##### 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
 For the transition period from  to
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 Commission file number: 000-51116
 
 Ku6 Media Co., 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)
Building 6, Zhengtongchuangyi Centre
No. 18, Xibahe Xili, Chaoyang District
Beijing 100020, Peoples Republic of China
Fax number: +86 10 57586898
(Address of principal executive offices)
 
  Title of each class
    
    Name of each exchange and on which registeredAmerican Depositary Shares, each representing 100
    
    Nasdaq Global Marketordinary shares, par value US$0.00005 per share
 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
 o þ
  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
 PageINTRODUCTION
    
    
    1PART I
    
    
    2Item 1. Identity of Directors, Senior Management and Advisors
    
    
    2Item 2. Offer Statistics and Expected Timetable
    
    
    2Item 3. Key Information
    
    
    2Item 4. Information on the Company
    
    
    33Item 4A. Unresolved Staff Comments
    
    
    54Item 5. Operating and Financial Review and Prospects
    
    
    54Item 6. Directors, Senior Management and Employees
    
    
    75Item 7. Major Shareholders and Related Party Transactions
    
    
    81Item 8. Financial Information
    
    
    85Item 9. The Offer and Listing
    
    
    85Item 10. Additional Information
    
    
    86Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    98Item 12. Description of Securities Other than Equity Securities
    
    
    98PART II
    
    
    99Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    99Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    99Item 15. Controls and Procedures
    
    
    99Item 16. Reserved
    
    
    101Item 16A. Audit Committee Financial Expert
    
    
    101Item 16B. Code of Ethics
    
    
    101Item 16C. Principal Accountant Fees and Services
    
    
    101Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    102Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    102Item 16F. Changes in Registrants Certifying Accountant
    
    
    102Item 16G. Corporate Governance
    
    
    102PART III
    
    
    102Item 17. Financial Statements
    
    
    102Item 18. Financial Statements
    
    
    102Item 19. Exhibits
    
    
    103Exhibit 1.3Exhibit 2.1Exhibit 4.1Exhibit 4.2Exhibit 4.4Exhibit 4.5Exhibit 4.6Exhibit 4.7Exhibit 4.8Exhibit 4.9Exhibit 4.10Exhibit 4.11Exhibit 4.12Exhibit 4.13Exhibit 4.14Exhibit 4.15Exhibit 4.16Exhibit 4.17Exhibit 4.18Exhibit 4.19Exhibit 4.20Exhibit 4.21Exhibit 4.22Exhibit 4.23Exhibit 4.24Exhibit 4.25Exhibit 4.26Exhibit 4.27Exhibit 4.28Exhibit 4.29Exhibit 4.30Exhibit 4.31Exhibit 4.32Exhibit 4.33Exhibit 4.34Exhibit 4.35Exhibit 4.36Exhibit 4.37Exhibit 4.38Exhibit 4.39Exhibit 4.40Exhibit 4.41Exhibit 4.43Exhibit 4.44Exhibit 4.45Exhibit 4.46Exhibit 4.47Exhibit 4.48Exhibit 4.49Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1Exhibit 13.2Exhibit 15.1Exhibit 15.2
   ii




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INTRODUCTION
  
    
    ADSs refers to our American depositary shares, each of which represents 100 ordinary
 shares;
 
    
    $, US$ and U.S. dollars refer to the legal currency of the United States;
 
    
    Beijing WOFE means Ku6 (Beijing) Technology Co., Ltd.
 
    
    China and the PRC refer to the Peoples Republic of China, excluding, for the
purposes of this annual report on Form 20-F only, Taiwan and the special administrative
regions of Hong Kong and Macau;
 
    
    Cayman Companies Law refers to the Companies Law (2010 Revision) of the Cayman Islands
(as amended);
 
    
    Ku6 refers to Ku6 Holding Limited and its subsidiaries, affiliates and predecessor
entities.
 
    
    ordinary shares refers to our ordinary shares, par value US$0.00005 per share;
 
    
    RMB and Renminbi refer to the legal currency of China;
 
    
    Shanda Interactive refers to Shanda Interactive Entertainment Limited, a Cayman
Islands company, whose ADSs are listed on the NASDAQ Global Select Market under the symbol
SNDA;
 
    
    Shanda Group refers to Shanda Interactive and its subsidiaries and VIEs and, unless
the context requires otherwise, includes Ku6 Media Co., Ltd. and its subsidiaries and VIEs;
 
    
    telecom operators refer to China Mobile, China Unicom and China Telecom, the three
principal telecommunication network operators in China;
 
    
    Tianjin WOFE means WeiMoSanYi (Tianjin) Technology Co., Ltd.; and
 
    
    we, us, our company and our refer to Ku6 Media Co., Ltd. and its subsidiaries,
affiliates and predecessor entities.
  FORWARD-LOOKING INFORMATION
  
    
    our goals and strategies;
 
    
    our future business development, financial condition and results of operations;
 
    
    our projected revenues, earnings, profits and other estimated financial information;
 
    
    expected changes in our margins and certain costs or expenditures;
 
    
    expected continued acceptance of our new revenue model;




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
    
    our plans to expand and diversify the sources of our revenues;
 
    
    expected changes in the respective shares of our revenues from particular sources;
 
    
    our plans for staffing, research and development and regional focus;
 
    
    our plans to launch new products and services;
 
    
    our plans for strategic partnerships with other businesses;
 
    
    our acquisition and divestiture strategy, and our ability to successfully integrate past
or future acquisitions with our existing operations and complete planned divestitures;
 
    
    competition in the PRC online video industry;
 
    
    the outcome of ongoing, or any future, litigation or arbitration;
 
    
    the expected growth in the number of Internet and broadband users in China, growth of
personal computer penetration and developments in the ways most people in China access the
Internet;
 
    
    changes in PRC governmental preferential tax treatment and financial incentives we
currently qualify for and expect to qualify for; and
 
    
    PRC governmental policies relating to media and the Internet and Internet content
providers and to the provision of advertising over the Internet.
  
 PART I
 
 Item 1. Identity of Directors, Senior Management and Advisors
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 A. Selected Financial Data
   2




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For the Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Adjusted)(1) (2)
    
    
    (Adjusted) (1)
    
    
    Adjusted) (1)
    
    
    (Adjusted) (1)(in thousands of U.S. dollars, except for share and per share data)Historical Condensed
Consolidated Statement
of Operations DataNet revenues:AdvertisingThird parties
    
    $
    15,854
    
    
    $
    758
    
    
    $
    
    
    
    $
    
    
    
    $
    Related parties
    
    
    702
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    Total net revenues
    
    
    16,556
    
    
    
    1,037
    
    
    
    
    
    
    
    
    
    
    
    Cost of revenues:AdvertisingThird parties
    
    
    (40,083
    )
    
    
    (557
    )
    
    
    
    
    
    
    
    
    
    
    Related parties
    
    
    (376
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total cost of revenues
    
    
    (40,459
    )
    
    
    (557
    )
    
    
    
    
    
    
    
    
    
    
    Gross profit (loss)
    
    
    (23,903
    )
    
    
    480
    
    
    
    
    
    
    
    
    
    
    
    Operating expenses
    
    
    (29,703
    )
    
    
    (7,130
    )
    
    
    (2,401
    )
    
    
    (2,738
    )
    
    
    (2,184
    )Operating loss from
continuing operations
    
    
    (53,606
    )
    
    
    (6,650
    )
    
    
    (2,401
    )
    
    
    (2,738
    )
    
    
    (2,184
    )Interest income
    
    
    57
    
    
    
    356
    
    
    
    1,432
    
    
    
    2,084
    
    
    
    2,373Interest expense
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    (179
    )
    
    
    (45
    )Gain on reduction of
acquisition payable
    
    
    
    
    
    
    
    
    
    
    5,000
    
    
    
    
    
    
    
    Foreign exchange loss
    
    
    
    
    
    
    
    
    
    
    (8,990
    )
    
    
    
    
    
    
    Other income, net
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    105
    
    
    
    Income (loss) before
income tax benefit
(expense) from
continuing operations
    
    
    (53,580
    )
    
    
    (6,292
    )
    
    
    (4,959
    )
    
    
    (728
    )
    
    
    144Income tax benefit
    
    
    41
    
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    Income (loss) from
continuing operations,
net of tax
    
    
    (53,539
    )
    
    
    (6,278
    )
    
    
    (4,959
    )
    
    
    (728
    )
    
    
    144
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For the Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006(Adjusted)(1) (2)
    
    
    (Adjusted) (1)
    
    
    Adjusted) (1)
    
    
    (Adjusted) (1)(in thousands of U.S. dollars, except for share and per share data)Discontinued operations:Income (loss) from
operations of
discontinued
operations, net of tax
    
    
    (3,383
    )
    
    
    (21,779
    )
    
    
    (7,744
    )
    
    
    (40,727
    )
    
    
    6,222Gain from disposal of
discontinued operations
    
    
    4,487
    
    
    
    222
    
    
    
    413
    
    
    
    193
    
    
    
    Income (loss) from
discontinued
operations, net of tax
    
    
    1,104
    
    
    
    (21,557
    )
    
    
    (7,331
    )
    
    
    (40,534
    )
    
    
    6,222Net income (loss)
    
    
    (52,435
    )
    
    
    (27,834
    )
    
    
    (12,290
    )
    
    
    (41,262
    )
    
    
    6,366Less: Net loss
attributable to the
non-controlling
interests from
continuing operations
    
    
    681
    
    
    
    257
    
    
    
    
    
    
    
    
    
    
    
    Less: Net loss (income)
attributable to the
non-controlling
interests and
redeemable
non-controlling
interests from
discontinued operations
    
    
    244
    
    
    
    4,183
    
    
    
    337
    
    
    
    (688
    )
    
    
    (562
    )Net (loss) income
attributable to Ku6
Media Co., Ltd.
    
    
    (51,510
    )
    
    
    (23,395
    )
    
    
    (11,953
    )
    
    
    (41,950
    )
    
    
    5,804Income (loss) from
continuing operations,
net of tax,
attributable to Ku6
Media Co., Ltd.
    
    
    (52,858
    )
    
    
    (6,021
    )
    
    
    (4,959
    )
    
    
    (728
    )
    
    
    144Income (loss) from
discontinued
operations, net of tax,
attributable to Ku6
Media Co., Ltd.
    
    
    1,348
    
    
    
    (17,374
    )
    
    
    (6,994
    )
    
    
    (41,222
    )
    
    
    5,660Net (loss) income
attributable to Ku6
Media Co., Ltd.
    
    
    (51,510
    )
    
    
    (23,395
    )
    
    
    (11,953
    )
    
    
    (41,950
    )
    
    
    5,804Loss attributable to
Ku6 Media Co., Ltd.
ordinary shareholders
per share from
continuing operations,
basic and diluted
    
    
    (0.02
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss attributable to
Ku6 Media Co., Ltd.
ordinary shareholders
per share from
discontinued
operations, basic and
diluted
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    Loss attributable to
Ku6 Media Co., Ltd.
ordinary shareholders
per share, basic and
diluted
    
    
    (0.02
    )
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.02
    )
    
    
    Weighted average share
used in per share
calculation-basic and
diluted
    
    
    3,096,421,097
    
    
    
    2,196,291,947
    
    
    
    2,185,615,129
    
    
    
    2,172,208,190
    
    
    
    2,189,748,563
 As of December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Adjusted(2)(in thousands of U.S. dollars, except for share data)Historical Condensed Consolidated Balance
Sheet DataCash and cash equivalents
    
    $
    27,295
    
    
    $
    49,744
    
    
    $
    59,473
    
    
    $
    65,979
    
    
    $
    74,597Short term investments
    
    
    
    
    
    
    10,000
    
    
    
    
    
    
    
    
    
    
    
    Accounts receivable, net
    
    
    8,461
    
    
    
    4,062
    
    
    
    12,658
    
    
    
    14,691
    
    
    
    13,449Other current assets
    
    
    9,051
    
    
    
    2,155
    
    
    
    5,580
    
    
    
    8,777
    
    
    
    3,342Property and equipment, net
    
    
    8,003
    
    
    
    1,472
    
    
    
    980
    
    
    
    1,636
    
    
    
    1,954Goodwill
    
    
    6,896
    
    
    
    2,099
    
    
    
    3,157
    
    
    
    5,621
    
    
    
    39,621Other assets
    
    
    27,265
    
    
    
    1,976
    
    
    
    6,476
    
    
    
    8,890
    
    
    
    7,027Total assets
    
    
    86,970
    
    
    
    71,508
    
    
    
    88,324
    
    
    
    105,594
    
    
    
    139,990Current liabilities
    
    
    36,406
    
    
    
    13,783
    
    
    
    6,316
    
    
    
    14,467
    
    
    
    12,960Non-current liabilities
    
    
    4,926
    
    
    
    421
    
    
    
    316
    
    
    
    877
    
    
    
    851
  4




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As of December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Adjusted(2)(in thousands of U.S. dollars, except for share data)Total liabilities
    
    
    41,332
    
    
    
    14,204
    
    
    
    6,632
    
    
    
    15,344
    
    
    
    13,811Redeemable non-controlling interests
    
    
    
    
    
    
    371
    
    
    
    
    
    
    
    
    
    
    
    Ordinary shares (3,481,174,498,
2,200,194,040, 2,193,343,740, 2,174,784,440
and 2,163,031,740 shares issued and
outstanding as of December 31, 2010, 2009,
2008, 2007 and 2006, respectively)
    
    
    174
    
    
    
    110
    
    
    
    110
    
    
    
    109
    
    
    
    108Total Ku6 Media Co., Ltd. shareholders equity
    
    
    45,572
    
    
    
    54,966
    
    
    
    76,799
    
    
    
    85,474
    
    
    
    122,712Non-controlling interests
    
    
    (108
    )
    
    
    1,857
    
    
    
    4,783
    
    
    
    4,667
    
    
    
    3,359Total liabilities, redeemable non-controlling
interests and shareholders equity
    
    $
    86,970
    
    
    $
    71,508
    
    
    $
    88,324
    
    
    $
    105,594
    
    
    $
    139,990
 
 (1)
    
    Reflects the retrospective presentation of the operations data of the wireless value-added
service and recorded music business in discontinued operations.(2)
    
    Reflects acquisition of online audio business from Shanda Interactive since the inception of
the common control, which is the date on which we became controlled by Shanda Interactive. Exchange Rate Information
  B. Capitalization and Indebtedness
  C. Reasons for the Offer and Use of Proceeds
  D. Risk Factors
  5




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Risks Related to Our Business
 We are operating with a small amount of working capital. If we cannot meet our liquidity needs
through improved operating results, we may need to obtain additional financing. We cannot be
assured that we will be able to obtain financing under commercially reasonable terms, or at all.
  
    
    inability to achieve planned operating results that could increase liquidity
requirements beyond those considered in our business plan;
 
    
    changes in financial market conditions or our business condition that could limit
our access to existing credit facilities or make new financings more costly or even
unfeasible; and
 
    
    changes in Chinas currency exchange control regulations that could limit our
ability to access cash in China to meet liquidity requirements for our operations in
China or elsewhere;
  We have a short operating history in a new and unproven market, which makes it difficult to
evaluate our future prospects and may increase the risk that we will not be successful.
  We have a history of losses, and we may be unable to achieve or sustain profitability.
  
    
    growth of the online video industry and the online advertising market;
 
    
    the continued acceptance of our online video content by our users;
 
    
    the continued growth and maintenance of our user base;
 
    
    our ability to control our costs and expenses; and
 
    
    our ability to provide new advertising services to meet the demands of our advertising
customers.
   6




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We operate in a highly competitive market and we may not be able to compete successfully against
our competitors.
    We operate in a capital-intensive industry and require significant amount of cash to fund our
operations and bandwidth, content and technology acquisitions. If we cannot obtain sufficient
capital, our business, financial condition and prospects may be materially and adversely affected.
  
    
    our future business development, financial condition and results of operations;
 
    
    general market conditions for financing activities by companies in our industry; and
 
    
    macroeconomic, political and other conditions in China and elsewhere.
  7




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The online video industry in China and user acceptance of our online video content may not grow as
quickly as expected, which may adversely affect our revenues and business prospects.
  We operate in a rapidly evolving industry. If we fail to keep up with the technological
developments and users changing requirements, our business, results of operations and prospects
may be materially and adversely affected.
  We depend on studios, distributors and other content owners to license us professionally produced
content that we can stream instantly over the Internet. Increases in market prices for
professionally produced content may have an adverse effect on our business, financial condition
and results of operations.
   8




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We generate substantially all of our revenues from online advertising, as a result of our
acquisition of Ku6 in January 2010 and the disposal of our wireless value-added services and
recorded music businesses in August 2010. If we fail to retain existing advertisers or attract
new advertisers to advertise on our website or if we are unable to collect accounts receivable
from the advertisers or advertising agencies in a timely manner, our financial condition, results
of operations and prospects may be materially and adversely affected.
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We depend on a limited number of advertising customers, which include both advertisers and
advertising agencies, for a significant portion of our revenues. Failure to maintain
relationships with these advertising customers may cause significant fluctuations or declines in
our revenues.
  If we fail to continue to anticipate user preferences and provide products and services to attract
and retain users, we may not be able to generate sufficient user traffic to remain competitive.
     10




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The success of our business depends on our ability to maintain and enhance our brand.
 
 Our quarterly revenues and operating results may fluctuate, which makes our results of operations
difficult to predict and may cause our quarterly results of operations to fall short of
expectations.
  
    
    global economic conditions;
 
    
    our ability to maintain and increase user traffic;
 
    
    our ability to attract and retain advertisers;
 
    
    changes in government policies or regulations, or their enforcement; and
 
    
    geopolitical events or natural disasters such as war, threat of war, earthquake or
epidemics.
  We may not be able to manage our expansion effectively.
  Our recent restructuring of our sales department may expose us to various risks.
    11




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We may be subject to administrative actions by PRC regulatory authorities and other liabilities
because of advertisements shown on our website.
    Videos and other content displayed on our website may be found objectionable by PRC regulatory
authorities and may subject us to penalties and other administrative actions.
    12




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We may need to record impairment charges to earnings if our acquisition goodwill or acquired
intangible assets are determined to be impaired, which would adversely affect our results of
operations.
  We may need to write-down the unamortized balance of licensed video copyright to estimated net
realizable value and record the write-down as expenses, which would adversely affect our results
of operations.
  Disruption or failure of our systems could impair our users online video experience and adversely
affect our reputation.
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Undetected programming errors could adversely affect user experience and the market acceptance of
our video programs, which may materially and adversely affect our business and results of
operations.
  Our operations depend on the performance of the Internet infrastructure and telecommunications
networks in China and the third-party service providers. We may fail to establish and maintain
relationships with technology providers.
   14




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We have been and expect we will continue to be exposed to intellectual property infringement and
other claims, including claims based on content posted on our website, which could be
time-consuming and costly to defend and may result in substantial damage awards and/or court
orders that may prevent us from continuing to provide certain of our existing services.
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We may not be able to adequately protect our intellectual property rights, and any failure to
protect our intellectual property rights could adversely affect our revenues and competitive
position.
    Changes in government policies or regulations may have a material and adverse effect on our
business, financial condition, results of operations and cash flows.
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Any lack of requisite permits for any of our online video content may expose us to regulatory
sanctions.
   Our ability to operate effectively could be impaired if we fail to attract and retain our
executive officers.
  We have limited business insurance coverage.
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Regulation and censorship of information disseminated over the Internet in China may adversely
affect our business and subject us to liability for information displayed on or linked to our
websites.
    Our management conducted an evaluation of the effectiveness of our internal control over
financial reporting and concluded that our internal control over financial reporting was not
effective as of December 31, 2010. Our independent registered public accounting firm audited the
effectiveness of our internal control and reported that our internal control over financial
reporting was not effective as of December 31, 2010. If we fail to maintain an effective system
of internal control over financial reporting, we may not be able to accurately report our
financial results or prevent fraud.
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We believe that we were a passive foreign investment company (PFIC) for taxable years 2006,
2007, 2008 and 2009, and although we believe we were not a PFIC for taxable year 2010, we may be a
PFIC for the taxable years ending after 2010, which could result in adverse U.S. federal income
tax consequences to U.S. investors.
 We believe that we were a PFIC for taxable
years 2006, 2007, 2008 and 2009 and we may be a PFIC for taxable years ending after 2010.
  19




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We may be deemed a PRC resident enterprise under the New EIT Law and be subject to PRC taxation on
our worldwide income.
 Enterprise Income Tax Law,
 Dividends we receive from our operating subsidiary located in the PRC may be subject to PRC
withholding tax.
  Dividends payable by us to our foreign investors may be subject to PRC withholding tax; and gain
on the sale of our ADSs or ordinary shares may become subject to taxes under PRC tax laws.
     20




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All participants of our existing equity compensation plans who are PRC citizens are required to
register with the State Administration of Foreign Exchange of the PRC, or SAFE, and the failure to
so comply could subject us and such participants to penalties.
  Risks Related to Our Corporate Structure
 If the PRC government finds that the agreements that establish the structure for operating our
businesses in China do not comply with PRC governmental restrictions on foreign investment in
Internet business, or if these regulations or the interpretation of existing regulations change
in the future, we could be subject to severe penalties or be forced to relinquish our interests
in those operations.
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We rely on contractual arrangements with our consolidated affiliated entities in China and their
shareholders for our operations, which may not be as effective as direct ownership in providing
operational control.
  Any failure by our consolidated affiliated entities or their respective shareholders to perform
their obligations under our contractual arrangements with them may have a material adverse effect
on our business.
    22




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Contractual arrangements with our consolidated affiliated entities may result in adverse tax
consequences to us.
  The shareholders of our consolidated affiliated entities may have potential conflicts of interest
with us, which may materially and adversely affect our business.
  We may rely principally on dividends and other distributions on equity paid by our PRC
subsidiaries to fund any cash and financing requirements we may have. Any limitation on the
ability of our PRC subsidiaries to pay dividends to us could have a material adverse effect on
our ability to conduct our business.
     23




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Restrictions on currency exchange may limit our ability to utilize our revenues effectively.
     We may be unable to collect long-term loans extended to the shareholders of our consolidated
affiliated entities.
  The new PRC Property Rights Law may affect the perfection of the pledge in our equity pledge
agreements with our consolidated affiliated entities and their individual shareholders.
   24




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We may have conflicts of interest with Shanda Interactive. Because of Shanda Interactives
controlling ownership interest in our company, we may not be able to resolve such conflicts on
terms favorable to us.
 .
  
