ended December 31,2008
    
    
    2009
    
    
    2010Statutory Enterprise Income Tax rate
    
    
    25
    %
    
    
    25
    %
    
    
    25
    %Effect of tax holiday
    
    
    (6
    )%
    
    
    54
    %
    
    
    International tax rate differences
    
    
    5
    %
    
    
    (2
    )%
    
    
    99
    %Non-deductible expenses/non-taxable income
    
    
    (12
    )%
    
    
    (106
    )%
    
    
    1
    %Change in valuation allowance
    
    
    9
    %
    
    
    656
    %
    
    
    (48
    )%PRC tax rate differences
    
    
    (3
    )%
    
    
    (133
    )%
    
    
    (8
    )%Unrecognized tax benefit
    
    
    
    
    
    
    30
    %
    
    
    4
    %Change in tax law
    
    
    
    
    
    
    
    
    
    
    Adjustment to prior-year tax provision
    
    
    (3
    )%
    
    
    (93
    )%
    
    
    97
    %Deferred tax on outside basis tax
    
    
    
    
    
    
    188
    %
    
    
    Effective EIT rate for continuing operations
    
    
    15
    %
    
    
    619
    %
    
    
    170
    %
   As of December 31,2009
    
    
    2010Deferred tax assets:Establishment costs
    
    
    6,601
    
    
    
    1,986Property and equipment
    
    
    125,142
    
    
    
    123,813Intangible and other assets
    
    
    463,612
    
    
    
    208,550Deferred revenue
    
    
    52,656
    
    
    
    277,779Accrued liabilities and other payables
    
    
    3,582,154
    
    
    
    3,680,306Advertising expenses
    
    
    417,851
    
    
    
    343,704Net operating losses
    
    
    1,756,000
    
    
    
    1,980,258Total deferred tax assets for continuing operations
    
    
    6,404,016
    
    
    
    6,616,396Valuation allowance for continuing operations
    
    
    (2,493,972
    )
    
    
    (2,139,558
    )Total deferred tax assets for discontinued operations
    
    
    5,071,306
    
    
    
    5,464,105Valuation allowance for discontinued operations
    
    
    (4,857,314
    )
    
    
    (5,320,546
    )Total deferred tax assets, net of valuation allowance
    
    
    4,124,036
    
    
    
    4,620,397Deferred tax liabilities:Accrued income
    
    
    (2,966,583
    )
    
    
    (3,138,136
    )Intangible assets
    
    
    
    
    
    
    (2,833,562
    )Deferred tax liabilities for continuing operations
    
    
    (2,966,583
    )
    
    
    (5,971,698
    )Deferred tax liabilities for discontinued operations
    
    
    (213,992
    )
    
    
    (143,559
    )Total deferred tax liabilities
    
    
    (3,180,575
    )
    
    
    (6,115,257
    )Net deferred tax assets/(liabilities)
    
    
    943,461
    
    
    
    (1,494,860
    )Deferred tax assets  current
    
    
    1,176,933
    
    
    
    1,254,529Deferred tax liabilities  current
    
    
    (256,736
    )
    
    
    (1,078,403
    )Deferred tax assets  non-current
    
    
    23,264
    
    
    
    72,480Deferred tax liabilities  non-current
    
    
    
    
    
    
    (1,743,466
    )Net deferred tax assets/(liabilities)
    
    
    943,461
    
    
    
    (1,494,860
    )
   F-37




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
    Year ended December 31,2009
    
    
    2010Beginning balance
    
    
    100,671
    
    
    
    100,671Increases related to prior-year positions
    
    
    
    
    
    
    Increases related to current-year positions
    
    
    
    
    
    
    Ending balance
    
    
    100,671
    
    
    
    100,671
   25 Stock option plans
   Stock-based compensation cost
   F-38




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 Valuation assumptions
  Year ended December 31,2008
    
    
    2009Risk-free interest rate (%)
    
    
    (1
    )
    
    
    2.61-3.48
    
    
    
    2.20-2.87Expected life (years)
    
    
    (2
    )
    
    
    3-6
    
    
    
    6Expected dividend yield (%)
    
    
    
    
    
    
    0
    
    
    
    0Volatility (%)
    
    
    (3
    )
    
    
    50-60
    
    
    
    60-65
 (1)
    