    
    Our board members or executive officers may have conflicts of interest.Mr. Tianqiao
Chen, Ms. Grace Wu and Mr. Danian Chen, who are our directors, currently also serve as
members of the board of directors of Shanda Interactive. Some of our directors also own
 shares and/or options to purchase shares in Shanda Interactive. Shanda Interactive may
continue to grant incentive share compensation to our board members from time to time.
These relationships could create perceived or actual conflicts of interest when these
persons are faced with decisions with potentially different implications for Shanda
Interactive and us.
 
    
    Potential competition with Shanda Interactive.Shanda Interactive may engage in certain
transactions or businesses that directly or indirectly compete with our online video and
audio businesses.
 
    
    Business opportunities. Business opportunities may arise that both we and Shanda
Interactive find attractive, and which would complement our respective businesses. Due to
the controlling interest of Shanda Interactive and its leading market position and brand in
China, we may not be able to pursue these business opportunities effectively if Shanda
Interactive decides to take advantage of such opportunities itself.
 
    
    Developing business relationships with Shanda Interactives competitors.So long as
Shanda Interactive remains our controlling shareholder, we may be limited in our ability to
do business with its competitors, such as other interactive entertainment media companies
in China.
   25




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##### Table of Contents



Risks Related to Doing Business in China
  The Chinese legal system embodies uncertainties which could limit the legal protections available
to you and could also adversely affect our ability to operate our business.
  Any occurrence of pandemic avian influenza or other widespread public health problem, or any
recurrence of severe acute respiratory syndrome, or SARS, could adversely affect our business and
results of operations.
   
    
    quarantines or closures of some of our offices which would severely disrupt our
operations,
 
    
    the sickness or death of our key officers and employees, and
 
    
    a general slowdown in the Chinese economy caused by any public health problems.
  PRC regulations relating to the establishment of offshore special purpose vehicles, or SPVs, by
PRC residents may subject our PRC resident beneficial owners or our PRC subsidiaries to liability
or penalties, limit our ability to inject capital into our PRC subsidiaries, limit our PRC
subsidiaries ability to increase their registered capital or distribute profits to us, or may
otherwise adversely affect us.
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The failure to comply with the regulations regarding the use of the foreign currency registered
capital may subject us to severe monetary or other penalties.
  We may incur substantial increases in labor cost due to the promulgation of the new labor contract
law.
    27




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##### Table of Contents



Our failure to make adequate contributions to various employee benefit plans as required by PRC
regulations may subject us to penalties.
   A slowdown of the Chinese economy may adversely affect our business, results of operations and
financial condition.
  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;
  28




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##### Table of Contents




    
    control of foreign exchange;
 
    
    methods of allocating resources; and
 
    
    balance of payments position.
  Governmental control of currency conversion may affect the value of our ordinary shares and ADSs.
  Inflation in China and measures to contain inflation could negatively affect our profitability and
growth.
  Our shareholders may face difficulties in effecting service of process, enforcing foreign
judgments or bringing original actions in China based on United States or other foreign laws
against us or our management.
  Risks Related to Our ADSs
 The price of our ADSs has been volatile historically and may continue to be volatile, which may
make it difficult for holders to resell the ADSs when desired or at attractive prices.
   29




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##### Table of Contents




    
    announcements of technological or competitive developments;
 
    
    regulatory developments in our target markets affecting us, our customers or our
competitors;
 
    
    announcements regarding intellectual property rights litigation;
 
    
    actual or anticipated fluctuations in our quarterly operating results;
 
    
    changes in financial estimates by securities research analysts;
 
    
    changes in the economic performance or market valuations of our products;
 
    
    addition or departure of our executive officers and key research personnel; and
 
    
    sales or perceived sales of additional ordinary shares or ADSs.
  Future sales or issuances, or perceived future sales or issuances, of substantial amounts of our
ordinary shares or ADSs could adversely affect the price of our ADSs.
  As a foreign private issuer with ADSs listed on the NASDAQ Global Market, we follow certain home
country corporate governance practices instead of certain NASDAQ requirements.
   30




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
    
    our board of directors be comprised of a majority of independent directors;
 
    
    our directors be selected or nominated by a majority of the independent directors or a
nomination committee comprised solely of independent directors;
 
    
    our board adopt a formal written charter or board resolution addressing the director
nominations process and such related matters as may be required under the U.S. federal
securities laws;
 
    
    the compensation of our executive officers be determined or recommended by a majority of
the independent directors or a compensation committee comprised solely of independent
directors; and
 
    
    issuances of securities in connection with equity-based compensation of officers,
directors, employees or consultants be approved by shareholders.
 As we are a Cayman Islands company, our shareholders may face difficulties in protecting their
interests, and our ability to protect our rights through the U.S. federal courts may be limited.
   in personam
    31




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Our shareholders may have difficulties in enforcing judgments obtained against us.
  Anti-takeover provisions in our organizational documents may discourage our acquisition by a third
party, which could limit your opportunity to sell your shares at a premium.
   The voting rights of holders of ADSs are limited by the terms of the deposit agreement.
   32




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We may be required to withhold PRC income tax on the dividends we pay you (if any), and any gain
you realize on the transfer of our ordinary shares and/or ADSs may also be subject to PRC tax.
  You may be subject to limitations on transfer of your ADSs.
  Your right as a holder of ADSs to participate in any future rights offerings may be limited, which
may cause dilution to your holdings.
  
 Item 4. Information on the Company
 A. History and Development of the Company
    33




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##### Table of Contents



B. Business Overview
 Introduction
  
  34




---



##### Table of Contents



Our Video Platform
 Our Websites
    Mobile Platform
   35




---



##### Table of Contents



Our Content
  Premium Licensed Content
    In-house Developed Content
 th Crazy Soccer Fans Modern Girls Love Finally Girls Love
Makeup
  36




---



##### Table of Contents



UGC (User-generated Content)
  Ku6 VIP
 2012 Harry Porter
 Our Online Audio Business
  Our Users
   37




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##### Table of Contents



Advertising Services and Customers
  Our Advertising Services
   
    
    Innovative Targeting. Some targeting solutions are unique to the online video platform
and cannot be transplanted into other media platforms. We are able to track and monitor an
advertisers campaign on a real-time basis and can make adjustments to enhance its efficacy
within parameters specified by the advertiser upfront. Our targeting strategies enable
advertisers to reach targeted users based on any or a combination of standards, including
the demographic information about the user, the nature of the videos content, the
geographic location of the user, the time of day at which a video is being watched, or the
keywords associated with the video. Our video channels also help segregate videos based on
users interested content, which allows us to deliver advertisements tailored to the
viewers of different channels; and
 
    
    Product Placements. As an online video provider with a permit for radio and television
program production and operation, we are able to produce web-based content, such as web
serial dramas, interviews and variety shows, with embedded product placements. If a
programs storyline is consistent with a brands or products marketing initiatives, a
product placement can have strong branding effects on viewers.
    38




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Our Advertising Customers
   Advertising Sales
    Marketing and Brand Promotion
  
    
    Direct Advertising. We engage in direct advertising in print, radio and TV media to
market and promote our online video products. We believe that direct advertising is one of
the most effective ways to market and promote our services to Internet users.
 
    
    Online Advertising.We engage in online advertising on other websites with user bases
similar to our own or likely to watch online videos.
 
    
    Sales Co-promotion.We develop integrated sales campaigns with traditional media
companies and multinational corporations. For example, in March 2010, we co-sponsored,
along with Shanda Interactive and five other companies, the Go Campus Angels! beauty
contest which sought to find the most beautiful, talented and energetic college students in
China.
 
    
    Promotional Events.We organize and run a number of online promotional events which we
believe help create brand awareness by associating the Ku6 brand with well-known and
respected organizations and events in China.
   39




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##### Table of Contents



Technology and Infrastructure
  Architecture
  CDN Technology
  P2P Technology
 Advertising Management Systems
  Content Monitoring and Copyright Protection
   40




---



##### Table of Contents



Intellectual Property
  Competition
      41




---



##### Table of Contents



Seasonality
  Government Regulation
  Regulations on Value-Added Telecommunications Services
     42




---



##### Table of Contents



Regulations on Internet Content Services
  
    
    opposes the fundamental principles stated in the PRC constitution;
 
    
    compromises national security, divulges state secrets, subverts state power or damages
national unity;
 
    
    harms the dignity or interests of the state;
 
    
    incites ethnic hatred or racial discrimination or damages inter-ethnic unity;
 
    
    undermines the PRCs religious policy or propagates heretical teachings or feudal
superstitions;
 
    
    disseminates rumors, disturbs social order or disrupts social stability;
 
    
    disseminates obscenity or pornography, encourages gambling, violence, murder or fear or
incites the commission of a crime;
 
    
    insults or slanders a third party or infringes upon the lawful rights and interests of a
third party; or
 
    
    is otherwise prohibited by law or administrative regulations.
  Restrictions on Foreign Ownership in Value-Added Telecommunications Services
    43




---



##### Table of Contents



Regulations on Broadcasting Audio/Video Programs through the Internet
      Regulations on Internet News Publication
    44




---



##### Table of Contents



Regulations for Internet Publication
    Regulations on Internet Medical and Health Information Services
  Regulations on Advertisements
    45




---



##### Table of Contents



Regulations on foreign ownership in advertising business
  
    
    The Foreign Investment Industrial Guidance Catalog;
 
    
    The Administrative Regulations on Foreign-invested Advertising Enterprises; and
 
    
    The Circular Regarding Investment in the Advertising Industry by Foreign Investors
through Equity Acquisition.
   Regulations on Internet Culture Activities
   46




---



##### Table of Contents



Regulations on Producing Audio/Video Programs
  Regulations on Software Products
   Regulations on Intellectual Property Rights
  Patent
  47




---



##### Table of Contents



Copyright
      48




---



##### Table of Contents



Notice of 2010 Campaign to Crack Down on Internet Infringement
and Piracy
   Trademark
  49




---



##### Table of Contents



Domain Name
 Regulations on Information Security
      Regulations on Internet Privacy
   50




---



##### Table of Contents



Foreign Exchange Controls
  Dividend Distribution
           Regulations on Employee Stock Options Plan
    51




---



##### Table of Contents



Labor Laws and Social Insurance
    Regulations on Concentration in Merger and Acquisition Transactions
   52




---



##### Table of Contents



C. Organizational Structure
         53




---



##### Table of Contents



D. Property, Plant and Equipment
  
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
   54




---



##### Table of Contents



A. OPERATING RESULTS
 Overview
      Discontinued Operations
     55




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##### Table of Contents



Acquisition of Online Audio Business from Shanda Interactive
   Factors Affecting Our Results of Operations
  
    
    maintain and expand our user base;
 
    
    obtain and produce popular video content cost-effectively;
 
    
    procure Internet bandwidth cost-effectively;
 
    
    provide effective advertising services;
 
    
    control sales and marketing expenses; and
 
    
    maintain leading brand and market position.
 Description of Certain Statement of Operations Items
 Net Revenues
   56




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##### Table of Contents




    
    the number of advertising customers;
 
    
    the number of users visiting our website and the amount of time they spend on our
website;
 
    
    the list prices of our advertising services and the discount we offer to customers;
 
    
    the commissions earned by third-party advertising agencies; and
 
    
    the perceived effectiveness of online video advertising as compared to advertising in
more traditional media, particularly television.
   Cost of Revenues
  Year ended December 31,2008
    
    
    2009
    
    
    2010(in thousands of U.S. dollars)Internet bandwidth costs
    
    $
    
    
    
    $
    534
    
    
    $
    10,279Amortization of purchased video copyright cost
    
    
    
    
    
    
    
    
    
    
    8,012Impairment write-down of purchased video copyright cost
    
    
    
    
    
    
    
    
    
    
    7,740Payroll cost
    
    
    
    
    
    
    
    
    
    
    6,167In-house developed content costs
    
    
    
    
    
    
    
    
    
    
    1,596Depreciation of servers and other equipments
    
    
    
    
    
    
    
    
    
    
    2,503Other costs(1)
    
    
    
    
    
    
    23
    
    
    
    4,162Total costs
    
    $
    
    
    
    $
    557
    
    
    $
    40,459
 
 (1)
    
    Include primarily advertisement production costs and outside service fees and user-generated
content costs. Internet bandwidth costs
  57




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##### Table of Contents



Amortization and write-down of licensed video copyrights.
 Payroll costs.
 In-house developed content costs.
 Depreciation of servers and other equipment.
 Operating Expenses
  Year Ended December 31,2008
    
    
    2009
    
    
    2010(in thousands of U.S. dollars)Operating ExpensesProduct development
    
    $
    105
    
    
    $
    
    
    
    $
    Selling and marketing
    
    
    623
    
    
    
    665
    
    
    
    16,196General and administrative
    
    
    1,673
    
    
    
    6,465
    
    
    
    13,507Total operating expenses
    
    $
    2,401
    
    
    $
    7,130
    
    
    $
    29,703
 Product Development Expenses.
  58




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Selling and Marketing Expenses. .
 General and Administrative Expenses.
 Critical Accounting Policies
  Business Combinations and Non-controlling Interests
  Business combinations
   59




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##### Table of Contents



Non-controlling Interests in Consolidated Financial
Statements-an amendment of ARB No.51 Consolidation Classification and Measurement of Redeemable Securities
 Revenue Recognition
 Revenue Recognition
   Multiple Element Arrangements
   Accounting for Consideration Given by a Vendor to a
Customer
 Allowances for Doubtful Accounts
   60




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##### Table of Contents



Video Production and Acquisition Costs
    Licensed Video Copyrights
   Goodwill and Intangible Assets Impairment
   61




---



##### Table of Contents



Business Tax and Related Surcharges
  Share-based Compensation
 Stock Compensation
  62




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##### Table of Contents



Income Taxes and Valuation allowances
  Income Taxes
 Accounting for
Uncertainty in Income Taxesan interpretation of FASB Statement No. 109
 Contingency
  Going Concern
   63




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##### Table of Contents



Results of Operations
   Year Ended December 31, 2010 versus Year Ended December 31, 2009
 Net Revenues.
 Cost of Revenues.
 Gross Loss.
 Operating Expenses
 
    
    Selling and Marketing Expenses. Our selling and marketing expenses increased to $16.2
million in 2010 from $0.7 million in 2009. The increase of the selling and marketing
expenses were the result of Ku6s higher advertising and marketing expenses, the salary and
benefits of sales and marketing staff and the sales commission to the sales team as well as
travelling and entertainment expenses.
 
    
    General and Administrative Expenses. Our general and administrative expenses increased
to $13.5 million in 2010 from $6.4 million in 2009. The increase was mainly caused by the
increase of $1.5 million in share-based compensation expenses including one-time
compensation expenses of $1.3 million relating to incremental value of the ordinary shares
issued by us to replace the options issued by Ku6 before its acquisition by us, $1.6
million increase in bad debt provision due to the expansion of our advertising business as
the result of our acquisition of Ku6, $1.7 million increase in the amortization of
intangible assets arising from the acquisition of Ku6, $1.6 million business tax for the
intercompany transactions, $1.0 million increase in payroll expenses and $1.1 million
increase in rental fees, partially offset by the consulting and legal expenses of $2.5
million incurred in 2009 for the Shanda Interactive tender offer.
  64




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##### Table of Contents




    
    Operating loss from Continuing Operations.As a result of the foregoing, operating loss
from continuing operations was $53.6 million for 2010 compared to $6.6 million for 2009.
 Loss from Continuing Operations attributable to Ku6 Media Co., Ltd.
 Income (loss) from Discontinued Operations attributable to Ku6 Media Co., Ltd.
 Year Ended December 31, 2009 versus Year Ended December 31, 2008
 Net Revenues.
 Cost of Revenues.
 Gross Profit.
 Operating Expenses
 
    
    General and Administrative Expenses. Our general and administrative expenses increased
to $6.5 million in 2009 from $1.7 million in 2008. Our general and administrative expenses
in 2009 included one-time expenses such as (i) the consulting and legal expenses $2.5
million incurred in connection with the Shanda Interactive tender offer through which
Shanda Interactive acquired 51% of our outstanding shares and (ii) severance pay of $0.4
million to our former CEO and CFO.
 
    
    Selling and Marketing Expenses. Our selling and marketing expenses increased to $0.7
million in 2009 from $0.6 million in 2008. Selling and marketing expenses in 2009 included
expenses associated with our online audio business for the last four months of 2009.
 
    
    Product Development Expenses.Our product development expenses were nil in 2009 and $0.1
million in 2008. The small amount of expenses in 2008 represented share-based compensation
to our product development staff.
 Operating Loss from Continuing Operations.
 Foreign Exchange Loss.
  65




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Loss from Continuing Operations attributable to Ku6 Media Co., Ltd. .
 Loss from Discontinued Operations attributable to Ku6 Media Co., Ltd.
 Unaudited Consolidated Pro Forma Statements of Operations
   For the Year Ended December 31, 2009ShanghaiKu6 Media Co.,
    
    
    Ku6 Holding
    
    
    Yisheng Network
    
    
    Pro Forma
    
    
    Pro FormaLtd.
    
    
    Ltd.
    
    
    (2)
    
    
    Adjustments (1)
    
    
    Consolidation(in thousands of U.S. dollars, except for share and per share data)Total net revenues
    
    $
    1,037
    
    
    $
    6,225
    
    
    $
    985
    
    
    $
    
    
    
    $
    8,247Total cost of revenues
    
    
    (557
    )
    
    
    (10,018
    )
    
    
    (428
    )
    
    
    
    
    
    
    (11,003
    )Gross profit (loss)
    
    
    480
    
    
    
    (3,793
    )
    
    
    557
    
    
    
    
    
    
    
    (2,756
    )Total operating expenses
    
    
    (7,130
    )
    
    
    (6,374
    )
    
    
    (1,203
    )
    
    
    (1,962
    )
    
    
    (16,669
    )Operating loss from continuing operations
    
    
    (6,650
    )
    
    
    (10,167
    )
    
    
    (646
    )
    
    
    (1,962
    )
    
    
    (19,425
    )Interest income
    
    
    356
    
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    364Interest expense
    
    
    
    
    
    
    (40
    )
    
    
    (1
    )
    
    
    
    
    
    
    (41
    )Other income, net
    
    
    2
    
    
    
    2
    
    
    
    39
    
    
    
    
    
    
    
    43Foreigin exchange loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fair value changes in warrant liabilities
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    186Loss before income tax benefit from
continuing operations
    
    
    (6,292
    )
    
    
    (10,011
    )
    
    
    (608
    )
    
    
    (1,962
    )
    
    
    (18,873
    )Income tax benefit
    
    
    14
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14Loss from continuing operations, net of tax
    
    
    (6,278
    )
    
    
    (10,011
    )
    
    
    (608
    )
    
    
    (1,962
    )
    
    
    (18,859
    )Discontinued operations:Loss from operations of discontinued
operations, net of tax
    
    
    (21,778
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,778
    )Gain from disposal of discontinued operations
    
    
    222
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    222Loss from discontinued operations, net of tax
    
    
    (21,556
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21,556
    )Loss from continuing and discontinued
operations, net of tax
    
    
    (27,834
    )
    
    
    (10,011
    )
    
    
    (608
    )
    
    
    (1,962
    )
    
    
    (40,415
    )Less: Net loss attributable to the
non-controlling interests from continuing
operations
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256Less: Net loss attributable to the
non-controlling interests and redeemable
non-controlling interests from discontinued
operations
    
    
    4,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,183Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (23,395
    )
    
    
    (10,011
    )
    
    
    (608
    )
    
    
    (1,962
    )
    
    
    (35,976
    )Loss from continuing operations, net of tax,
attributable to Ku6 Media Co., Ltd.
    