    The risk-free interest rate for periods within the contractual life of the option is
based on the U.S. Treasury zero-coupon yield in effect at the time of grant.(2)
    
    In the absence of sufficient historical data in the exercise behavior of the option
holders, the Company continued to use the simplified method, under which the expected term
is based on the mid-point between the vesting date and the end of the contractual term.(3)
    
    The Company used its own historical data to estimate the stock price volatility. Award activity information
  WeightedaverageremainingNumber of
    
    
    Weighted-average
    
    
    contractual term
    
    
    AggregateShare options granted to employees
    
    shares
    
    
    exercise price
    
    
    (years)
    
    
    intrinsic valueUS$
    
    
    
    
    
    
    US$Outstanding, December 31, 2009
    
    
    10,438,800
    
    
    
    0.29
    
    
    
    7.83
    
    
    
    77,505Granted
    
    
    
    
    
    
    Exercised
    
    
    (373,700
    )
    
    
    0.10Forfeited
    
    
    (388,200
    )
    
    
    0.75Expired
    
    
    (1,660,000
    )
    
    
    0.15Outstanding, December 31, 2010
    
    
    8,016,900
    
    
    
    0.30
    
    
    
    6.99
    
    
    
    48,780Vested and expected to vest as of
December 31, 2010
    
    
    8,016,900
    
    
    
    0.30
    
    
    
    6.99
    
    
    
    48,780Exercisable as of December 31, 2010
    
    
    5,218,500
    
    
    
    0.37
    
    
    
    6.24
    
    
    
    45,962
    F-39




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
  Options outstanding as of December 31, 2010
    
    
    Options exercisable as of December 31, 2010Weighted
    
    
    
    
    
    
    
    
    
    
    Weightedaverage
    
    
    Weighted
    
    
    
    
    
    
    average
    
    
    Weightedremaining
    
    
    average
    
    
    
    
    
    
    remaining
    
    
    averageRange of
    
    Options
    
    
    contractual life
    
    
    exercise
    
    
    Number
    
    
    contractual life
    
    
    exerciseexercise price
    
    outstanding
    
    
    (years)
    
    
    price ($)
    
    
    exercisable
    
    
    (years)
    
    
    price ($)$0.07~$0.10
    
    
    572,400
    
    
    
    0.29
    
    
    
    0.08
    
    
    
    572,400
    
    
    
    0.29
    
    
    
    0.08$0.15~$0.29
    
    
    6,170,000
    
    
    
    8.21
    
    
    
    0.19
    
    
    
    3,371,600
    
    
    
    8.06
    
    
    
    0.20$0.68~$0.78
    
    
    644,500
    
    
    
    4.74
    
    
    
    0.72
    
    
    
    644,500
    
    
    
    4.74
    
    
    
    0.72$1.02~$1.40
    
    
    630,000
    
    
    
    3.44
    
    
    
    1.16
    
    
    
    630,000
    
    
    
    3.44
    
    
    
    1.168,016,900
    
    
    
    6.99
    
    
    
    0.30
    
    
    
    5,218,500
    
    
    
    6.24
    
    
    
    0.37
  26
Related party transactions
  As of December 31,2009
    
    
    2010$
    
    
    $Loan to GLD Investment Pte Ltd. (i)
    
    
    8,185,700
    
    
    
    Amount due to MNC Sky Vision (ii)Loan to PT MNC Sky Vision
    
    
    1,901,700
    
    
    
    Interest receivable
    
    
    24,778
    
    
    
    Accounts receivable (iii, iv)
    
    
    700,000
    
    
    
    2,398,114Due from related parties
    
    
    10,812,178
    
    
    
    2,398,114Contents fee payable to MNC and its subsidiaries (iv)
    
    
    
    
    
    
    (1,071,775
    )Payable to other related parties
    
    
    
    
    
    
    (2,475
    )Due to related parties
    
    
    
    
    
    
    (1,074,250
    )
 (i)
    
    The loan of SGD 11.5 million as of December 31, 2009 was receivable from GLD. Pursuant to a
loan agreement between the Company and GLD on October 10, 2008, the loan was to repaid 12
months from the date the loan was received by GLD. The loan bore interest at 4% per annum
during the loan period of 12 months. Pursuant to the relevant loan agreement, GLD agreed to
pledge a building in Singapore to Linktone as security during the loan period. On June 28,
2010, the loan was fully repaid by GLD.(ii)
    