    
    (6,022
    )
    
    
    (10,011
    )
    
    
    (608
    )
    
    
    (1,962
    )
    
    
    (18,603
    )Loss from discontinued operations, net of
tax, attributable to Ku6 Media Co., Ltd.
    
    
    (17,373
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17,373
    )Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (23,395
    )
    
    
    (10,011
    )
    
    
    (608
    )
    
    
    (1,962
    )
    
    
    (35,976
    )
 
 (1)
    
    Represents the incremental amortization expense for the intangible assets resulting from the
Ku6 and Yisheng acquisition.(2)
    
    The financial information reflects the operation results for the period from January 1, 2009 to
August 31, 2009 since the operations from September 1, 2009 have already been included in the
consolidate results of Ku6 Media Co., Ltd.  66




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For the Year Ended December 31, 2010Pro Forma
    
    
    Pro FormaKu6 Media Co., Ltd.
    
    
    Ku6 Holding Ltd.(2)
    
    
    Adjustments(1)
    
    
    ConsolidationTotal net revenues
    
    $
    16,556
    
    
    $
    232
    
    
    $
    
    
    
    $
    16,788Total cost of revenues
    
    
    (40,459
    )
    
    
    (3,956
    )
    
    
    
    
    
    
    (44,415
    )Gross loss
    
    
    (23,903
    )
    
    
    (3,724
    )
    
    
    
    
    
    
    (27,627
    )Total operating expenses
    
    
    (29,703
    )
    
    
    (641
    )
    
    
    (154
    )
    
    
    (30,498
    )Operating loss from continuing operations
    
    
    (53,606
    )
    
    
    (4,365
    )
    
    
    (154
    )
    
    
    (58,125
    )Interest income
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    57Interest expense
    
    
    (31
    )
    
    
    
    
    
    
    
    
    
    
    (31
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Foreigin exchange loss
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Fair value changes in warrant liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss before income tax benefit from
continuing operations
    
    
    (53,580
    )
    
    
    (4,369
    )
    
    
    (154
    )
    
    
    (58,103
    )Income tax benefit
    
    
    41
    
    
    
    
    
    
    
    
    
    
    
    41Loss from continuing operations, net of tax
    
    
    (53,539
    )
    
    
    (4,369
    )
    
    
    (154
    )
    
    
    (58,062
    )Discontinued operations:Loss from operations of discontinued
operations, net of tax
    
    
    (3,382
    )
    
    
    
    
    
    
    
    
    
    
    (3,382
    )Gain from disposal of discontinued
operations
    
    
    4,486
    
    
    
    
    
    
    
    
    
    
    
    4,486Loss from discontinued operations, net of
tax
    
    
    1,104
    
    
    
    
    
    
    
    
    
    
    
    1,104Loss from continuing and discontinued
operations, net of tax
    
    
    (52,435
    )
    
    
    (4,369
    )
    
    
    (154
    )
    
    
    (58,062
    )Less: Net loss attributable to the
non-controlling interests from continuing
operations
    
    
    681
    
    
    
    
    
    
    
    
    
    
    
    681Less: Net loss attributable to the
non-controlling interests and redeemable
non-controlling interests from discontinued
operations
    
    
    244
    
    
    
    
    
    
    
    
    
    
    
    244Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (51,510
    )
    
    
    (4,369
    )
    
    
    (154
    )
    
    
    (56,033
    )Loss from continuing operations, net of
tax, attributable to Ku6 Media Co., Ltd.
    
    
    (52,858
    )
    
    
    (4,369
    )
    
    
    (154
    )
    
    
    (57,381
    )Loss from discontinued operations, net of
tax, attributable to Ku6 Media Co., Ltd.
    
    
    1,348
    
    
    
    
    
    
    
    
    
    
    
    1,348Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (51,510
    )
    
    
    (4,369
    )
    
    
    (154
    )
    
    
    (56,033
    )
 
 (1)
    
    Represents the incremental amortization expense for the intangible assets resulting from the
Ku6 acquisition.(2)
    
    The financial information reflects the operation results for the month ended January 31,
2010, as the Ku6 acquisition was completed on January 18, 2010.  67




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Year Ended December 31, 2010 (pro forma) versus Year Ended December 31, 2009 (pro forma)
 Net Revenues.
 Cost of Revenues.
 Year ended December 31, 2009
    
    
    Year ended December 31, 2010(in thousands)
    
    
    (in thousands)Pro forma
    
    
    
    
    
    
    
    
    
    
    Pro formaActual
    
    
    adjustments
    
    
    Pro forma
    
    
    Actual
    
    
    adjustments
    
    
    Pro formaInternet bandwidth costs
    
    $
    534
    
    
    $
    4,137
    
    
    $
    4,671
    
    
    $
    10,279
    
    
    $
    497
    
    
    $
    10,776Amortization and impairment
write-down of purchased video
copyright cost
    
    
    
    
    
    
    1,747
    
    
    
    1,747
    
    
    
    15,619
    
    
    
    2,852
    
    
    
    18,471Payroll cost
    
    
    
    
    
    
    2,506
    
    
    
    2,506
    
    
    
    6,167
    
    
    
    350
    
    
    
    6,517In-house developed content costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,596
    
    
    
    
    
    
    
    1,596Depreciation of servers and
other equipments
    
    
    
    
    
    
    1,278
    
    
    
    1,278
    
    
    
    2,503
    
    
    
    109
    
    
    
    2,612Other costs(1)
    
    
    23
    
    
    
    778
    
    
    
    801
    
    
    
    4,295
    
    
    
    148
    
    
    
    4,443Total costs
    
    $
    557
    
    
    $
    10,446
    
    
    $
    11,003
    
    
    $
    40,459
    
    
    $
    3,956
    
    
    $
    44,415
 
 (1)
    
    Includes primarily advertisement production costs and outside service fees and user-generated
content costs.  Gross Loss.
  68




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##### Table of Contents



Operating Expenses
 
    
    Selling and Marketing Expenses. Our pro forma selling and marketing expenses increased
to $16.8 million in 2010 from $5.0 million in 2009. The increase in pro forma selling and
marketing expenses was the result of higher sales commissions to our sales team tied to
sales performance and more marketing promotion activities in 2010 to enhance the
reputation of our Ku6.com website.
 
    
    General and Administrative Expenses. Our pro forma general and administrative expenses
increased to $13.7 million in 2010 from $11.6 million in 2009 mainly due to the increase
of $1.4 million in share-based compensation expenses including one-time compensation
expenses of $1.3 million relating to the fair value of ordinary shares issued by us to
replace the options issued by Ku6 over the acquisition date fair value of those options
attributable to the pre-combination portion in connection with the acquisition of Ku6.
Also the increase of bad debt expenses of $1.6 million due to expansion of our advertising
business, business tax of $1.7 million for the intercomany transactions within the group
and rental and management expenses of $0.6 million due to relocation and expansion of our
office building, was partially offset by the decrease of the consulting and legal expenses
for the Shanda tender offer of $2.5 million.
 Operating Loss from Continuing Operations.
 Loss from Continuing Operations attributable to Ku6 Media Co., Ltd.
 Income (Loss) from Discontinued Operations attributable to Ku6 Meida Co., Ltd.
 B. LIQUIDITY AND CAPITAL RESOURCES
 Cash Flows and Working Capital
  Year Ended December 31,2008
    
    
    2009
    
    
    2010(in thousands of U.S. dollars)Net cash used in operating activities
    
    $
    (5,553
    )
    
    $
    (2,092
    )
    
    $
    (29,570
    )Net cash (used in) provided by investing activities
    
    
    (2,265
    )
    
    
    (8,931
    )
    
    
    2,168Net cash provided by financing activities
    
    
    2
    
    
    
    1,448
    
    
    
    4,616Effect of exchange rate changes on cash and cash equivalents
    
    
    1,310
    
    
    
    (154
    )
    
    
    337Net (decrease) in cash and cash equivalents
    
    $
    (6,506
    )
    
    $
    (9,729
    )
    
    $
    (22,449
    )
 Operating Activities.
  69




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##### Table of Contents



Investing Activities.
    70




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##### Table of Contents



Financing Activities.
    C. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES
   D. TREND INFORMATION
  E. OFF-BALANCE SHEET ARRANGEMENTS
   71




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##### Table of Contents



F. CONTRACTUAL OBLIGATIONS AND COMMERCIAL COMMITEMENTS
  Payments Due by PeriodTotal
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years(in thousands of U.S. dollars)Operating lease commitments
    
    $
    9,775
    
    
    $
    7,530
    
    
    $
    2,201
    
    
    $
    44Other contractual commitments (1)
    
    
    3,218
    
    
    
    3,218
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    12,993
    
    
    $
    10,748
    
    
    $
    2,201
    
    
    $
    44
 
 (1)
    
    Represents commitments in respect of purchased video copyrights.   Holding Company Structure
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
  Foreign Exchange Risk
   72




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##### Table of Contents



Income Tax
 Cayman Islands Tax
  PRC
    Inflation
   73




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##### Table of Contents



Recently Issued Accounting Standards
     74




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 A. Directors and Senior Management
  Name
    
    Age
    
    PositionBruno Wu (2) (3)
    
    
    44
    
    
    Independent Director and Chairman of the BoardTianqiao Chen(1) (2)
    
    
    37
    
    
    DirectorDanian Chen(1)
    
    
    32
    
    
    DirectorGrace Wu (1) (2)
    
    
    40
    
    
    DirectorHaifa Zhu
    
    
    38
    
    
    Director and Acting Chief Executive OfficerHaibin Qu
    
    
    36
    
    
    DirectorShanyou Li
    
    
    38
    
    
    DirectorTongyu Zhou(3)
    
    
    42
    
    
    Independent DirectorWenwen Niu(3)
    
    
    44
    
    
    Independent DirectorTony Shen
    
    
    43
    
    
    Chief Financial OfficerFeng Chen
    
    
    38
    
    
    Chief Editor and Vice PresidentLiang Zhao
    
    
    40
    
    
    Chief Technology Officer
 
 (1)
    
    Member of the compensation and leadership development committee(2)
    
    Member of the corporate development and finance committee(3)
    
    Member of the audit committee Biographical Information
 Bruno Wu
 Tianqiao Chen.
 Danian Chen.
 Grace Wu.
  75




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##### Table of Contents



Haifa Zhu.
 Haibin Qu.
 Shanyou Li.
 Tongyu Zhou.
 Wenwen Niu.
 Tony Shen
 Feng Chen. Southern Metropolis Daily New Beijing Daily
 Liang Zhao.
  76




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##### Table of Contents



Employment Agreements
   B. Compensation
 Compensation of Directors and Executive Officers
  Summary of Stock Plans
 2010 Equity Compensation Plan
  Plan Administration
 Types of Awards
 
    
    Options. Options provide for the right to purchase our ordinary shares at a specified
exercise price subject to vesting.
 
    
    Share Appreciation Rights. A share appreciation right is a right to receive a payment,
in cash or ordinary shares, equal to the excess of the fair market value of a specified
number of our ordinary shares on the date the share appreciation right is exercised over
the base price as set forth in the award document. The maximum term of a share appreciation
right is six years.
 
    
    Restricted Shares.A restricted share award is the sale of ordinary shares at a price
determined by our board or the committee administering our 2010 Plan or a grant of our
ordinary shares, in each case subject to restrictions on transfer and vesting terms.
 
    
    Restricted Share Units. Restricted share units represent the right to receive our
ordinary shares, subject to vesting. Restricted share units will be settled upon vesting,
subject to the terms of the award agreement, either by our delivery to the holder of the
number of ordinary shares that equals the number of the vested restricted share units or by
a cash payment to the holder that equals the then fair market value of the number of
underlying ordinary shares.
  77




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##### Table of Contents



Award Document
 Termination of the Equity Compensation Plan provided however
 C. Board Practices
         78




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##### Table of Contents



Duties of Directors
   
    
    convening shareholders annual general meetings and reporting its work to shareholders
at such meetings;
 
    
    declaring dividends and distributions;
 
    
    appointing officers and determining the term of office of officers;
 
    
    exercising the borrowing powers of our company and mortgaging the property of our
company; and
 
    
    approving the transfer of shares of our company, including the registering of such
 shares in our share register.
 Interested Transactions
 provided
 D. Employees
  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.
  79




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##### Table of Contents



Number of SharesBeneficially OwnedName
    
    Number
    
    
    Percentage5% and above ShareholdersShanda Interactive Entertainment Limited(1)
    
    
    3,334,694,582
    
    
    
    66.43
    %Granite Global Ventures(2)
    
    
    202,047,600
    
    
    
    5.80
    %Executive Officers and DirectorsShanyou Li(3)
    
    
    274,077,076
    
    
    
    7.87
    %Bruno Wu
    
    
    *
    
    
    
    *Tianqiao Chen
    
    
    
    
    
    
    Danian Chen
    
    
    *
    
    
    
    *Grace Wu
    
    
    *
    
    
    
    *Haifa Zhu
    
    
    *
    
    
    
    *Haibin Qu
    
    
    *
    
    
    
    *Tongyu Zhou
    
    
    *
    
    
    
    *Wenwen Niu
    
    
    *
    
    
    
    *Tony Shen
    
    
    *
    
    
    
    *Feng Chen
    
    
    *
    
    
    
    *Liang Zhao
    
    
    *
    
    
    
    *All current directors and executive officers as a group (13 persons)
    
    
    276,352,576
    
    
    
    7.94
    %
 
 *
    
    Upon exercise of all options, this person would beneficially own less than 1% of our
outstanding ordinary shares.(1)
    
    Includes (i) 1,380,848,429 ordinary shares, including ordinary shares represented by ADSs,
held by Shanda Media Group Limited,a wholly owned subsidiary of Shanda Interactive, (ii)
415,384,615 ordinary shares held by Shanda Interactive, and (iii) 1,538,461,538 ordinary
shares issuable to Shanda Media Group Limited, pursuant to the Share Purchase Agreement dated
as of April 1, 2011 by and between us and Shanda Media Group Limited.(2)
    
    Granite Global Ventures is an investment advisor.(3)
    
    Includes (i) 257,106,176 ordinary shares held by Kumelia Holdings Limited, (ii) 8,999,200
ordinary shares held by Shanyou Li, and (iii) 79,717 American Depositary Shares held by
Shanyou Li, each representing 100 ordinary shares. Kumelia Holdings Limited is a British
Virgin Islands company, with Li Shanyou holding approximately 88.27% of its equity interest
and the other three individuals holding the remaining 11.73% of its equity interest. In
addition, each of such three individual shareholders of Kumelia Holdings Limited has granted a
power of attorney to the board of directors of Kumelia Holdings Limited to exercise the voting
rights with respect to shares held by such individual shareholder. Shanyou Li is currently
serving as the sole director on the
board of Kumelia Holdings Limited. Therefore, Shanyou Li may be deemed to share the power to
vote and dispose or direct the disposition of 257,106,176 ordinary shares held by Kumelia
Holdings Limited.    80




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders
  B. Related Party Transactions
 Contractual Arrangements with our VIEs and their respective shareholders
   Loan Agreements:
 Exclusive Business Cooperation Agreement:
 Exclusive Business Cooperation Agreement:
 Exclusive Consulting and Service Agreement:
 Business Operation Agreement:
  81




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##### Table of Contents



Exclusive Consulting and Service Agreement:
 Business Operation Agreement:
 Equity Interest Pledge Agreements:
 Power of Attorney:
 Exclusive Call Option Agreements:
 Equity Disposition Agreement:
 Equity Disposition Agreement
  82




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##### Table of Contents



Exclusive Intellectual Property Option Agreement
 Our Asset Transactions with Shanda Interactive
  Share Purchase Agreement and Convertible Bond Purchase Agreement with Shanda Media
   Proposed Acquisition of Pipi
   83




---



##### Table of Contents



Other Related Party Transactions
        84




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##### Table of Contents



Item 8. Financial Information
 A. Consolidated Statements and Other Financial Information
  Legal Proceedings
   Dividend Policy
  B. Significant Changes
  
 Item 9. The Offer and Listing
    85




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##### Table of Contents



Sales PriceHigh
    
    
    LowAnnual highs and lows2006
    
    $
    9.71
    
    
    $
    4.702007
    
    $
    6.53
    
    
    $
    3.052008
    
    $
    4.21
    
    
    $
    1.082009
    
    $
    7.16
    
    
    $
    0.932010
    
    $
    8.40
    
    
    $
    2.22Quarterly highs and lowsFirst Quarter 2009
    
    $
    4.50
    
    
    $
    0.93Second Quarter 2009
    
    $
    4.00
    
    
    $
    0.95Third Quarter 2009
    
    $
    3.95
    
    
    $
    3.25Fourth Quarter 2009
    
    $
    7.16
    
    
    $
    3.85First Quarter 2010
    
    $
    4.21
    
    
    $
    2.22Second Quarter 2010
    
    $
    3.84
    
    
    $
    2.45Third Quarter 2010
    
    $
    5.19
    
    
    $
    2.36Fourth Quarter 2010
    
    $
    8.40
    
    
    $
    4.14First Quarter 2011
    
    $
    5.25
    
    
    $
    2.59Monthly highs and lowsJanuary 2011
    
    $
    5.25
    
    
    $
    4.31February 2011
    
    $
    4.70
    
    
    $
    3.55March 2011
    
    $
    3.97
    
    
    $
    2.59April 2011
    
    $
    8.12
    
    
    $
    3.75May 2011
    
    $
    7.98
    
    
    $
    3.47June 2011 (through June 24, 2011)
    
    $
    4.08
    
    
    $
    2.83
 
 Item 10. Additional Information
 A. Share Capital
  B. Memorandum and Articles of Association
  General
   86




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##### Table of Contents



Directors
 Interested Transactions. provided, however,
 Remuneration and Borrowing.
 Qualifications.
 Rights, Preferences and Restrictions of our Ordinary Shares
 General.
 Dividends.
 Voting Rights.
  Liquidation.
  87




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##### Table of Contents



Calls on our Ordinary Shares and Forfeiture of our Ordinary Shares.
 Redemption and Repurchase of our Ordinary Shares.
  Shares with Preferred Rights
  Variations of Rights of Shares
   88




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##### Table of Contents



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)
    
    subdivide our existing shares, or any of them, into shares of smaller amount than is
fixed by our amended and restated memorandum of association, subject nevertheless to the
provisions of Section 13 of the Cayman Companies Law; or
 (c)
    
    cancel any shares which, at the date of the passing of the resolution, have not been
taken or agreed to be taken by any person.
  Differences in Corporate Law
   89




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##### Table of Contents



Scheme of Arrangements and Compulsory Acquisition.
   Indemnification
 C. Material Contracts
  D. Exchange Controls
  
    
    Notice on Issues Relating to the Administration of Foreign Exchange in Fundraising and
Return Investment Activities of Domestic Residents Conducted via Offshore Special Purpose
Companies;
 
    
    Foreign Currency Administration Rules (1996), as amended, or the Exchange Rules;
 
    
    Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or
the Administration Rules; and
 
    
    the Circular on the Relevant Operating Issues Concerning the Improvement of the
Administration of the Payment and Settlement of Foreign Currency Capital of Foreign
Invested Enterprises, or SAFE Circular 142.
  90




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##### Table of Contents



91




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##### Table of Contents



E. Taxation
  Cayman Islands Taxation and Exchange Control
  (i)
    
    that no law which is enacted in the Cayman Islands imposing any tax to be levied on
profits, income, gains or appreciations shall apply to our company or its operations; and
 (ii)
    
    in addition, that no tax be levied on profits, income gains or appreciations or which
is in the nature of estate duty or inheritance tax shall be payable by our company:
 (a)
    
    on or in respect of the shares, debentures or other obligations of our company;
or
 (b)
    
    by way of withholding, in whole or in part, of any relevant payment as defined
in Section 6(3) of the Tax Concessions Law (1999 Revision).
   Peoples Republic of China Taxation
   92




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##### Table of Contents



United States Federal Income Taxation
    This summary is not a comprehensive description of all of the U.S. federal tax consequences
that may be relevant with respect to the ownership and disposition of ordinary shares or ADSs. We
urge you to consult your own tax advisor regarding your particular circumstances and the U.S.
federal income and estate tax consequences to you of owning and disposing of ordinary shares or
ADSs, as well as any tax consequences arising under the laws of any state, local, foreign or other
tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.
  
    
    a citizen or resident of the United States;
 
    
    a corporation, or other entity taxable as a corporation, created or organized in or
under the laws of the United States, any state therein or the District of Columbia; or
 
    
    an estate or trust, the income of which is subject to U.S. federal income taxation
regardless of its source.
  93




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TAXATION OF U.S. HOLDERS
 Passive Foreign Investment Company
      94




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##### Table of Contents




    
    any excess distribution paid on ordinary shares or ADSs (or by a Lower-tier PFIC to
its shareholders that is deemed to be received by a U.S. Holder), which means the excess
(if any) of the total distributions received (or deemed received) by you during the current
taxable year over 125% of the average distributions received (or deemed received) by you
during the three preceding taxable years (or during the portion of your holding period for
the ordinary shares or ADSs prior to the current taxable year, if shorter); and
 
    
    any gain realized on the sale or other disposition (including a pledge) of ordinary
 shares or ADSs (or on an indirect disposition of shares by a Lower-tier PFIC).
  
    
    any excess distribution or gain will be allocated ratably over your holding period for
the ordinary shares or ADSs;
 
    
    the amount allocated to the current taxable year and any period prior to the first day
of the first taxable year in which we were a PFIC will be treated as ordinary income in the
current taxable year;
 
    
    the amount allocated to each of the other years will be treated as ordinary income and
taxed at the highest applicable tax rate in effect for that year; and
 
    
    the resulting tax liability from any such prior years will be subject to the interest
charge applicable to underpayments of tax.
 de minimis
   95




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##### Table of Contents



Distributions on Ordinary Shares or ADSs
    Dispositions of Ordinary Shares or ADSs
    96




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##### Table of Contents



Information Reporting and Backup Withholding
    F. Dividends and Paying Agents
  G. Statement by Experts
  H. Documents on Display
  http://www.sec.gov
  97




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##### Table of Contents



I. Subsidiary Information
  
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 12. Description of Securities Other than Equity Securities
 D. American Depositary Shares
  ADR Fees Payable by Investors
  Persons depositing or withdrawing shares must pay:
    
    For:A fee not in excess of $5.00 per 100 ADSs
    
      Issuance of ADSs, including
issuances resulting from a distribution
of ordinary shares or rights or other
property  Cancellation or withdrawals of
ADSs  Distributions of securities other
than ADSs or rights to purchase
additional ADSsA fee not in excess of $2.00 per 100 ADSs
    
      Distributions of cash dividends
or other cash distributions to holders of
ADRs  Annual depositary services,
except to the extent of any cash dividend
fee(s) chargedA fee not in excess of $1.50 per ADR
    
      Transfers of 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
  98




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##### Table of Contents



Payments Received
  
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
 Use of Proceeds
    
 Item 15. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
   99




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##### Table of Contents



Managements Report on Internal Control over Financial Reporting
      Changes in Internal Control over Financial Reporting
  Managements Plan for Remediation of Material Weaknesses
   100




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##### Table of Contents



Item 16. Reserved
 
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  http://www.mzcan.com/us/KUTV/irwebsite
 
 Item 16C. Principal Accountant Fees and Services
 Disclosure of Fees Charged by Independent Accountants
  For the year endedDecember 31,2010
    
    
    2009Audit fees (1)
    
    $
    1,026,652
    
    
    $
    1,247,687Audit-related fees (2)
    
    
    
    
    
    
    Tax fees (3)
    
    
    29,544
    
    
    
    All other fees (4)
    
    
    
    
    
    
    41,233
 
 (1)
    
    Audit fees means the aggregate fees incurred in each of the fiscal years listed for our
calendar year audits and reviews of financial statements.(2)
    
    Audit-related fees means the aggregate fees incurred in each of the fiscal years listed for
professional services related to the audit of our financial statements that are not reported
under Audit fees and consultation on accounting standards or transactions.(3)
    
    Tax fees means the aggregate fees incurred in each of the fiscal years listed for
professional services rendered for tax compliance, tax advice and tax planning.(4)
    
    All other fees means the aggregate fees incurred in each of the fiscal years listed for
professional services rendered other than those reported under Audit fees, Audit-related
fees, and Tax fees.  101




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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 the audit committee for review and approval, with a description of the
services to be performed and the fees to be charged.
 
    
    The audit committee in its sole discretion then approves or disapproves the proposed
services and documents such approval, if given, through written resolutions or in the
minutes of meetings, as the case may be.
 
 Item 16D. Exemptions from the Listing Standards for Audit Committees
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 16F. Changes in Registrants Certifying Accountant
  
 Item 16G. Corporate Governance
  
 PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
    102




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Item 19. Exhibits
 ExhibitNumber
    
    Document1.1
    
    
    Amended and Restated Memorandum and Articles of Association of the Company (incorporated
herein by reference to Exhibit 3.1 to our registration statement on Form F-1 (Registration
No. 333-121987) filed with the Commission on January 12, 2005).1.2
    
    
    Amendment to the Amended and Restated Memorandum and Articles of Association of the Company
as adopted on October 16, 2009 (incorporated herein by reference to Exhibit 1.2 to our Form
20-F (file No. 000-51116) filed with the Commission on April 30, 2010).1.3
    
    
    Amendment to the Amended and Restated Memorandum and Articles of Association of the Company
as adopted on June 24, 2011.2.1
    
    
    Specimen American Depositary Receipt of Ku6 Media Co., Ltd.2.2
    
    
    Specimen Share Certificate (incorporated herein by reference to Exhibit 4.2 to our
registration statement on Form F-1 (Registration No. 333-121987) filed with the Commission
on January 12, 2005).2.3
    
    
    Form of Deposit Agreement among us, Citibank N.A. and holders of the American Depositary
Receipts issued thereunder (incorporated by reference to Exhibit 3(a) to our registration
statement on Form F-6 (Registration No. 333-122004) filed with the Commission on January
13, 2005).4.1
    
    
    English translation of Equity Transfer Agreement dated May 17, 2010, between Hurray!
Digital Media Technology Co., Ltd. and Huayi Brothers Media Corporation relating to the
equity interest in Beijing Huayi Brothers Music Co., Ltd.4.2
    
    
    Share Purchase Agreement dated November 26, 2009 among Hurray! Holding Co., Ltd., the
selling shareholders of Ku6 Holding Limited and Ku6 Holding Limited.4.3
    
    
    Master Transaction Agreement between Shanda Interactive Entertainment Limited and Hurray!
Holding Co., Ltd., dated June 1, 2010 (incorporated by reference to Exhibit 99.2 to our
press release on Form 6-K (file no. 000-51116) filed with the Commission on June 2, 2010).4.4
    
    
    English Translation of Loan Agreement between Ku6 (Beijing) Information Technology Co.,
Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated
December 31, 2010.4.5
    
    
    English Translation of Loan Agreement between Ku6 (Beijing) Information Technology Co.,
Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated
February 10, 2011.4.6
    
    
    English Translation of Loan Agreement between Ku6 Media Co., Ltd. and Shanda Games Limited
dated December 27, 2010.4.7
    
    
    English Translation of Loan Agreement between Ku6 Media Co., Ltd. and Shanda Games Limited
dated January 25, 2011.4.8
    
    
    English translation of Loan Agreement between Ku6 (Beijing) Technology Co., Ltd. and
Shanyou Li dated April 11, 2007.
  103




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ExhibitNumber
    
    Document4.9
    
    
    English translation of Loan Agreement between Ku6 (Beijing) Technology Co., Ltd. and
Shanyou Li dated June 23, 2008.4.10
    
    
    English translation of Loan Agreement between Ku6 (Beijing) Technology Co., Ltd. and
Hailong Han dated April 11, 2007.4.11
    
    
    English translation of Exclusive Business Cooperation Agreement between Ku6 (Beijing)
Technology Co., Ltd. and Ku6 (Beijing) Information Technology Co., Ltd dated June 23, 2008.4.12
    
    
    English translation of Share Pledge Agreement among Ku6 (Beijing) Technology Co., Ltd.,
Shanyou Li and Ku6 (Beijing) Information Technology Co., Ltd dated July 8, 2009.4.13
    
    
    English translation of Share Pledge Agreement among Ku6 (Beijing) Technology Co., Ltd.,
Hailong Han and Ku6 (Beijing) Information Technology Co., Ltd dated April 11, 2007.4.14
    
    
    English translation of Supplementary Agreement to the Share Pledge Agreement among Ku6
(Beijing) Technology Co., Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co.,
Ltd dated June 23, 2008.4.15
    
    
    English translation of Power of Attorney by Shanyou Li dated July 8, 2009.4.16
    
    
    English translation of Power of Attorney by Hailong Han dated June 23, 2008.4.17
    
    
    English translation of Exclusive Option Agreement among Ku6 (Beijing) Technology Co.,
Ltd., Shanyou Li and Ku6 (Beijing) Information Technology Co., Ltd dated July 8, 2009.4.18
    
    
    English translation of Exclusive Option Agreement among Ku6 (Beijing) Technology Co.,
Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co., Ltd dated April 11, 2007.4.19
    
    
    English translation of Exclusive Intellectual Property Option Agreement between Ku6
(Beijing) Technology Co., Ltd. and Ku6 (Beijing) Information Technology Co., Ltd dated June
23, 2008.4.20
    
    
    English translation of Supplementary Agreement to the Exclusive Option Agreement among Ku6
(Beijing) Technology Co., Ltd., Hailong Han and Ku6 (Beijing) Information Technology Co.,
Ltd dated June 23, 2008.4.21
    
    
    English translation of Loan Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and
Shanyou Li dated May 27, 2010.4.22
    
    
    English translation of Loan Agreement between WeiMoSanYi (Tianjin) Technology Co., Ltd. and
Xingye Zeng dated May 27, 2010.4.23
    
    
    English translation of Exclusive Consulting And Service Agreement between WeiMoSanYi
(Tianjin) Technology Co., Ltd. and Ku6 (Beijing) Cultural Media Co., Ltd dated May 27,
2010.4.24
    
    
    English translation of Business Operation Agreement among WeiMoSanYi (Tianjin) Technology
Co., Ltd., Ku6 (Beijing) Cultural Media Co., Ltd., Shanyou Li and Xingye Zeng dated May 27,
2010.4.25
    
    
    English translation of Power of Attorney by Shanyou Li dated May 27, 2010.4.26
    
    
    English translation of Power of Attorney by Xingye Zeng dated May 27, 2010.4.27
    
    
    English translation of Share Pledge Agreement between WeiMoSanYi (Tianjin) Technology Co.,
Ltd. and Shanyou Li dated May 27, 2010.
  104




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ExhibitNumber
    
    Document4.28
    
    
    English translation of Share Pledge Agreement between WeiMoSanYi (Tianjin) Technology Co.,
Ltd. and Xingye Zeng dated May 27, 2010.4.29
    
    
    English translation of Equity Disposition Agreement among WeiMoSanYi (Tianjin) Technology
Co., Ltd., Shanyou Li, Xingye Zeng and Ku6 (Beijing) Cultural Media Co., Ltd. dated May 27,
2010.4.30
    
    
    English translation of Transfer Agreement among Shanda Computer (Shanghai) Co., Ltd., Ku6
(Beijing) Technology Co., Ltd. and Dongxu Wang dated August 5, 2010.4.31
    
    
    English translation of Exclusive Consulting And Service Agreement between Ku6 (Beijing)
Technology Co., Ltd. and Shanghai Yisheng Network Technology Co., Ltd. dated August 5,
2010.4.32
    
    
    English translation of Business Operation Agreement among Ku6 (Beijing) Technology Co.,
Ltd., Dongxu Wang and Shanghai Yisheng Network Technology Co., Ltd. dated August 5, 2010.4.33
    
    
    English translation of Power of Attorney by Dongxu Wang dated August 5, 2010.4.34
    
    
    English translation of Share Pledge Agreement between Ku6 (Beijing) Technology Co., Ltd.
and Dongxu Wang dated August 5, 2010.4.35
    
    
    English translation of Equity Disposition Agreement among Ku6 (Beijing) Technology Co.,
Ltd., Dongxu Wang and Shanghai Yisheng Network Technology Co., Ltd. dated August 5, 2010.4.36
    
    
    English translation of Share Proxy Agreement between Ku6 (Beijing) Technology Co., Ltd. and
Dongxu Wang dated August 5, 2010.4.37
    
    
    English translation of Exclusive Option Agreement among WeiMoSanYi (Tianjin) Technology
Co., Ltd., Ku6 (Beijing) Information Technology Co., Ltd and Tianjin Ku6 Zheng Yuan
Information Technology Co., Ltd. dated March 21, 2009.4.38
    
    
    English translation of Exclusive Business Cooperation Agreement between WeiMoSanYi
(Tianjin) Technology Co., Ltd., and Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd.
dated March 21, 2009.4.39
    
    
    English translation of Equity Interest Pledge Agreement among WeiMoSanYi (Tianjin)
Technology Co., Ltd., Ku6 (Beijing) Information Technology Co., Ltd and Tianjin Ku6 Zheng
Yuan Information Technology Co., Ltd. dated March 21, 2009.4.40
    
    
    English translation of Power of Attorney by Ku6 (Beijing) Information Technology Co., Ltd
dated March 21, 2009.4.41
    
    
    2010 Equity Compensation Plan.4.42
    
    
    Form of Indemnification Agreement (incorporated by reference to Exhibit 10.4 of our
registration statement on Form F-1 (File No. 333-121987) filed with the Commission on
January 12, 2005).4.43
    
    
    Share Purchase Agreement between Ku6 Media Co., Ltd. and Shanda Media Group Limited, dated
April 1, 2011.4.44
    
    
    Senior Convertible Bond Purchase Agreement between Ku6 Media Co., Ltd. and Shanda Media
Group Limited, dated April 1, 2011.4.45
    
    
    Equity Purchase Agreement by and among Ku6 Media Co., Ltd., the shareholders of Hangzhou
Soushi Networking Co., Ltd. and Hangzhou Soushi Networking Co., Ltd. dated as of April 20,
2011.
  105




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ExhibitNumber
    
    Document4.46
    
    
    English Translation of Loan Agreement between Shanghai Yisheng Network Technology Co., Ltd.
and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated June 2009.4.47
    
    
    English Translation of Loan Agreement between Shanghai Yisheng Network Technology Co., Ltd.
and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated 2010.4.48
    
    
    English Translation of Loan Agreement between Ku6 (Beijing) Information Technology Co.,
Ltd. and Shanghai Dongfang Branch of China Merchants Bank Stock Limited Company dated June
2011.4.49
    
    
    English Translation of Loan Agreement between Ku6 Media Co., Ltd. and Shanda Games Limited
dated June 8, 2011.8.1
    
    
    List of Significant Subsidiaries and Affiliates.11.1
    
    
    Code of Business Conduct (incorporated by reference to Exhibit 11.1 of our annual report on
Form 20-F filed with the Commission on June 15, 2006).12.1
    
    
    Certification of Acting Chief Executive Officer Required by Rule 13a-14(a).12.2
    
    
    Certification of Chief Financial Officer Required by Rule 13a-14(a)13.1
    
    
    Certification of Acting Chief Executive Officer Required by Rule 13a-14(b) and Section 1350
of Chapter 63 of Title 18 of the United States Code.13.2
    
    
    Certification of Chief Financial Officer Required by Rule 13a-14(b) and Section 1350 of
Chapter 63 of Title 18 of the United States Code.15.1
    
    
    Consent of PricewaterhouseCoopers Zhong Tian CPAs Limited Company.15.2
    
    
    Consent of Deloitte Touche Tohmatsu CPA Ltd., Independent Registered Public Accounting Firm.
  106




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SIGNATURES
  KU6 MEDIA CO., LTD.By:
    
    /s/ Haifa ZhuName:
    
    Haifa ZhuTitle:
    
    Acting Chief Executive OfficerDate:
    
    June 28, 2011
  107




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KU6 MEDIA CO., LTD.
INDEX TO FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm as of and 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 Loss for the years ended December 31,
2008, 2009 and 2010
    
    
    F-5Consolidated Statements of Changes in Equity for the years ended December 31, 2008, 2009 and 2010
    
    
    F-7Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2009 and 2010
    
    
    F-8Notes to the Consolidated Financial Statements
    
    
    F-10Additional Information  Financial Statement Schedule 1
    
    
    F-58
 KU6 HOLDING LIMITED
INDEX TO FINANCIAL STATEMENTS
 PageReport of Independent Registered Public Accounting Firm as of and for the years ended
December 31, 2008 and 2009
    
    
    F-61Consolidated Statements of Operations and Comprehensive Loss for the years ended December
31, 2008, and 2009
    
    
    F-63Consolidated Balance Sheets as of December 31, 2008 and 2009
    
    
    F-62Consolidated Statements of Changes in Equity for the years ended December 31, 2008 and 2009
    
    
    F-64Consolidated Statements of Cash Flows for the years ended December 31, 2008 and 2009
    
    
    F-65Notes to the Consolidated Financial Statements
    
    
    F-66
  F-1




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF  KU6 MEDIA CO., LTD.:
      
  F-2




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 " " 
 
    
   F-3




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KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
 
 CONSOLIDATED BALANCE SHEETS
 Note
    
    
    December 31, 2009
    
    
    December 31, 2010(Adjusted)(Note 2(1))(in U.S. dollars, except number of shares)AssetsCurrent assets:Cash and cash equivalents
    
    
    
    
    
    
    49,743,934
    
    
    
    27,294,819Short term investments
    
    
    
    
    
    
    10,000,000
    
    
    
    Accounts receivable, net of allowance for
doubtful accounts
    
    
    19
    
    
    
    4,009,841
    
    
    
    8,135,195Accounts receivable due from related party
    
    
    12
    
    
    
    51,832
    
    
    
    325,757Prepaid expenses and other current assets
    
    
    5
    
    
    
    1,890,285
    
    
    
    3,487,327Other receivables due from related parties
    
    
    12
    
    
    
    63,312
    
    
    
    5,532,248Inventories
    
    
    
    
    
    
    201,576
    
    
    
    31,038Total current assets
    
    
    
    
    
    
    65,960,780
    
    
    
    44,806,384Property and equipment, net
    
    
    6
    
    
    
    1,471,732
    
    
    
    8,003,474Acquired intangible assets, net
    
    
    7
    
    
    
    1,644,531
    
    
    
    27,264,283Goodwill
    
    
    9
    
    
    
    2,099,290
    
    
    
    6,896,340Deposits and other non-current assets
    
    
    
    
    
    
    331,958
    
    
    
    Total assets
    
    
    
    
    
    
    71,508,291
    
    
    
    86,970,481Liabilities and shareholders equityCurrent liabilities:Accounts payable
    
    
    
    
    
    
    4,652,050
    
    
    
    15,502,901Accounts payable due to related party
    
    
    12
    
    
    
    
    
    
    
    1,664,570Notes payable
    
    
    
    
    
    
    227,720
    
    
    
    Accrued expenses and other current liabilities
    
    
    11
    
    
    
    6,331,687
    
    
    
    11,462,241Other payables due to related parties
    
    
    12
    
    
    
    1,904,455
    
    
    
    7,776,698Income tax payable
    
    
    
    
    
    
    654,835
    
    
    
    Current deferred tax liabilities
    
    
    15
    
    
    
    12,316
    
    
    
    Total current liabilities
    
    
    
    
    
    
    13,783,063
    
    
    
    36,406,410Long-term payable
    
    
    
    
    
    
    17,554
    
    
    
    Non-current deferred tax liabilities
    
    
    2(26),15
    
    
    
    403,308
    
    
    
    4,925,538Total liabilities
    
    
    
    
    
    
    14,203,925
    
    
    
    41,331,948Commitments and contingencies
    
    
    21
    
    
    
    
    
    
    
    Redeemable non-controlling interest
    
    
    3
    
    
    
    370,870
    
    
    
    Equity:Ordinary shares ($0.00005 par value;
4,560,000,000 shares authorized; 2,200,194,040
and 3,481,174,498 shares issued and outstanding
as of December 31, 2009 and 2010, respectively)
    
    
    
    
    
    
    109,959
    
    
    
    174,008Additional paid-in capital
    
    
    
    
    
    
    76,605,958
    
    
    
    130,100,153Statutory reserves
    
    
    20
    
    
    
    1,791,324
    
    
    
    Accumulated deficits
    
    
    
    
    
    
    (33,386,524
    )
    
    
    (83,105,464
    )Accumulated other comprehensive income (loss)
    
    
    
    
    
    
    9,955,687
    
    
    
    (1,422,414
    )Total Ku6 Media Co., Ltd. shareholders equity
    
    
    
    
    
    
    55,076,404
    
    
    
    45,746,283Non-controlling interests
    
    
    
    
    
    
    1,857,092
    
    
    