    The loan of $1,901,700 as of December 31, 2009 is due from PT MNC Sky Vision (Sky Vision),
a limited liability company incorporated in the Republic of
Indonesia, a sister company of MNC.
Pursuant to the relevant agreements signed between Linktone, Sky Vision and Humax Co., Ltd.
(Humax), Sky Vision purchased equipment from Humax, a Korean-based manufacturer, for a total
amount of $2,091,870. Humax assigned its receivable from Sky Vision of $2,091,870, made up of
five payments in a period from June 8, 2009 to July 13, 2009, to Linktone at a discounted
value of $1,901,700. Sky Vision repaid Linktone the principal of $1,901,700 one year from each
payment date and interest shall be paid on a quarterly basis. Interest income receivable as of
December 31, 2009 and 2010 was $24,778 and $17,660, respectively.  F-40




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 (iii)
    
    In July 2009, the Company entered into a technical assistance agreement with GTS Far East
Ltd., a limited liability company incorporated in United Arab Emirates and an affiliate of
MNC, for technical advisory services to be rendered to GTS Far Easts VAS operation in the
Republic of Indonesia for a monthly fee of $100,000. The earned a total fee of $700,000
million for services rendered in 2009.(iv)
    
    In October 2009, PT Linktone entered into cooperation agreements
with Infokom and MNC. Infokom is an Indonesia corporation and controlled by the
same shareholder of MNC. Pursuant to these agreements, PT Linktone operated its VAS business
in Indonesia through the VAS access numbers owned by Infokom and MNC. From September 1, 2010,
the PT Linktone acquisition closing date, to December 31, 2010, PT Linktones total revenue
generated from the VAS Short Codes owned by Infokom was $1,569,369. PT Linktones total
revenue generated from the VAS access number owned by MNC was $260,239. As of December 31,
2010, amounts due from Infokom and MNC were $2,171,951 and $ 226,163, respectively.PT Linktone also purchases VAS contents from MNC and its subsidiaries for its operation. From
September 1, 2010, the acquisition date, to December 31, 2010, PT Linktone purchased contents of
$354,620 from MNC and its subsidiaries and the amounts due to these related-party content
vendors, including payables assumed in the acquisition, was $1,071,775 as of December 31, 2010.(v)
    
    Short-term investmentsOn December 20, 2010, the Group purchased secured notes issued by Aerospace Satellite
Corporation Holding (Aerospace Satellite), a wholly owned subsidiary of Sky Vision, for
consideration of $20,000,000. The secured notes are traded on Singapore Exchange Ltd., due
November 16, 2015, bear interest at a rate of 12.75% per annum, and are payable semi-annually in
arrears. The secured notes are guaranteed by Sky Vision. The fair value of the secured notes as
of December 31, 2010 of $19,800,000 was based on the quoted market price on December 31, 2010.
The corresponding interest of $318,750 has been recorded in interest income. 27 Commitments and contingencies
 (a) Operating lease commitments
  2011
    
    
    518,1112012
    
    
    123,1032013
    
    
    82,283Total
    
    
    723,497
   (c) Significant legal proceedings
  (d) Uncertainty in income taxes
   F-41




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 28 Subsequent events
  29 Additional information  Condensed financial statements of the Company
   a) Condensed balance sheets
 As of December 31,Note
    
    
    2009
    
    
    2010$
    
    
    $AssetsCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    29,530,267
    
    
    
    16,729,503Short-term investments
    
    
    
    
    
    
    3,862,377
    
    
    
    26,120,600Due from related parties
    
    
    
    
    
    
    10,087,400
    
    
    
    Deposits and other current assets
    
    
    
    
    
    
    473,858
    
    
    
    273,986Total current assets
    
    
    
    
    
    
    43,953,902
    
    
    
    43,124,089Investments in subsidiaries and VIEs
    
    
    d
    
    
    
    50,825,247
    
    
    
    74,948,558Due from subsidiaries and VIEs
    
    
    
    
    
    
    35,115,526
    
    
    
    14,038,501Other long-term assets
    
    
    
    
    
    
    364,276
    
    
    
    252,190Total assets
    
    
    
    
    
    
    130,258,951
    
    
    