    (107,750
    )Total equity
    
    
    
    
    
    
    56,933,496
    
    
    
    45,638,533Total liabilities and equity
    
    
    
    
    
    
    71,508,291
    
    
    
    86,970,481
   F-4




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KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 Year ended
    
    
    Year ended
    
    
    Year endedNote
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010(Adjusted)
    
    
    (Adjusted)(Note 2(1))
    
    
    (Note 2(1))(in U.S. dollars, except number of shares)Net revenues:
    
    
    2(19)AdvertisingThird parties
    
    
    
    
    
    
    
    
    
    
    757,723
    
    
    
    15,853,948Related parties
    
    
    
    
    
    
    
    
    
    
    279,341
    
    
    
    701,732Total net revenues
    
    
    
    
    
    
    
    
    
    
    1,037,064
    
    
    
    16,555,680Cost of revenues:
    
    
    2(19)Advertising
    
    
    
    
    
    
    Third parties
    
    
    
    
    
    
    
    
    
    
    (556,639
    )
    
    
    (40,082,758
    )Related parties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (376,302
    )Total cost of revenues
    
    
    
    
    
    
    
    
    
    
    (556,639
    )
    
    
    (40,459,060
    )Gross profit/(loss)
    
    
    
    
    
    
    
    
    
    
    480,425
    
    
    
    (23,903,380
    )Operating expenses:Product development
    
    
    2(20)
    
    
    
    (105,283
    )
    
    
    
    
    
    
    Selling and marketing
    
    
    2(22)
    
    
    
    (622,846
    )
    
    
    (665,131
    )
    
    
    (16,195,539
    )General and administrative
    
    
    2(21)
    
    
    
    (1,672,608
    )
    
    
    (6,465,080
    )
    
    
    (13,507,701
    )Total operating expenses
    
    
    
    
    
    
    (2,400,737
    )
    
    
    (7,130,211
    )
    
    
    (29,703,240
    )Operating loss from continuing operations
    
    
    
    
    
    
    (2,400,737
    )
    
    
    (6,649,786
    )
    
    
    (53,606,620
    )Interest income
    
    
    
    
    
    
    1,431,507
    
    
    
    356,167
    
    
    
    57,464Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,134
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    1,783
    
    
    
    3Gain on reduction of acquisition payable
    
    
    13
    
    
    
    5,000,000
    
    
    
    
    
    
    
    Foreign exchange loss
    
    
    2(7),14
    
    
    
    (8,990,067
    )
    
    
    
    
    
    
    Loss before income tax benefit from
continuing operations
    
    
    
    
    
    
    (4,959,297
    )
    
    
    (6,291,836
    )
    
    
    (53,580,287
    )Income tax benefit
    
    
    2(26),15
    
    
    
    
    
    
    
    13,721
    
    
    
    41,172Loss from continuing operations, net of tax
    
    
    
    
    
    
    (4,959,297
    )
    
    
    (6,278,115
    )
    
    
    (53,539,115
    )Discontinued operations:Loss from operations of discontinued
operations, net of tax
    
    
    4
    
    
    
    (7,743,284
    )
    
    
    (21,778,174
    )
    
    
    (3,382,438
    )Gain from disposal of discontinued
operations, net of tax
    
    
    
    
    
    
    412,530
    
    
    
    221,899
    
    
    
    4,486,786Loss (income) from discontinued operations,
net of tax
    
    
    
    
    
    
    (7,330,754
    )
    
    
    (21,556,275
    )
    
    
    1,104,348Net loss
    
    
    
    
    
    
    (12,290,051
    )
    
    
    (27,834,390
    )
    
    
    (52,434,767
    )Less: Net loss attributable to the
non-controlling interests from
continuing operations
    
    
    
    
    
    
    
    
    
    
    256,654
    
    
    
    680,837Less: Net loss attributable to the
non-controlling interests and
redeemable non-controlling interests
from discontinued operations
    
    
    
    
    
    
    337,455
    
    
    
    4,182,875
    
    
    
    243,666Net loss attributable to Ku6 Media Co., Ltd.
    
    
    
    
    
    
    (11,952,596
    )
    
    
    (23,394,861
    )
    
    
    (51,510,264
    )Loss from continuing operations, net of
tax, attributable to Ku6 Media Co., Ltd.
    
    
    
    
    
    
    (4,959,297
    )
    
    
    (6,021,461
    )
    
    
    (52,858,278
    )Income (loss) from discontinued operations,
net of tax, attributable to Ku6 Media Co.,
Ltd.
    
    
    
    
    
    
    (6,993,299
    )
    
    
    (17,373,400
    )
    
    
    1,348,014Net loss attributable to Ku6 Media Co., Ltd.
    
    
    
    
    
    
    (11,952,596
    )
    
    
    (23,394,861
    )
    
    
    (51,510,264
    )
   F-5




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KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 Note
    
    
    Year ended
    
    
    Year ended
    
    
    Year ended(contd)
    
    
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31,2010(Adjusted)
    
    
    (Adjusted)(Note 2(1))
    
    
    (Note 2(1))(in U.S. dollars, except number of shares)Net loss
    
    
    
    
    
    
    (12,290,051
    )
    
    
    (27,834,390
    )
    
    
    (52,434,767
    )Other comprehensive income (loss):Currency translation adjustments of subsidiaries
    
    
    
    
    
    
    2,658,344
    
    
    
    (36,057
    )
    
    
    (809,654
    )Comprehensive loss
    
    
    
    
    
    
    (9,631,707
    )
    
    
    (27,870,447
    )
    
    
    (53,244,421
    )Comprehensive loss attributable to
non-controlling interests and redeemable
non-controlling interests
    
    
    
    
    
    
    11,551
    
    
    
    4,443,959
    
    
    
    921,701Comprehensive loss attributable to Ku6 Media
Co., Ltd.
    
    
    
    
    
    
    (9,620,156
    )
    
    
    (23,426,488
    )
    
    
    (52,322,720
    )Loss per share-basic and diluted
    
    
    18Loss from continuing operations attributable
to Ku6 Media Co., Ltd. common shareholders
    
    
    
    
    
    
    (0.00
    )
    
    
    (0.00
    )
    
    
    (0.02
    )Loss from discontinued operations
attributable to Ku6 Media Co., Ltd. common
shareholders
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    0.00Net loss attributable to Ku6 Media Co., Ltd.
common shareholders
    
    
    
    
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.02
    )Weighted average share used in per share
calculation-basic and diluted
    
    
    
    
    
    
    2,185,615,129
    
    
    
    2,196,291,947
    
    
    
    3,096,421,097Loss per ADS-basic and diluted (1ADS = 100
shares):
    
    
    18Loss from continuing operations attributable
to Ku6 Media Co., Ltd. common shareholders
    
    
    
    
    
    
    (0.23
    )
    
    
    (0.27
    )
    
    
    (1.71
    )Loss from discontinued operations
attributable to Ku6 Media Co., Ltd. common
shareholders
    
    
    
    
    
    
    (0.32
    )
    
    
    (0.79
    )
    
    
    0.04Net loss attributable to Ku6 Media Co., Ltd.
common shareholders
    
    
    
    
    
    
    (0.55
    )
    
    
    (1.06
    )
    
    
    (1.67
    )Weighted average ADS used in per ADS
calculation-basic and diluted
    
    
    
    
    
    
    21,856,151
    
    
    
    21,962,919
    
    
    
    30,964,211
   F-6




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
 
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 Accumulated
    
    
    Total Ku6 MediaOrdinary shares
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    other
    
    
    Co., Ltd.(US$0.00005 par value)
    
    
    paid-in
    
    
    Statutory
    
    
    Accumulated
    
    
    comprehensive
    
    
    shareholders
    
    
    Non-controlling
    
    
    TotalShares
    
    
    Amount
    
    
    capital
    
    
    reserves
    
    
    deficits
    
    
    income
    
    
    equity
    
    
    interests
    
    
    equity(in U.S. dollars, except shares data)Balance as of January 1, 2008
    
    
    2,174,784,440
    
    
    
    108,689
    
    
    
    74,066,839
    
    
    
    6,502,849
    
    
    
    (2,750,592
    )
    
    
    7,654,874
    
    
    
    85,582,659
    
    
    
    4,667,402
    
    
    
    90,250,061Stock-based compensation expense
    
    
    18,499,300
    
    
    
    925
    
    
    
    944,357
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    945,282
    
    
    
    
    
    
    
    945,282Exercise of stock options
    
    
    60,000
    
    
    
    3
    
    
    
    1,497
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500
    
    
    
    
    
    
    
    1,500Transfer statutory reserve to retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,711,525
    )
    
    
    4,711,525
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital contribution to a subsidiary by non-controlling shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    127,358
    
    
    
    127,358Cumulative currency translation adjustments of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,332,440
    
    
    
    2,332,440
    
    
    
    325,904
    
    
    
    2,658,344Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,952,596
    )
    
    
    
    
    
    
    (11,952,596
    )
    
    
    (337,455
    )
    
    
    (12,290,051
    )Balance as of December 31, 2008
    
    
    2,193,343,740
    
    
    
    109,617
    
    
    
    75,012,693
    
    
    
    1,791,324
    
    
    
    (9,991,663
    )
    
    
    9,987,314
    
    
    
    76,909,285
    
    
    
    4,783,209
    
    
    
    81,692,494Stock-based compensation expense
    
    
    6,500,300
    
    
    
    324
    
    
    
    168,986
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    169,310
    
    
    
    
    
    
    
    169,310Exercise of stock options
    
    
    350,000
    
    
    
    18
    
    
    
    8,732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,750
    
    
    
    
    
    
    
    8,750Online audio business (Yisheng) contributed by Shanda Interactive
Entertainment Limited (Shanda)
    
    
    
    
    
    
    
    
    
    
    1,415,547
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,415,547
    
    
    
    (43,533
    )
    
    
    1,372,014Capital contribution to Yisheng by non-controlling shareholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    362,773
    
    
    
    362,773Cumulative currency translation adjustments of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (31,627
    )
    
    
    (31,627
    )
    
    
    (4,430
    )
    
    
    (36,057
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (23,394,861
    )
    
    
    
    
    
    
    (23,394,861
    )
    
    
    (3,240,927
    )
    
    
    (26,635,788
    )Balance as of December 31, 2009
(Adjusted (Note 2(1)))
    
    
    2,200,194,040
    
    
    $
    109,959
    
    
    
    76,605,958
    
    
    
    1,791,324
    
    
    
    (33,386,524
    )
    
    
    9,955,687
    
    
    
    55,076,404
    
    
    
    1,857,092
    
    
    
    56,933,496Stock-based compensation expense
    
    
    3,000,100
    
    
    
    150
    
    
    
    607,014
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    607,164
    
    
    
    
    
    
    
    607,164Exercise of stock options
    
    
    450,000
    
    
    
    22
    
    
    
    20,328
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,350
    
    
    
    
    
    
    
    20,350Issuance of ordinary shares related to acquisitions of Ku6 Holding
Limited
    
    
    723,684,204
    
    
    
    36,185
    
    
    
    28,838,816
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,875,001
    
    
    
    
    
    
    
    28,875,001Disposal of Huayi Brothers Music Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,246
    )
    
    
    74,246
    
    
    
    (221,315
    )
    
    
    (221,315
    )
    
    
    (209,736
    )
    
    
    (431,051
    )Contribution by Shanda related to Yisheng
    
    
    
    
    
    
    
    
    
    
    663,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    663,570
    
    
    
    
    
    
    
    663,570Issuance of ordinary shares for Yisheng to Shanda
    
    
    415,384,615
    
    
    
    20,769
    
    
    
    12,440,769
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,461,538
    
    
    
    
    
    
    
    12,461,538Deemed distribution to Shanda related to Yisheng
    
    
    
    
    
    
    
    
    
    
    (12,461,538
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,461,538
    )
    
    
    
    
    
    
    (12,461,538
    )Purchase of additional equity interests of Yisheng from
non-controlling shareholders
    
    
    138,461,539
    
    
    
    6,923
    
    
    
    (520,181
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (513,258
    )
    
    
    513,258
    
    
    
    Disposal of WVAS and recorded music businesses to Shanda
    
    
    
    
    
    
    
    
    
    
    23,905,417
    
    
    
    (1,717,078
    )
    
    
    1,717,078
    
    
    
    (10,344,330
    )
    
    
    13,561,087
    
    
    
    (1,464,169
    )
    
    
    12,096,918Cumulative currency translation adjustments of subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (812,456
    )
    
    
    (812,456
    )
    
    
    2,802
    
    
    
    (809,654
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (51,510,264
    )
    
    
    
    
    
    
    (51,510,264
    )
    
    
    (806,997
    )
    
    
    (52,317,261
    )Balance as of December 31, 2010
    
    
    3,481,174,498
    
    
    
    174,008
    
    
    
    130,100,153
    
    
    
    
    
    
    
    (83,105,464
    )
    
    
    (1,422,414
    )
    
    
    45,746,283
    
    
    
    (107,750
    )
    
    
    45,638,533
   F-7




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010(Adjusted)(Note 2(1))(in U.S. dollars)Net loss
    
    
    (12,290,051
    )
    
    
    (27,834,390
    )
    
    
    (52,434,767
    )Adjustments to reconcile net loss to net cash used in operating activities:Share-based compensation
    
    
    945,282
    
    
    
    169,310
    
    
    
    607,164Share based compensation cost in relation to acquisition of Ku6
    
    
    
    
    
    
    
    
    
    
    1,284,766Depreciation and amortization
    
    
    3,327,798
    
    
    
    1,798,396
    
    
    
    5,266,212Amortization and write-down of licensed video copyrights
    
    
    
    
    
    
    
    
    
    
    15,751,814Impairment of goodwill
    
    
    2,675,211
    
    
    
    3,592,933
    
    
    
    Impairment for investment in affiliated company
    
    
    1,870,897
    
    
    
    209,848
    
    
    
    Impairment of intangible assets
    
    
    2,850,714
    
    
    
    3,542,071
    
    
    
    Bad debt provision
    
    
    1,012,738
    
    
    
    3,819,894
    
    
    
    1,474,568Inventory provision
    
    
    
    
    
    
    238,370
    
    
    
    84,481Exchange loss
    
    
    
    
    
    
    17,198
    
    
    
    (898,682
    )Equity in (earning) loss of affiliated company
    
    
    (64,293
    )
    
    
    704,224
    
    
    
    Gain from disposal of subsidiary
    
    
    (412,530
    )
    
    
    (221,899
    )
    
    
    (4,486,786
    )Loss (gain) on disposal of property and equipment
    
    
    112,745
    
    
    
    (5,843
    )
    
    
    196,969Change in fair value of contingent consideration
    
    
    
    
    
    
    (352,217
    )
    
    
    Gain on reduction of acquisition payable
    
    
    (5,000,000
    )
    
    
    
    
    
    
    Gain on reduction of Unicom liability
    
    
    (1,557,153
    )
    
    
    
    
    
    
    Gain from reversed litigation expenses
    
    
    (557,167
    )
    
    
    
    
    
    
    Changes in assets and liabilities, net of acquisitions and dispositions:Accounts receivable
    
    
    3,492,068
    
    
    
    5,883,070
    
    
    
    (8,678,575
    )Prepaid expenses and other current assets
    
    
    (1,142,954
    )
    
    
    2,737,066
    
    
    
    (796,237
    )Amount due from related parties
    
    
    (245,724
    )
    
    
    732,563
    
    
    
    (2,836,461
    )Deposits and other non-current assets
    
    
    183,003
    
    
    
    439,859
    
    
    
    (414
    )Inventories
    
    
    56,833
    
    
    
    (130,333
    )
    
    
    (94,101
    )Deferred taxes
    
    
    187,671
    
    
    
    (530,190
    )
    
    
    (72,985
    )Accounts payable
    
    
    (761,068
    )
    
    
    579,864
    
    
    
    8,753,566Notes payable
    
    
    
    
    
    
    22,901
    
    
    
    (54,218
    )Accrued expenses and other current liabilities
    
    
    (71,705
    )
    
    
    2,283,336
    
    
    
    5,976,116Amount due to related parties
    
    
    (63,140
    )
    
    
    (78,307
    )
    
    
    1,408,305Income tax payable
    
    
    (102,057
    )
    
    
    290,670
    
    
    
    (20,633
    )Net cash used in operating activities
    
    
    (5,552,882
    )
    
    
    (2,091,606
    )
    
    
    (29,569,898
    )Investing activities:(Increase)/decrease of short-term investments
    
    
    
    
    
    
    (10,000,000
    )
    
    
    10,000,000Purchases of property and equipment
    
    
    (349,233
    )
    
    
    (867,061
    )
    
    
    (6,586,819
    )Proceeds from disposal of property and equipment
    
    
    
    
    
    
    80,498
    
    
    
    Purchase of intangible assets
    
    
    (1,718,340
    )
    
    
    (66,258
    )
    
    
    Payment for licensed video copyright
    
    
    
    
    
    
    
    
    
    
    (15,046,257
    )Proceeds from disposal of subsidiaries, net of cash disposed (nil, nil,
and $669,705 for the years ended December 31, 2008, 2009 and 2010,
respectively)
    
    
    4,517,070
    
    
    
    254,102
    
    
    
    4,376,048Acquisition of subsidiaries, net of cash acquired (nil, $1,034,308 and
$329,743 for the years ended December 31, 2008, 2009 and 2010,
respectively)
    
    
    (2,207,132
    )
    
    
    1,034,308
    
    
    
    329,743Cash received upon consolidation of a subsidiary contributed by Shanda
    
    
    
    
    
    
    633,424
    
    
    
    Net cash received from disposal of wireless value-added service and
recorded music businesses to Shanda, net of cash disposed $24,948,577 for
the years ended December 31, 2010)
    
    
    
    
    
    
    
    
    
    
    12,295,323Loan to related parties under common control by Shanda
    
    
    
    
    
    
    
    
    
    
    (3,200,000
    )Payments related to acquisition not yet consummated
    
    
    (1,907,400
    )
    
    
    
    
    
    
    Investment at cost in Seed Music Group Limited
    
    
    (600,038
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (2,265,073
    )
    
    
    (8,930,987
    )
    
    
    2,168,038
  F-8




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##### Table of Contents



Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010(Adjusted)(Note 2(1))Financing activities:Proceeds from exercise of options
    
    
    1,500
    
    
    
    2,500
    
    
    
    20,350Cash injection into VIE subsidiary by Shanda
    
    
    
    
    
    
    1,083,057
    
    
    
    Borrowings from related parties under common control by Shanda
    
    
    
    
    
    
    
    
    
    
    4,596,001Cash injection in VIE subsidiary by non-controlling shareholders
    
    
    
    
    
    
    362,773
    
    
    
    Net cash provided by financing activities
    
    
    1,500
    
    
    
    1,448,330
    
    
    
    4,616,351Effect of exchange rate changes on cash and cash equivalents
    
    
    1,310,274
    
    
    
    (154,506
    )
    
    
    336,394Net decrease in cash and cash equivalents
    
    
    (6,506,181
    )
    
    
    (9,728,769
    )
    
    
    (22,449,115
    )Cash and cash equivalents, beginning of year
    
    
    65,978,884
    
    
    
    59,472,703
    
    
    
    49,743,934Cash and cash equivalents, end of the year
    
    
    59,472,703
    
    
    
    49,743,934
    
    
    
    27,294,819Supplemental disclosure of cash flow information:Income taxes paid
    
    
    385,501
    
    
    
    465,696
    
    
    
    23,047Supplemental disclosure of non-cash investing and financing activities:Accounts payable related to purchase of property and equipment
    
    
    
    
    
    
    
    
    
    
    2,045,032Accounts payable related to licensed video copyright
    
    
    
    
    
    
    
    
    
    
    2,946,304Issuance of ordinary shares to Shanda for Yisheng
    
    
    
    
    
    
    
    
    
    
    12,461,538Purchase of additional equity interests of Yisheng from non-controlling
shareholders
    
    
    
    
    
    
    
    
    
    
    4,153,846Issuance of ordinary shares related to acquisition of Ku6 Holding Limited
    
    
    
    
    
    
    
    
    
    
    28,875,000
   F-9




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in U.S. dollars, unless otherwise stated)
 1. ORGANIZATION AND PRINCIPAL ACTIVITIES
         F-10




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Date of
    
    Percentage ofName of Subsidiaries
    
    incorporation
    
    ownershipSubsidiariesKu6 (Beijing) Technology Co., Ltd. (Beijing WOFE)
    
    March 5, 2007
    
    
    100
    %Wei Mo San Yi (Tianjin) Science and Technology Co., Ltd.(Tianjin
WOFE)
    
    December 23,
2008
    
    
    100
    %Variable Interest EntitiesKu6 (Beijing) Information Technology Co., Ltd. (Beijing VIE)
    
    April 20, 2006
    
    
    100
    %Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (Tianjin VIE)
    
    March 20, 2009
    
    
    100
    %Shanghai Yisheng Network Technology Co., Ltd.
    
    November 22,
2007
    
    
    100
    %
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 (1) Basis of presentation
   (a) Acquisition under common control
     F-11




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Consolidated Balance Sheet as of December
    
    As originally
    
    
    Effect of acquisition of31, 2009
    
    reported
    
    
    online audio business
    
    
    As adjusted*AssetsCash and cash equivalents
    
    
    48,489,095
    
    
    
    1,254,839
    
    
    
    49,743,934Short term investments
    
    
    10,000,000
    
    
    
    
    
    
    
    10,000,000Accounts receivable, net of allowance
    
    
    3,192,366
    
    
    
    817,475
    
    
    
    4,009,841Accounts receivable due from related party
    
    
    
    
    
    
    51,832
    
    
    
    51,832Prepaid expenses and other current assets
    
    
    1,834,361
    
    
    
    55,924
    
    
    
    1,890,285Amount due from related parties
    
    
    62,725
    
    
    
    587
    
    
    
    63,312Inventories
    
    
    196,745
    
    
    
    4,831
    
    
    
    201,576Total current assets
    
    
    63,775,292
    
    
    
    2,185,488
    
    
    
    65,960,780Property and equipment, net
    
    
    879,775
    
    
    
    591,957
    
    
    
    1,471,732Acquired intangible assets, net
    
    
    1,081,962
    
    
    
    562,569
    
    
    
    1,644,531Goodwill
    
    
    2,099,290
    
    
    
    
    
    
    
    2,099,290Deposits and other non-current assets
    
    
    331,958
    
    
    
    
    
    
    
    331,958Total assets
    
    
    68,168,277
    
    
    
    3,340,014
    
    
    
    71,508,291LiabilitiesAccounts payable
    
    
    3,731,562
    
    
    
    920,488
    
    
    
    4,652,050Notes payable
    
    
    227,720
    
    
    
    
    
    
    
    227,720Accrued expenses and other current liabilities
    
    
    6,260,849
    
    
    
    70,838
    
    
    
    6,331,687Amount due to related parties
    
    
    439,445
    
    
    
    1,465,010
    
    
    
    1,904,455Income tax payable
    
    
    654,835
    
    
    
    
    
    
    
    654,835Current deferred tax liabilities
    
    
    12,316
    
    
    
    
    
    
    
    12,316Total current liabilities
    
    
    11,326,727
    
    
    
    2,456,336
    
    
    
    13,783,063Long-term payable
    
    
    17,554
    
    
    
    
    
    
    
    17,554Non-current deferred tax liabilities
    
    
    262,665
    
    
    
    140,643
    
    
    
    403,308Total liabilities
    
    
    11,606,946
    
    
    
    2,596,979
    
    
    
    14,203,925Redeemable non-controlling interests
    
    
    370,870
    
    
    
    
    
    
    
    370,870EquityOrdinary shares
    
    
    109,959
    
    
    
    
    
    
    
    109,959Additional paid-in capital
    
    
    75,190,411
    
    
    
    1,415,547
    
    
    
    76,605,958Statutory reserves
    
    
    1,791,324
    
    
    
    
    
    
    
    1,791,324Accumulated deficits
    
    
    (32,649,555
    )
    
    
    (736,969
    )
    
    
    (33,386,524
    )Accumulated other comprehensive income
    
    
    9,953,826
    
    
    
    1,861
    
    
    
    9,955,687Total Ku6 Media Co., Ltd. shareholders equity
    
    
    54,395,965
    
    
    
    680,439
    
    
    
    55,076,404Non-controlling interests
    
    
    1,794,496
    
    
    
    62,596
    
    
    
    1,857,092Total equity
    
    
    56,190,461
    
    
    
    743,035
    
    
    
    56,933,496Total liabilities and equity
    
    
    68,168,277
    
    
    
    3,340,014
    
    
    
    71,508,291
  F-12




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Consolidated Statement of Operations andComprehensive Loss for the year ended
    
    As originally
    
    
    Effect of acquisition ofDecember 31, 2009
    
    reported
    
    
    online audio business
    
    
    As adjusted*Net revenues:Wireless value-added services
    
    
    20,169,110
    
    
    
    
    
    
    
    20,169,110Recorded music
    
    
    14,473,185
    
    
    
    
    
    
    
    14,473,185Advertising-third party
    
    
    
    
    
    
    757,723
    
    
    
    757,723Advertising-related party
    
    
    
    
    
    
    279,341
    
    
    
    279,341Total net revenues:
    
    
    34,642,295
    
    
    
    1,037,064
    
    
    
    35,679,359Cost of revenues:Wireless value-added services
    
    
    (15,331,675
    )
    
    
    
    
    
    
    (15,331,675
    )Recorded music
    
    
    (12,625,139
    )
    
    
    
    
    
    
    (12,625,139
    )Advertising
    
    
    
    
    
    
    (556,639
    )
    
    
    (556,639
    )Total cost of revenues:
    
    
    (27,956,814
    )
    
    
    (556,639
    )
    
    
    (28,513,453
    )Gross profit
    
    
    6,685,481
    
    
    
    480,425
    
    
    
    7,165,906Operating expenses:Product development
    
    
    (466,543
    )
    
    
    
    
    
    
    (466,543
    )Selling and marketing
    
    
    (6,329,856
    )
    
    
    (546,609
    )
    
    
    (6,876,465
    )General and administrative
    
    
    (22,992,865
    )
    
    
    (941,660
    )
    
    
    (23,934,525
    )Goodwill impairment
    
    
    (3,592,933
    )
    
    
    
    
    
    
    (3,592,933
    )Total operating expenses
    
    
    (33,382,197
    )
    
    
    (1,488,269
    )
    
    
    (34,870,466
    )Operating loss from continuing operations
    
    
    (26,696,716
    )
    
    
    (1,007,844
    )
    
    
    (27,704,560
    )Interest income
    
    
    454,438
    
    
    
    499
    
    
    
    454,937Interest expenses
    
    
    (13,681
    )
    
    
    
    
    
    
    (13,681
    )Other income, net
    
    
    341,651
    
    
    
    1
    
    
    
    341,652Loss before income tax expenses from continuing
operations
    
    
    (25,914,308
    )
    
    
    (1,007,344
    )
    
    
    (26,921,652
    )Income tax benefit (expense)
    
    
    (234,286
    )
    
    
    13,721
    
    
    
    (220,565
    )Equity in loss of affiliated company
    
    
    (914,072
    )
    
    
    
    
    
    
    (914,072
    )Loss from continuing operations, net of tax
    
    
    (27,062,666
    )
    
    
    (993,623
    )
    
    
    (28,056,289
    )Discontinued operations:Loss from operations of discontinued operations
    
    
    
    
    
    
    
    
    
    
    Gain from disposal of discontinued operations
    
    
    221,899
    
    
    
    
    
    
    
    221,899Gain from discontinued operations, net of tax
    
    
    221,899
    
    
    
    
    
    
    
    221,899Loss from continuing and discontinued operations
    
    
    (26,840,767
    )
    
    
    (993,623
    )
    
    
    (27,834,390
    )Less: Net loss attributable to the
non-controlling interests and redeemable
non-controlling interest from coninuting
operations
    
    
    4,182,875
    
    
    
    256,654
    
    
    
    4,439,529Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (22,657,892
    )
    
    
    (736,969
    )
    
    
    (23,394,861
    )Loss from continuing operations, net of
tax, attributable to Ku6 Media Co., Ltd.
    
    
    (22,879,791
    )
    
    
    (736,969
    )
    
    
    (23,616,760
    )Loss from discontinued operations, net of
tax, attributable to Ku6 Media Co., Ltd.
    
    
    221,899
    
    
    
    
    
    
    
    221,899Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (22,657,892
    )
    
    
    (736,969
    )
    
    
    (23,394,861
    )
  F-13




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Consolidated Statement of Operations andComprehensive Loss for the year ended
    
    As originally
    
    
    Effect of acquisition ofDecember 31, 2009
    
    reported
    
    
    online audio business
    
    
    As adjusted*Net loss
    
    
    (26,840,767
    )
    
    
    (993,623
    )
    
    
    (27,834,390
    )Other comprehensive loss:Currency translation adjustments of subsidiaries
    
    
    (37,917
    )
    
    
    1,861
    
    
    
    (36,056
    )Comprehensive loss
    
    
    (26,878,684
    )
    
    
    (991,763
    )
    
    
    (27,870,446
    )Comprehensive loss attributable to
non-controlling interests and redeemable
non-controlling interests
    
    
    4,187,304
    
    
    
    256,654
    
    
    
    4,443,958Comprehensive loss attributable to Ku6 Media
Co., Ltd.
    
    
    (22,691,380
    )
    
    
    (735,108
    )
    
    
    (23,426,488
    )Loss per share-basic and diluted:Loss from continuing operations attributable
to Ku6 Media Co., Ltd. common shareholders
    
    
    (0.01
    )
    
    
    (0.00
    )
    
    
    (0.01
    )Loss from discontinued operations
attributable to Ku6 Media Co., Ltd. common
shareholders
    
    
    0.00
    
    
    
    
    
    
    
    0.00Net loss attributable to Ku6 Media Co., Ltd.
common shareholders
    
    
    (0.01
    )
    
    
    (0.03
    )
    
    
    (0.01
    )Weighted average share used in per share
calculation-basic and diluted
    
    
    2,196,291,947
    
    
    
    2,196,291,947
    
    
    
    2,196,291,947Loss per ADS-basic and diluted (1ADS = 100
shares):Loss from continuing operations attributable
to Ku6 Media Co., Ltd. common shareholders
    
    
    (1.04
    )
    
    
    (0.03
    )
    
    
    (1.07
    )Loss from discontinued operations
attributable to Ku6 Media Co., Ltd. common
shareholders
    
    
    0.01
    
    
    
    
    
    
    
    0.01Net loss attributable to Ku6 Media Co., Ltd.
common shareholders
    
    
    (1.03
    )
    
    
    (0.03
    )
    
    
    (1.06
    )Weighted average ADS used in per ADS
calculation-basic and diluted
    
    
    21,96,2,919
    
    
    
    21,96,2,919
    
    
    
    21,96,2,919
 *
    
    As adjusted reflects the acquisition of Yisheng only and does not include the effects of the
disposal of wireless value-added services and recorded music business as discussed in note (b)
below. (b) Disposal of wireless value-added services and recorded music businesses
   F-14




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in U.S. dollars, unless otherwise stated)
  Year ended
    
    
    Year ended
    
    
    Eight monthsDecember 31,
    
    
    December 31,
    
    
    ended August 31,2008
    
    
    2009
    
    
    2010Net revenues:Wireless value added services Revenue
    
    
    42,671,588
    
    
    
    20,169,110
    
    
    
    5,385,985Recorded music Revenue
    
    
    11,286,812
    
    
    
    14,473,185
    
    
    
    9,458,423Total net revenues
    
    
    53,958,400
    
    
    
    34,642,295
    
    
    
    14,844,408Wireless value added services Cost
    
    
    (32,839,642
    )
    
    
    (15,331,675
    )
    
    
    (3,799,581
    )Recorded music Cost
    
    
    (6,729,725
    )
    
    
    (12,625,139
    )
    
    
    (6,118,305
    )Total cost of revenues
    
    
    (39,569,367
    )
    
    
    (27,956,814
    )
    
    
    (9,917,886
    )Gross profit
    
    
    14,389,033
    
    
    
    6,685,481
    
    
    
    4,926,522Product development
    
    
    (886,406
    )
    
    
    (466,543
    )
    
    
    (444,581
    )Selling and marketing
    
    
    (8,509,528
    )
    
    
    (6,211,334
    )
    
    
    (3,397,797
    )General and administrative
    
    
    (10,311,365
    )
    
    
    (17,469,445
    )
    
    
    (4,544,460
    )Goodwill impairment
    
    
    (2,675,211
    )
    
    
    (3,592,933
    )
    
    
    Gain on reduction of Unicom liability
    
    
    1,557,153
    
    
    
    
    
    
    
    Gain from reversed litigation expenses
    
    
    557,167
    
    
    
    
    
    
    
    Total operating expenses
    
    
    (20,268,190
    )
    
    
    (27,740,255
    )
    
    
    (8,386,838
    )Loss from operations
    
    
    (5,879,157
    )
    
    
    (21,054,774
    )
    
    
    (3,460,316
    )Interest income
    
    
    181,571
    
    
    
    98,770
    
    
    
    42,627Interest expense
    
    
    
    
    
    
    (13,681
    )
    
    
    Other income
    
    
    247,156
    
    
    
    339,869
    
    
    
    9,667Loss before income tax benefit (expense), equity in
(loss) earnings of affiliated company, impairment
for investment in affiliated company
    
    
    (5,450,430
    )
    
    
    (20,629,816
    )
    
    
    (3,408,022
    )Income tax benefit (expense)
    
    
    (486,250
    )
    
    
    (234,286
    )
    
    
    25,584Equity in (loss) earnings of affiliated company
    
    
    64,293
    
    
    
    (914,072
    )
    
    
    Impairment for investment in affiliated company
    
    
    (1,870,897
    )
    
    
    
    
    
    
    Net loss
    
    
    (7,743,284
    )
    
    
    (21,778,174
    )
    
    
    (3,382,438
    )Less: Net loss attributable to the
non-controlling interests and redeemable
non-controlling interest
    
    
    337,455
    
    
    
    4,182,875
    
    
    
    243,666Net loss from discontinued operations, net of tax
    
    
    (7,405,829
    )
    
    
    (17,595,299
    )
    
    
    (3,138,772
    )Gain from disposal of Huayi Music
    
    
    
    
    
    
    
    
    
    
    4,486,786Total net (loss) income from discontinued operations
    
    
    (7,405,829
    )
    
    
    (17,595,299
    )
    
    
    1,348,014
   F-15




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (c) Liquidity
  (2) Use of estimates
  (3) Consolidation
  Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51
  F-16




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
     
 
  F-17




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 
 
 
 Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51
 (4) Significant risks and uncertainties
  (5) Fair value
     F-18




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
   (6) Business combinations and non-controlling interests
  Business combinations
  Non-controlling Interests in Consolidated Financial
Statements-an amendment of ARB No.51 Classification and Measurement of Redeemable Securities
  F-19




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (7) Foreign currency translation
      (8) Cash and cash equivalents
  (9) Short-term investments
  (10) Allowances for doubtful accounts
   F-20




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (11) Inventories
  (12) Investment in affiliated company
   (13) Property and equipment, net
  Furniture and office equipment
    
    3~5 yearsMotor vehicles
    
    5 yearsTelecommunications equipment
    
    3~5 yearsLeasehold improvements
    
    Lesser of original lease term or estimated useful life
   F-21




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (14) Acquired intangible assets, net
 Business combinations
 (15) Video production and acquisition costs and licensed video copyrights
  Video production and acquisition costs
     Licensed video copyrights
    F-22




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  (16) Goodwill
   (17) Impairment of long-lived assets
  (18) Financial instruments
   F-23




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (19) Revenue recognition and cost of revenues
  Wireless value-added services (discontinued operations (Note 2(1)
     
    
    the Company was the primary obligor in the arrangement;
 
    
    the Company was able to establish prices within price caps prescribed by the
telecommunications operators to reflect or react to changes in the market;
 
    
    the Company determined the service specifications of the services it will be
rendering;
 
    
    the Company was able to control the selection of its content suppliers; and
 
    
    the Telecom Operators usually would not pay the Company if users couldnot be billed
or if users did not pay the Telecom Operators for services delivered and, as a result,
the Company bears the delivery and billing risks for the revenues generated with
respect to its services.
  F-24




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  Recorded Music (discontinued operations (Note 2(1)
       F-25




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Online advertising services
   Multiple Element Arrangements
   Accounting for Consideration Given by a Vendor to a
Customer
  Business tax and related surcharges
   F-26




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (20) Product development expenses
  (21) General and administrative expenses
  (22) Sales and marketing
  (23) Advertising costs
  (24) Stock-based compensation
 Stock Compensation
   F-27




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (25) Leases
  (26) Taxation
  Income Taxes
 for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 (27) Statutory reserves
     F-28




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  (28) Contingency
  (29) Loss per share
  (30) Comprehensive loss
  (31) Recent accounting pronouncements
   F-29




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
   3. BUSINESS COMBINATIONS
 (a) 2010 acquisition
   F-30




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  Total purchase price:Ordinary shares issued to acquired all of the outstanding shares of Ku6
    
    
    27,101,920Ordinary shares issued to replace the options issued by Ku6
    
    
    1,773,080Share based compensation related to post combination portion
    
    
    (1,284,766
    )27,590,234
 Amortization periodAggregate purchase price allocation Ku6:Cash and cash equivalents
    
    
    329,743Account receivables
    
    
    3,264,513Other current assets
    
    
    811,845Acquired intangible assets:Trademark
    
    
    24,901,940
    
    
    20 yearsSoftware technology
    
    
    2,197,230
    
    
    7 yearsCustomer base
    
    
    1,464,820
    
    
    5 yearsNon-current deferred tax liability
    
    
    (4,826,059
    )Goodwill
    
    
    6,232,770Property and equipment, net
    
    
    3,652,599Other non-current assets
    
    
    937,485Current liabilities
    
    
    (11,376,652
    )Total
    
    
    27,590,234
      F-31




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  Year Ended
    
    
    Year EndedDecember 31, 2009
    
    
    December 31, 2010(unaudited)
    
    
    (unaudited)Net revenues
    
    
    7,261,708
    
    
    
    16,787,493Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (35,258,520
    )
    
    
    (56,033,640
    )Loss per ADS- Basic and Diluted:
    
    
    (1.61
    )
    
    
    (1.81
    )
  (b) 2009 acquisition
 Acquisition of Seed Music Group Limited (disposed in August 2010 and presented in discontinued
operation (Note 2(1))
    F-32




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
   Total purchase price:Cash consideration
    
    
    2,507,438Contingent consideration (Note 10)
    
    
    352,217Fair value of redeemable non-controlling interests
    
    
    1,569,8084,429,463
 Amortization periodAggregate purchase price allocation Seed Music:Cash and cash equivalents
    
    
    1,034,308Inventory
    
    
    53,504Other current assets
    
    
    891,723Acquired intangible assets:Artist contracts
    
    
    1,717,846
    
    
    7.1~9.0 yearsTrademarks
    
    
    1,569,808
    
    
    20 yearsNon-compete agreement
    
    
    183,218
    
    
    4.5 yearsCopyrights
    
    
    5,863
    
    
    0.4 yearsNon-current deferred tax liability
    
    
    (869,184
    )Goodwill (allocated to music segment)
    
    
    2,535,523Property and equipment, net
    
    
    50,084Other non-current assets
    
    
    51,526Current liabilities
    
    
    (2,216,292
    )Other non-current liabilities
    
    
    (578,464
    )Total
    
    
    4,429,463
    F-33




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  (c) 2008 acquisition
  4. DISCONTINUED OPERATIONS
 Disposal of WVAS and recorded music businesses
   August 31, 2010Current assets:Cash
    
    
    24,948,577Accounts receivable, net of allowance
    
    
    5,402,738Prepaid expenses and other current assets
    
    
    2,610,86332,962,178Non-current assets:Property and equipment, net
    
    
    943,258Intangible assets
    
    
    766,847Goodwill
    
    
    1,998,821Other non-current assets
    
    
    300,5324,009,458Current liabilities:Accounts payable
    
    
    4,337,542Accrued expenses and other current liabilities
    
    
    7,034,89411,372,436Non-current liabilities:Non-current deferred tax liabilities
    
    
    186,528Other non-current liabilities
    
    
    12,322198,850Non-controlling interests and redeemable non-controlling interest:
    
    
    1,717,533
  F-34




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Year ended
    
    
    Year ended
    
    
    Eight months endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    August 31, 2010Total net revenues
    
    
    53,958,400
    
    
    
    34,642,295
    
    
    
    14,844,408Loss from operations
    
    
    (5,879,157
    )
    
    
    (21,054,774
    )
    
    
    (3,460,316
    )Income tax benefit (expense)
    
    
    (486,250
    )
    
    
    (234,286
    )
    
    
    25,584Net loss
    
    
    (7,743,284
    )
    
    
    (21,778,174
    )
    
    
    (3,382,438
    )Less: Net loss attributable to
the non-controlling interests
and redeemable non-controlling
interest
    
    
    337,455
    
    
    
    4,182,875
    
    
    
    243,666Net loss from discontinued
operations, net of tax
    
    
    (7,405,829
    )
    
    
    (17,595,299
    )
    
    
    (3,138,772
    )Gain from disposal of Huayi Music
    
    
    
    
    
    
    
    
    
    
    4,486,786Total net (loss) income from
discontinued operations
    
    
    (7,405,829
    )
    