    132,363,338Liabilities and shareholders equityCurrent liabilities:Accrued liabilities and other payables
    
    
    
    
    
    
    236,848
    
    
    
    267,128Total current liabilities
    
    
    
    
    
    
    236,848
    
    
    
    267,128Due to subsidiaries and VIEs
    
    
    
    
    
    
    1,131,082
    
    
    
    11,686Total liabilities
    
    
    
    
    
    
    1,367,930
    
    
    
    278,814Commitments and contingences
    
    
    eShareholders equityOrdinary shares ($0.0001 par value; 500,000,000 shares
authorized, 420,756,430 shares issued and outstanding as
of December 31, 2009 and 421,130,130 shares issued and
outstanding as of December 31, 2010)
    
    
    
    
    
    
    42,075
    
    
    
    42,113Additional paid-in capital
    
    
    
    
    
    
    137,838,890
    
    
    
    137,581,956Accumulated other comprehensive income:Unrealized gain on investment in marketable securities
    
    
    
    
    
    
    437,250
    
    
    
    2,376,723Cumulative translation adjustments
    
    
    
    
    
    
    7,217,287
    
    
    
    9,306,938Accumulated losses
    
    
    
    
    
    
    (16,644,481
    )
    
    
    (17,223,206
    )Total shareholders equity
    
    
    
    
    
    
    128,891,021
    
    
    
    132,084,524Total liabilities and shareholders equity
    
    
    
    
    
    
    130,258,951
    
    
    
    132,363,338
  F-42




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 b) Condensed statements of operations and comprehensive income
 For the year ended December 31,2008
    
    
    2009
    
    
    2010$
    
    
    $
    
    
    $Net revenues
    
    
    
    
    
    
    
    
    
    
    Cost of revenue
    
    
    
    
    
    
    
    
    
    
    Gross profit
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    (2,162,438
    )
    
    
    (1,260,418
    )
    
    
    (2,070,580
    )Reversal of (provisions for) impairment
    
    
    
    
    
    
    431,873
    
    
    
    (1,139,810
    )Loss from operations
    
    
    (2,162,438
    )
    
    
    (828,545
    )
    
    
    (3,210,390
    )Equity in profit (loss) of subsidiaries and VIEs, net
    
    
    (14,537,136
    )
    
    
    186,179
    
    
    
    2,315,416Other-than-temporary impairment loss on investments
    
    
    (1,476,937
    )
    
    
    
    
    
    
    Other income and interest income, net
    
    
    1,678,711
    
    
    
    753,258
    
    
    
    316,249Income (loss) before tax
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (578,725
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    Net income (loss)
    
    
    (16,497,800
    )
    
    
    110,892
    
    
    
    (578,725
    )Other comprehensive income (loss)Foreign currency translation adjustment
    
    
    2,646,071
    
    
    
    (145,899
    )
    
    
    2,089,651Unrealized gain on investments in marketable securities
    
    
    
    
    
    
    437,250
    
    
    
    1,939,473Comprehensive income (loss)
    
    
    (13,851,729
    )
    
    
    402,243
    
    
    
    3,450,399
 c) Condensed statements of cash flows
 For the year ended December 31,2008
    
    
    2009
    
    
    2010Net cash (used in) provided by operating activities
    
    
    11,740
    
    
    
    (1,286,268
    )
    
    
    (1,984,322
    )Net cash used in investing activities
    
    
    (8,918,767
    )
    
    
    (36,621,700
    )
    
    
    (41,980,867
    )Net cash (used in) provided by financing activities
    
    
    57,359,539
    
    
    
    (438,160
    )
    
    
    31,164,425Net (decrease) increase in cash and cash equivalents
    
    
    48,452,512
    
    
    
    (38,346,128
    )
    
    
    (12,800,764
    )Cash and cash equivalents, beginning of year
    
    
    19,423,883
    
    
    
    67,876,395
    
    
    
    29,530,267Cash and cash equivalents, end of year
    
    
    67,876,395
    
    
    
    29,530,267
    
    
    
    16,729,503
  F-43




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##### Table of Contents



LINKTONE LTD. AND SUBSIDIARIES
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In U.S. dollars, unless otherwise stated)
 d) Basis of presentation
    e) Commitments, long term obligations and guarantees
   F-44