    
    (17,595,299
    )
    
    
    1,348,014
 Disposal of software and systems integration business
    F-35




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
  December 31, 2009
    
    
    December 31, 2010Staff advances and other receivables
    
    
    387,710
    
    
    
    1,028,156Advances to suppliers
    
    
    700,569
    
    
    
    454,273Prepaid licensing fee of video copyright
    
    
    
    
    
    
    1,722,608Prepaid expenses
    
    
    396,436
    
    
    
    282,290Prepaid artist costs
    
    
    405,570
    
    
    
    1,890,285
    
    
    
    3,487,327
 6. PROPERTY AND EQUIPMENT, NET
  December 31, 2009
    
    
    December 31, 2010Furniture and office equipment
    
    
    3,303,822
    
    
    
    1,208,434Motor vehicles
    
    
    336,778
    
    
    
    Telecommunications equipment
    
    
    3,630,903
    
    
    
    10,627,167Leasehold improvements
    
    
    776,639
    
    
    
    1,368,6778,048,162
    
    
    
    13,204,278Less: accumulated depreciation and amortization
    
    
    (6,576,430
    )
    
    
    (5,200,804
    )1,471,732
    
    
    
    8,003,474
   F-36




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 7. ACQUIRED INTANGIBLE ASSETS, NET
 December 31, 2010Gross carrying
    
    
    Accumulated
    
    
    Intangible assets
    
    
    Net carryingamount
    
    
    amortization
    
    
    impairment
    
    
    amountOnline advertising segment:Amortizable intangible assetsSoftware technology
    
    
    823,273
    
    
    
    425,358
    
    
    
    
    
    
    
    397,915Trademark
    
    
    24,901,940
    
    
    
    1,141,339
    
    
    
    
    
    
    
    23,760,601Technology
    
    
    2,197,230
    
    
    
    287,733
    
    
    
    
    
    
    
    1,909,497Customer list
    
    
    1,464,820
    
    
    
    268,550
    
    
    
    
    
    
    
    1,196,27029,387,263
    
    
    
    2,122,980
    
    
    
    
    
    
    
    27,264,283
 December 31, 2009 (Adjusted) (Note 2(1))Gross carrying
    
    
    Accumulated
    
    
    Intangible assets
    
    
    Net carryingamount
    
    
    amortization
    
    
    impairment
    
    
    amountWVAS segment:Amortizable intangible assetsWVAS licenses
    
    
    518,114
    
    
    
    400,847
    
    
    
    117,267
    
    
    
    Customer agreements with
Telecom Operators
    
    
    2,849,884
    
    
    
    780,129
    
    
    
    2,069,755
    
    
    
    Non-compete agreements
    
    
    988,882
    
    
    
    355,413
    
    
    
    633,469
    
    
    
    Business transaction codes
    
    
    196,897
    
    
    
    164,081
    
    
    
    32,816
    
    
    
    Platform
    
    
    473,784
    
    
    
    434,427
    
    
    
    39,357
    
    
    
    Software
    
    
    95,226
    
    
    
    95,226
    
    
    
    
    
    
    
    Trademarks
    
    
    174,336
    
    
    
    9,685
    
    
    
    164,651
    
    
    
    5,297,123
    
    
    
    2,239,808
    
    
    
    3,057,315
    
    
    
    Recorded music segment:Amortizable intangible assetsArtist contracts
    
    
    6,700,617
    
    
    
    2,653,318
    
    
    
    3,840,082
    
    
    
    207,217Copyrights
    
    
    698,055
    
    
    
    552,944
    
    
    
    145,111
    
    
    
    Exclusive WVAS agreements
    
    
    584,873
    
    
    
    66,925
    
    
    
    478,590
    
    
    
    39,358Exclusive copyright agreements
    
    
    12,543
    
    
    
    11,498
    
    
    
    1,045
    
    
    
    WVAS contracts
    
    
    249,845
    
    
    
    249,845
    
    
    
    
    
    
    
    Non-compete agreements
    
    
    318,724
    
    
    
    38,102
    
    
    
    211,135
    
    
    
    69,487Software
    
    
    6,431
    
    
    
    4,431
    
    
    
    
    
    
    
    2,000Trademarks
    
    
    2,264,634
    
    
    
    176,610
    
    
    
    1,324,124
    
    
    
    763,90010,835,722
    
    
    
    3,753,673
    
    
    
    6,000,087
    
    
    
    1,081,962Online advertising segment:Amortizable intangible assetsSoftware technology
    
    
    823,273
    
    
    
    260,704
    
    
    
    
    
    
    
    562,56916,956,117
    
    
    
    6,254,185
    
    
    
    9,057,401
    
    
    
    1,644,531
   F-37




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in U.S. dollars, unless otherwise stated)
     2011
    
    
    2,016,6122012
    
    
    2,016,6122013
    
    
    1,920,5712014
    
    
    1,851,9602015 and later
    
    
    19,458,52827,264,283
 8. INVESTMENT IN EQUITY AFFILIATE
    F-38




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 9. GOODWILL
 Recorded
    
    
    OnlineGross amount of goodwill
    
    WVAS
    
    
    Music
    
    
    Advertising
    
    
    TotalBalance as of January 1, 2009
    
    
    41,910,021
    
    
    
    5,313,132
    
    
    
    
    
    
    
    47,223,153Goodwill arising from
acquisitions during the year
    
    
    
    
    
    
    2,535,523
    
    
    
    
    
    
    
    2,535,523Effect of exchange rate changes
    
    
    (19,630
    )
    
    
    
    
    
    
    
    
    
    
    (19,630
    )Balance as of December 31, 2009
    
    
    41,890,391
    
    
    
    7,848,655
    
    
    
    
    
    
    
    49,739,046Goodwill arising from
acquisitions during the year
    
    
    
    
    
    
    
    
    
    
    6,232,770
    
    
    
    6,232,770Goodwill contributed by Shanda
    
    
    
    
    
    
    
    
    
    
    663,570
    
    
    
    663,570Goodwill transferred out due
to disposal
    
    
    (42,148,288
    )
    
    
    (7,848,655
    )
    
    
    
    
    
    
    (49,996,943
    )Effect of exchange rate changes
    
    
    257,897
    
    
    
    
    
    
    
    
    
    
    
    257,897Balance as of December 31, 2010
    
    
    
    
    
    
    
    
    
    
    6,896,340
    
    
    
    6,896,340
 Recorded
    
    
    OnlineAccumulated goodwill impairment
    
    WVAS
    
    
    Music
    
    
    Advertising
    
    
    TotalBalance as of January 1, 2009
    
    
    (41,910,021
    )
    
    
    (2,156,497
    )
    
    
    
    
    
    
    (44,066,518
    )Goodwill impairment
    
    
    
    
    
    
    (3,592,933
    )
    
    
    
    
    
    
    (3,592,933
    )Effect of exchange rate changes
    
    
    19,630
    
    
    
    65
    
    
    
    
    
    
    
    19,695Balance as of December 31, 2009
    
    
    (41,890,391
    )
    
    
    (5,749,365
    )
    
    
    
    
    
    
    (47,639,756
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment transferred out due
to disposal
    
    
    42,148,288
    
    
    
    5,749,365
    
    
    
    
    
    
    
    47,897,653Effect of exchange rate changes
    
    
    (257,897
    )
    
    
    
    
    
    
    
    
    
    
    (257,897
    )Balance as of December 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net carrying amount as of
December 31, 2009
    
    
    
    
    
    
    2,099,290
    
    
    
    
    
    
    
    2,099,290Net carrying amount as of
December 31, 2010
    
    
    
    
    
    
    
    
    
    
    6,896,340
    
    
    
    6,896,340
    F-39




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
    10. FAIR VALUE MEASUREMENTS
   F-40




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in U.S. dollars, unless otherwise stated)
  Fair Value MeasurementsUsing SignificantUnobservable Inputs(Level 3)Contingent considerationBalance as of January 1, 2009
    
    
    Contingent consideration recognized as of acquisition date
    
    
    (352,217
    )Change in fair value of contingent consideration
    
    
    550,092Impairment provision
    
    
    (197,875
    )Balance as of December 31, 2009
    
    
    Change in fair value of contingent consideration
    
    
    Transferred out due to disposal
    
    
    Balance as of December 31, 2010
    
    
    
     F-41




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
  December 31, 2009
    
    
    December 31, 2010Accrued payroll
    
    
    572,489
    
    
    
    2,127,951Accrued welfare benefits
    
    
    667,756
    
    
    
    1,731,403Accrued professional service fee
    
    
    1,214,404
    
    
    
    1,524,890Advance from customers
    
    
    964,262
    
    
    
    609,442Business tax payable
    
    
    441,235
    
    
    
    1,722,830Value-added tax payable
    
    
    121,982
    
    
    
    532Other taxes payable
    
    
    1,207,932
    
    
    
    718,668Accrued litigation provision
    
    
    
    
    
    
    748,299Other accrued expenses
    
    
    1,141,627
    
    
    
    2,278,2266,331,687
    
    
    
    11,462,241
 12. RELATED PARTY TRANSACTIONS AND BALANCES
    Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010Related party
transactions in
discontinued
operations:Consulting,
royalty and artist
performance fee
from Huayi Brothers
Media Corporation
    
    
    281,795
    
    
    
    
    
    
    
    Consulting,
production and
marketing service
fee from Huayi
Brothers Times
Culture Broker Co.,
Ltd.
    
    
    
    
    
    
    281,580
    
    
    
    Royalty revenue
from Shanghai
Haiyue Music
Distribution Co.,
Ltd.
    
    
    120,129
    
    
    
    
    
    
    
    Royalty revenue
from Beijing
Oriental Freeland
Film Media Co.,
Ltd.
    
    
    128,995
    
    
    
    
    
    
    
    CD distribution
revenue from
Beijing Century
Freeland Film Media
Co., Ltd.
    
    
    35,625
    
    
    
    52,248
    
    
    
    
  F-42




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Year Ended
    
    
    Year Ended
    
    
    Year EndedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010Related party
transactions in continuing
operations:Advertising revenue
received from companies
under common control by
Shanda
    
    
    
    
    
    
    279,341
    
    
    
    701,732Promotion service fee paid
to companies under common
control by Shanda
    
    
    
    
    
    
    
    
    
    
    376,302Loan from Shanghai Computer
(Shanghai) Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    1,565,290Loan from Shanghai Shulong
Technology Co., Ltd.
    
    
    
    
    
    
    
    
    
    
    3,030,711Loan to Shanda Games Limited
    
    
    
    
    
    
    
    
    
    
    3,200,000
   December 31, 2009
    
    
    December 31, 2010Other receivables due
from related partiesSeed Music Group Limited
    
    
    
    
    
    
    980,000Shanda Games Limited
    
    
    
    
    
    
    3,200,000Hurray! Media Co., Ltd.
    
    
    
    
    
    
    1,246,641Other companies under common control by Shanda
    
    
    63,312
    
    
    
    105,60763,312
    
    
    
    5,532,248
  December 31, 2009
    
    
    December 31, 2010Other payables due to related partiesShanda Computer (Shanghai) Co., Ltd.
    
    
    1,465,010
    
    
    
    3,030,300Shanghai Shulong Technology Co. Ltd
    
    
    
    
    
    
    3,030,711Hurray! Solutions Ltd.
    
    
    
    
    
    
    1,586,899Other related party
    
    
    439,445
    
    
    
    128,7881,904,455
    
    
    
    7,776,698
   F-43




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 13. GAIN ON REDUCTION OF ACQUISITION PAYABLE
  14. FOREIGN EXCHANGE LOSS
  15. INCOME TAXES
     Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31,2010Current income
taxes from
discontinued
operations
    
    
    298,579
    
    
    
    750,705
    
    
    
    6,229Deferred
income taxes from
discontinued
operations
    
    
    187,671
    
    
    
    (516,419
    )
    
    
    (31,813
    )Deferred
income taxes from
continuing
operations
    
    
    
    
    
    
    (13,721
    )
    
    
    (41,172
    )486,250
    
    
    
    220,565
    
    
    
    (66,756
    )
  F-44




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  December 31, 2009
    
    
    December 31, 2010Deferred tax assets:Cost and expenses accruals
    
    
    3,038,521
    
    
    
    4,714,262Revenue recognition
    
    
    
    
    
    
    851,657Less: valuation allowance
    
    
    (3,038,521
    )
    
    
    (4,985,157
    )Current deferred tax assets
    
    
    
    
    
    
    580,762Depreciation and amortization
    
    
    170,828
    
    
    
    1,899,375Net operating loss carry forwards
    
    
    5,710,412
    
    
    
    13,727,221Less: valuation allowance
    
    
    (5,271,100
    )
    
    
    (14,137,744
    )Non-current deferred tax assets
    
    
    610,140
    
    
    
    1,488,852Deferred tax liabilities:Revenue recognition
    
    
    (622,456
    )
    
    
    (2,069,614
    )Current deferred tax liabilities
    
    
    (622,456
    )
    
    
    (2,069,614
    )Intangible assets
    
    
    (403,308
    )
    
    
    (4,925,538
    )Non-current deferred tax liabilities
    
    
    (403,308
    )
    
    
    (4,925,538
    )
  Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010Statutory tax rate
    
    
    25.0
    %
    
    
    25.0
    %
    
    
    25.0
    %Differential statutory tax rates
    
    
    10.1
    %
    
    
    0.2
    %
    
    
    (3.3
    %)Non-deductible expenses
    
    
    (26.7
    %)
    
    
    (6.2
    %)
    
    
    0.4
    %Non-taxable income
    
    
    15.9
    %
    
    
    
    
    
    
    Change in enterprise income tax rate
    
    
    
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    (37.3
    %)
    
    
    (19.8
    %)
    
    
    (22.0
    %)Effective tax rate
    
    
    (13.0
    %)
    
    
    (0.8
    %)
    
    
    0.1
    %
  F-45




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  December 31, 2009
    
    
    December 31, 2010At beginning of year
    
    
    (7,772,515
    )
    
    
    (8,309,621
    )Consolidation of Ku6
    
    
    
    
    
    
    (6,123,900
    )Consolidation of Yisheng
    
    
    (167,418
    )
    
    
    Current year additions
    
    
    (1,029,311
    )
    
    
    (14,292,925
    )Current year reversals
    
    
    655,761
    
    
    
    1,404,205Transferred out due to
disposal of WVAS and recorded
music businesses
    
    
    
    
    
    
    8,433,935Effect of exchange rate changes
    
    
    3,862
    
    
    
    (234,595
    )(8,309,621
    )
    
    
    (19,122,901
    )
    16. EQUITY COMPENSATION PLANS
 2004 Share Incentive Plan
 Stock option
    F-46




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
  WeightedWeighted
    
    
    AverageOptions
    
    
    Average
    
    
    Remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic ValueUS$
    
    
    
    
    
    
    US$Outstanding at January 1, 2008
    
    
    74,266,200
    
    
    
    0.084
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (60,000
    )
    
    
    0.025
    
    
    
    
    
    
    
    Cancelled or Expired
    
    
    (26,838,500
    )
    
    
    0.094
    
    
    
    
    
    
    
    Outstanding at December 31, 2008
    
    
    47,367,700
    
    
    
    0.080
    
    
    
    
    
    
    
    Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (350,000
    )
    
    
    0.025
    
    
    
    
    
    
    
    Cancelled or Expired
    
    
    (1,435,000
    )
    
    
    0.115
    
    
    
    
    
    
    
    Outstanding at December 31, 2009
    
    
    45,582,70
    
    
    
    0.080
    
    
    
    3.63
    
    
    
    147,478Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (450,000
    )
    
    
    0.045
    
    
    
    
    
    
    
    Cancelled or Expired
    
    
    (548,000
    )
    
    
    0.113
    
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    44,584,700
    
    
    
    0.080
    
    
    
    2.63
    
    
    
    226,985Vested and expected to vest at December 31, 2010
    
    
    44,584,700
    
    
    
    0.080
    
    
    
    2.63
    
    
    
    226,985Vested and exercisable at December 31, 2010
    
    
    44,584,700
    
    
    
    0.080
    
    
    
    2.63
    
    
    
    226,985
  Non-vested shares
       F-47




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
   WeightedNumber
    
    
    average grantNon-vested stock units
    
    outstanding
    
    
    date fair valueUS$Outstanding at January 1, 2008
    
    
    49,833,800
    
    
    
    0.0488Granted
    
    
    
    
    
    
    Vested
    
    
    (18,499,300
    )
    
    
    0.0523Forfeited
    
    
    (17,834,200
    )
    
    
    0.0513Outstanding at December 31, 2008
    
    
    13,500,300
    
    
    
    0.0406Granted
    
    
    
    
    
    
    Vested
    
    
    (6,500,300
    )
    
    
    0.0313Forfeited
    
    
    (3,999,900
    )
    
    
    0.0507Outstanding at December 31, 2009
    
    
    3,000,100
    
    
    
    0.0313Granted
    
    
    
    
    
    
    Vested
    
    
    (3,000,100
    )
    
    
    0.0313Forfeited
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    
    
    
    
    
 2010 Equity Compensation Plan
     F-48




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
 (Amounts expressed in U.S. dollars, unless otherwise stated)
     WeightedWeighted
    
    
    AverageOptions
    
    
    Average
    
    
    Remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    Contractual Life
    
    
    Intrinsic ValueUS$
    
    
    
    
    
    
    US$Outstanding at January 1, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted
    
    
    516,750,000
    
    
    
    0.0568
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Cancelled or Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at December 31, 2010
    
    
    516,750,000
    
    
    
    0.0568
    
    
    
    6.46
    
    
    
    Vested and expected to vest at December 31, 2010
    
    
    355,129,632
    
    
    
    0.0568
    
    
    
    6.65
    
    
    
    Vested and exercisable at December 31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    F-49




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
    2010Fair value of ordinary shares (US$)
    
    0.0800Exercise price (US$)
    
    0.0568Expected volatility (%)
    
    60%~65%Expected dividend yield (%)
    
    0%Expected term (years)
    
    4~5Risk-free interest rate (per annum) (%)
    
    1.9407%~2.6565%
 
 (1)
    
    The risk-free interest rate for periods within the contractual life of the share option is
based on the U.S. Treasury yield curve in effect at the time of grant for a term consistent with
the expected term of the awards.(2)
    
    The expected term of stock options granted is developed giving consideration to vesting period,
contractual term and historical exercise pattern of options granted by the Company.(3)
    
    The Company has no history or expectation of paying dividends on its common stock.(4)
    
    Expected volatility is estimated based on the historical volatility of comparable companies
stocks and of the Companys common stock for a period equal to the expected term preceding the
grant date. 17. SEGMENT INFORMATION
 Segment Reporting Disclosures about Segments of an Enterprise and Related Information
  F-50




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
    December 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010WVAS
    
    
    28,952,925
    
    
    
    24,400,482
    
    
    
    Recorded music
    
    
    16,977,258
    
    
    
    9,863,363
    
    
    
    Corporate assets
    
    
    42,394,219
    
    
    
    33,904,432
    
    
    
    Total assets
    
    
    88,324,402
    
    
    
    68,168,277
    
    
    
    
 Year ended
    
    
    Year ended
    
    
    Eight months endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    August 31, 2010Total expenditures
for additions to
long-lived assetsWVAS
    
    
    228,431
    
    
    
    599,254
    
    
    
    402,710Recorded music
    
    
    120,802
    
    
    
    79,028
    
    
    
    84,613Total capital expenditure
    
    
    349,233
    
    
    
    678,282
    
    
    
    487,323
  F-51




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 Year ended
    
    
    Year ended
    
    
    Eight months endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    August 31, 2010RevenuesWVAS
    
    
    42,671,588
    
    
    
    20,169,110
    
    
    
    5,385,985Recorded music
    
    
    11,286,812
    
    
    
    14,473,185
    
    
    
    9,458,423Total revenues
    
    
    53,958,400
    
    
    
    34,642,295
    
    
    
    14,844,408Cost of revenuesWVAS
    
    
    32,839,642
    
    
    
    15,331,675
    
    
    
    3,799,581Recorded music
    
    
    6,729,725
    
    
    
    12,625,139
    
    
    
    6,118,305Total cost of revenues
    
    
    39,569,367
    
    
    
    27,956,814
    
    
    
    9,917,886Gross profitWVAS
    
    
    9,831,946
    
    
    
    4,837,435
    
    
    
    1,586,404Recorded music
    
    
    4,557,087
    
    
    
    1,848,046
    
    
    
    3,340,118Total gross profit
    
    
    14,389,033
    
    
    
    6,685,481
    
    
    
    4,926,522
  Year ended
    
    
    Year ended
    
    
    Eight months endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    August 31, 2010RevenuesSMS
    
    
    13,319,011
    
    
    
    5,307,435
    
    
    
    456,968IVR
    
    
    12,207,136
    
    
    
    3,943,733
    
    
    
    545,890RBT
    
    
    4,960,624
    
    
    
    4,447,918
    
    
    
    2,493,9292G revenues
    
    
    30,486,771
    
    
    
    13,699,086
    
    
    
    3,496,787WAP
    
    
    7,434,197
    
    
    
    3,145,885
    
    
    
    565,205MMS
    
    
    1,355,441
    
    
    
    1,692,585
    
    
    
    170,281JAVA
    
    
    2,244,010
    
    
    
    1,541,618
    
    
    
    902,194WEB
    
    
    218,810
    
    
    
    11,794
    
    
    
    2.5G revenues
    
    
    11,252,458
    
    
    
    6,391,882
    
    
    
    1,637,680Other revenues
    
    
    932,359
    
    
    
    78,142
    
    
    
    251,518Total WVAS revenue
    
    
    42,671,588
    
    
    
    20,169,110
    
    
    
    5,385,985Recorded music revenue
    
    
    11,286,812
    
    
    
    14,473,185
    
    
    
    9,458,423Total revenues
    
    
    53,958,400
    
    
    
    34,642,295
    
    
    
    14,844,408
  Geographic Information
   F-52




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 18. LOSS PER SHARE
  Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010Numerator:Net loss attributable to Ku6 Media Co., Ltd. from
continuing operations for basic and diluted earnings per
ADS
    
    
    (4,959,297
    )
    
    
    (6,021,461
    )
    
    
    (52,858,278
    )Net loss (income) attributable to Ku6 Media Co., Ltd.
from discontinued operations for basic and diluted
earnings per ADSs
    
    
    (6,993,299
    )
    
    
    (17,373,400
    )
    
    
    1,348,014Net loss attributable to Ku6 Media Co., Ltd.
    
    
    (11,952,596
    )
    
    
    (23,394,861
    )
    
    
    (51,510,264
    )Denominator:Weighted-average ordinary shares outstanding for basic
calculation
    
    
    2,185,615,129
    
    
    
    2,196,291,947
    
    
    
    3,096,421,097Dilutive effect of restricted shares and stock options
    
    
    
    
    
    
    
    
    
    
    Weighted average ordinary shares outstanding for
diluted calculation
    
    
    2,185,615,129
    
    
    
    2,196,291,947
    
    
    
    3,096,421,097Weighted-average ADS used in per basic ADS
calculations
    
    
    21,856,151
    
    
    
    21,962,919
    
    
    
    30,964,211Dilutive effect of restricted shares and stock options
    
    
    
    
    
    
    
    
    
    
    Weighted-average ADS used in per diluted ADS
calculations
    
    
    21,856,151
    
    
    
    21,962,919
    
    
    
    30,964,211Loss per share  basic and dilutedLoss from continuing operations attributable to Ku6 Media
Co., Ltd. ordinary shareholders per share  basic and
diluted
    
    
    (0.00
    )
    
    
    (0.00
    )
    
    
    (0.02
    )Loss (income) from discontinued operations
attributable to Ku6 Media Co., Ltd. ordinary shareholders
per share  basic and diluted
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    0.00Loss attributable to Ku6 Media Co., Ltd. ordinary
shareholders per share  basic and diluted
    
    
    (0.01
    )
    
    
    (0.01
    )
    
    
    (0.02
    )Loss per ADS  basic and dilutedLoss from continuing operations attributable to Ku6 Media
Co., Ltd. ordinary shareholders per ADS  basic and
diluted
    
    
    (0.23
    )
    
    
    (0.27
    )
    
    
    (1.71
    )Loss (income) from discontinued operations
attributable to Ku6 Media Co., Ltd. ordinary shareholders
per ADS basic and diluted
    
    
    (0.32
    )
    
    
    (0.79
    )
    
    
    0.04Loss attributable to Ku6 Media Co., Ltd. ordinary
shareholders per ADS  basic and diluted
    
    
    (0.55
    )
    
    
    (1.06
    )
    
    
    (1.67
    )
  F-53




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
   19. CONCENTRATIONS
 (a) Dependence on Telecom Operators
   Year ended December 31, 2008
    
    
    Year ended December 31, 2009
    
    
    Eight months ended August 31, 2010Revenues
    
    
    %
    
    
    Revenues
    
    
    %
    
    
    Revenues
    
    
    %China Mobile
    
    
    24,352,344
    
    
    
    45
    %
    
    
    10,074,902
    
    
    
    28
    %
    
    
    2,455,914
    
    
    
    46
    %China Unicom
    
    
    10,775,358
    
    
    
    20
    %
    
    
    5,068,739
    
    
    
    14
    %
    
    
    1,711,726
    
    
    
    32
    %China Telecom
    
    
    5,070,996
    
    
    
    9
    %
    
    
    4,405,260
    
    
    
    12
    %
    
    
    1,059,075
    
    
    
    20
    %
  December 31, 2009
    
    
    December 31, 2010Accounts receivable
    
    
    %
    
    
    Accounts receivable
    
    
    %China Mobile
    
    
    744,428
    
    
    
    18
    %
    
    
    
    
    
    
    China Unicom
    
    
    678,640
    
    
    
    17
    %
    
    
    
    
    
    
    China Telecom
    
    
    228,914
    
    
    
    6
    %
    
    
    
    
    
    
    
  F-54




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 (b) Credit risk
    Movement of allowance for doubtful accounts
 Year ended
    
    
    Year endedDecember 31, 2009
    
    
    December 31, 2010Balance at beginning of the period
    
    
    826,026
    
    
    
    4,015,145Consolidation of Seed Music
    
    
    425,065
    
    
    
    Consolidation of Ku6
    
    
    
    
    
    
    101,484Provisions
    
    
    4,107,915
    
    
    
    1,976,053Reversed
    
    
    (373,943
    )
    
    
    (501,485
    )Written off
    
    
    (969,918
    )
    
    
    (53,563
    )Transferred out due to disposal of
WVAS and recorded music businesses
    
    
    
    
    
    
    (3,100,455
    )Balance at the end of the period
    
    
    4,015,145
    
    
    
    2,437,179
 20. MAINLAND CHINA CONTRIBUTION PLAN AND STATUTORY RESERVES
   F-55




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 21. COMMITMENTS AND CONTINGENCIES
 Operating leases commitments
   Within 1 year
    
    
    7,529,765Between 1 and 2 years
    
    
    1,657,259Between 2 and 3 years
    
    
    543,843Between 3 and 4 years
    
    
    43,653Total
    
    
    9,774,520
 Capital commitments
  Litigation
    Contingent considerations for business acquisitions
   F-56




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2009 AND 2010
(Amounts expressed in U.S. dollars, unless otherwise stated)
 22. SUBSEQUENT EVENT
       23. RESTRICTED NET ASSETS
   F-57




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
 
 ADDITIONAL INFORMATION  FINANCIAL STATEMENT SCHEDULE I
 BALANCE SHEETS
 (In U.S. dollars)
 December 31, 2009
    
    
    December 31, 2010(Adjusted)(Note 2(1))(in U.S. dollars, except number of shares)AssetsCurrent assets:Cash
    
    
    23,760,844
    
    
    
    11,048,500Short term investments
    
    
    10,000,000
    
    
    
    Prepaid expenses and other current assets
    
    
    134,436
    
    
    
    241,017Amount due from subsidiaries and variable interest entities
    
    
    
    
    
    
    31,959,213Amount due from related parties
    
    
    
    
    
    
    3,841,766Total current assets
    
    
    33,895,280
    
    
    
    47,090,496Investments in subsidiaries and variable interest entities
    
    
    22,838,722
    
    
    
    Total assets
    
    
    56,734,002
    
    
    
    47,090,496Liabilities and shareholders equityAccrued expenses and other current liabilities
    
    
    1,280,993
    
    
    
    1,266,380Amounts due to subsidiaries and variable interest entities
    
    
    376,605
    
    
    
    77,833Total current liabilities
    
    
    1,657,598
    
    
    
    1,344,213Shareholders equity:Ordinary shares ($0.00005 par value; 4,560,000,000 shares
authorized; 2,200,194,040 and 3,481,174,498 shares issued
and outstanding as of December 31, 2009 and 2010,
respectively)
    
    
    109,959
    
    
    
    174,008Additional paid-in capital
    
    
    76,605,958
    
    
    
    130,100,153Accumulated deficit
    
    
    (31,595,200
    )
    
    
    (83,105,464
    )Accumulated other comprehensive income (loss)
    
    
    9,955,687
    
    
    
    (1,422,414
    )Total shareholders equity
    
    
    55,076,404
    
    
    
    45,746,283Total liabilities and shareholders equity
    
    
    56,734,002
    
    
    
    47,090,496
  F-58




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
ADDITIONAL INFORMATION  FINANCIAL STATEMENT SCHEDULE I
STATEMENT OF OPERATIONS
(In U.S. dollars)
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010(Adjusted)(Note (2(1))(in U.S. dollars, except number of shares)Operating expenses:Product development
    
    
    105,283
    
    
    
    
    
    
    
    150,584Selling and marketing
    
    
    622,846
    
    
    
    118,521
    
    
    
    160,231General and administrative
    
    
    1,666,532
    
    
    
    5,520,453
    
    
    
    4,072,134Total operating expenses
    
    
    2,394,661
    
    
    
    5,638,974
    
    
    
    4,382,949Loss from operations
    
    
    (2,394,661
    )
    
    
    (5,638,974
    )
    
    
    (4,382,949
    )Interest income
    
    
    1,429,837
    
    
    
    355,616
    
    
    
    9,404Interest expense
    
    
    
    
    
    
    
    
    
    
    Other income
    
    
    5,000,000
    
    
    
    
    
    
    
    205,043Foreign exchange loss (gain)
    
    
    (8,990,067
    )
    
    
    1,085
    
    
    
    (38,767
    )Gain from disposal of subsidiary
    
    
    412,530
    
    
    
    221,899
    
    
    
    Equity in loss of subsidiaries,
VIEs and affiliate
    
    
    (7,410,235
    )
    
    
    (18,334,487
    )
    
    
    (47,302,995
    )Net loss
    
    
    (11,952,596
    )
    
    
    (23,394,861
    )
    
    
    (51,510,264
    )
  F-59




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##### Table of Contents



KU6 MEDIA CO., LTD. (FOMERLY KNOWN AS HURRAY! HOLDING CO., LTD.)
ADDITIONAL INFORMATION  FINANCIAL STATEMENT SCHEDULE I
STATEMENTS OF CASH FLOWS
(In U.S. dollars)
 Year ended
    
    
    Year ended
    
    
    Year endedDecember 31, 2008
    
    
    December 31, 2009
    
    
    December 31, 2010Adjusted(Note 2(1))(In U.S. dollars)Net lossOperating activities:Net loss
    
    
    (11,952,596
    )
    
    
    (23,394,861
    )
    
    
    (51,510,264
    )Adjustments to reconcile net loss to net cash used in
operating activities:Stock-based compensation
    
    
    945,282
    
    
    
    169,310
    
    
    
    1,891,931Equity in profit of subsidiary companies
    
    
    7,410,235
    
    
    
    18,334,487
    
    
    
    47,302,995Gain from disposal of subsidiary
    
    
    (412,530
    )
    
    
    (221,899
    )
    
    
    Receivable from disposal of subsidiary
    
    
    
    
    
    
    
    
    
    
    Gain on reduction of acquisition payable
    
    
    (5,000,000
    )
    
    
    
    
    
    
    Prepaid expenses and other current assets
    
    
    56,064
    
    
    
    40,047
    
    
    
    (106,581
    )Amount due from related parties
    
    
    
    
    
    
    
    
    
    
    (942,919
    )Other payables and accruals
    
    
    (322,804
    )
    
    
    1,008,149
    
    
    
    4,738Amounts due to subsidiaries and variable interest entities
    
    
    (189,080
    )
    
    
    34,929
    
    
    
    2,381Net cash provided by (used in) operating activities
    
    
    (9,465,429
    )
    
    
    (4,029,838
    )
    
    
    (3,357,719
    )Investing activities:Decrease/(Increase) of short-term investments
    
    
    
    
    
    
    (10,000,000
    )
    
    
    10,000,000Proceeds from disposal of subsidiary
    
    
    4,517,070
    
    
    
    268,759
    
    
    
    37,243,901Loan to subsidiaries
    
    
    
    
    
    
    
    
    
    
    (53,418,876
    )Loan to related parties
    
    
    
    
    
    
    
    
    
    
    (3,200,000
    )Payments related to acquisitions consummated
    
    
    (1,987,930
    )
    
    
    
    
    
    
    Payments related to acquisition not yet consummated
    
    
    (1,907,400
    )
    
    
    
    
    
    
    Investment in cost affiliate
    
    
    (600,038
    )
    
    
    
    
    
    
    Investment in subsidiary
    
    
    
    
    
    
    (2,000,000
    )
    
    
    Purchase of equity affiliate
    
    
    
    
    
    
    
    
    
    
    Net cash used in (provided by) investing activities
    
    
    21,702
    
    
    
    (11,731,241
    )
    
    
    (9,374,975
    )Financing activities:Proceeds from exercise of options
    
    
    1,500
    
    
    
    2,500
    
    
    
    20,350Net cash provided by financing activities
    
    
    1,500
    
    
    
    2,500
    
    
    
    20,350Effect of exchange rate changes on cash and cash
equivalents
    
    
    (99,879
    )
    
    
    
    
    
    
    Net increase (decrease) in cash and cash equivalents
    
    
    (9,442,227
    )
    
    
    (15,758,579
    )
    
    
    (12,712,344
    )Cash and cash equivalents, beginning of year
    
    
    49,061,529
    
    
    
    39,519,423
    
    
    
    23,760,844Cash and cash equivalents, end of the year
    
    
    39,519,423
    
    
    
    23,760,844
    
    
    
    11,048,500
 Note
    F-60




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##### Table of Contents



REPORT OF INDEPENDENT AUDITORS
 TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
KU6 HOLDING LIMITED:
   
  F-61




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##### Table of Contents



KU6 HOLDING LIMITED
 
 CONSOLIDATED BALANCE SHEETS
 December 31,
    
    
    December 31,Note
    
    
    2008
    
    
    2009US$
    
    
    US$ASSETSCurrent assets:Cash and cash equivalents
    
    
    2(5), 3
    
    
    
    11,401,733
    
    
    
    4,035,454Accounts receivable, net of allowance
    
    
    2(6), 4
    
    
    
    2,516,845
    
    
    
    3,160,757Prepayments and other current assets
    
    
    
    
    
    
    119,587
    
    
    
    273,259Total current assets
    
    
    
    
    
    
    14,038,165
    
    
    
    7,469,470Property and equipment, net
    
    
    2(7), 5
    
    
    
    3,154,020
    
    
    
    2,197,165Total assets
    
    
    
    
    
    
    17,192,185
    
    
    
    9,666,635LIABILITIESCurrent liabilities:Accounts payable
    
    
    
    
    
    
    1,052,439
    
    
    
    2,415,507Taxes payable
    
    
    6
    
    
    
    233,357
    
    
    
    304,898Other payables and accruals
    
    
    7
    
    
    
    3,930,770
    
    
    
    4,957,976Total current liabilities
    
    
    
    
    
    
    5,216,566
    
    
    
    7,678,381Warrant liability
    
    
    8, 10
    
    
    
    228,886
    
    
    
    42,481Total liabilities
    
    
    
    
    
    
    5,445,452
    
    
    
    7,720,862Commitments and contingencies
    
    
    15
    
    
    
    
    
    
    
    MEZZANINE EQUITYSeries A Convertible Preferred Shares,
US$0.0001 par value; 55,555,555 shares
authorized; issued and outstanding as of
December 31, 2008 and 2009 (Liquidation
value: US$4,736,842 as of December 31,
2008 and 2009)
    
    
    8
    
    
    
    4,736,842
    
    
    
    4,736,842Series A-1 Convertible Preferred Shares,
US$0.0001 par value; 10,198,604 shares
authorized; issued and outstanding as of
December 31, 2008 and 2009 (Liquidation
value: US$1,000,000 as of December 31,
2008 and 2009)
    
    
    8
    
    
    
    1,000,000
    
    
    
    1,000,000Series B Convertible Preferred
Shares,US$0.0001 par value; 80,000,000
shares authorized; 74,880,455 issued and
outstanding as of December 31, 2008 and
2009(Liquidation value: US$20,890,631 as
of December 31, 2008 and 2009)
    
    
    8
    
    
    
    14,150,634
    
    
    
    15,810,338Series B-1 Convertible Preferred
Shares,US$0.0001 par value; 32,967,402
shares authorized; 22,967,402 issued and
outstanding as of December 31, 2008 and
2009(Liquidation value: US$7,500,005 as of
December 31, 2008 and 2009)
    
    
    8
    
    
    
    5,281,372
    
    
    
    5,846,367SHAREHOLDERS DEFICITOrdinary shares (US$0.0001 par value;
321,278,439 shares authorized,
100,701,104 shares issued and
outstanding as of December 31, 2008 and
2009)
    
    
    
    
    
    
    10,070
    
    
    
    10,070Additional paid-in capital
    
    
    
    
    
    
    774,423
    
    
    
    978,759Subscription receivable
    
    
    
    
    
    
    (10,070
    )
    
    
    (10,070
    )Accumulated loss
    
    
    
    
    
    
    (14,010,821
    )
    
    
    (26,247,228
    )Accumulated comprehensive loss
    
    
    
    
    
    
    (185,717
    )
    
    
    (179,305
    )Total shareholders deficit
    
    
    
    
    
    
    (13,422,115
    )
    
    
    (25,447,774
    )Total liabilities and shareholders deficit
    
    
    
    
    
    
    17,192,185
    
    
    
    9,666,635
   F-62




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##### Table of Contents



KU6 HOLDING LIMITED
 
 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
 Note
    
    
    For the years ended December 312008
    
    
    2009US$
    
    
    US$Total net revenues
    
    
    2(11)
    
    
    
    4,296,358
    
    
    
    6,224,644Cost of revenue
    
    
    2(12), 11
    
    
    
    (7,662,012
    )
    
    
    (10,018,489
    )Gross loss
    
    
    
    
    
    
    (3,365,654
    )
    
    
    (3,793,845
    )Operating expenses:Sales and marketing
    
    
    2(13)
    
    
    
    (2,708,703
    )
    
    
    (3,790,651
    )General and administrative
    
    
    2(14)
    
    
    
    (2,748,404
    )
    
    
    (2,582,885
    )Total operating expenses
    
    
    
    
    
    
    (5,457,107
    )
    
    
    (6,373,536
    )Loss from operations
    
    
    
    
    
    
    (8,822,761
    )
    
    
    (10,167,381
    )Interest income
    
    
    2(16)
    
    
    
    13,628
    
    
    
    7,619Interest expense
    
    
    
    
    
    
    (221,263
    )
    
    
    (40,206
    )Other income, net
    
    
    
    
    
    
    
    
    
    
    1,727Beneficial conversion charge on convertible note
    
    
    8
    
    
    
    (508,352
    )
    
    
    Fair value changes in warrant liabilities
    
    
    8
    
    
    
    (46,328
    )
    
    
    186,533Loss before income tax expenses
    
    
    
    
    
    
    (9,585,076
    )
    
    
    (10,011,708
    )Income tax expenses
    
    
    2(18), 12
    
    
    
    
    
    
    
    Net loss attributable to the Company
    
    
    
    
    
    
    (9,585,076
    )
    
    
    (10,011,708
    )Accretion on Convertible Redeemable Series B Preferred Shares
to redemption value
    
    
    
    
    
    
    (822,315
    )
    
    
    (1,659,705
    )Accretion on Convertible Redeemable Series B-1 Preferred Shares
to redemption value
    
    
    
    
    
    
    (281,369
    )
    
    
    (564,994
    )Net loss attributable to the Companys ordinary shareholders
    
    
    
    
    
    
    (10,688,760
    )
    
    
    (12,236,407
    )Net loss
    
    
    
    
    
    
    (9,585,076
    )
    
    
    (10,011,708
    )Other comprehensive loss:Currency translation adjustments of the Company and subsidiaries
    
    
    
    
    
    
    (83,471
    )
    
    
    6,412Comprehensive loss attributable to the Company
    
    
    
    
    
    
    (9,668,547
    )
    
    
    (10,005,296
    )
   F-63




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##### Table of Contents



KU6 HOLDING LIMITED
 
 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT
 Accumulated
    
    
    TotalOrdinary shares
    
    
    Subscription
    
    
    Additional
    
    
    Accumulated
    
    
    comprehensive
    
    
    shareholdersShares
    
    
    Amount
    
    
    receivable
    
    
    paid-in capital
    
    
    loss
    
    
    loss
    
    
    deficitUS$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$
    
    
    US$Balance as of January 1, 2008
    
    
    100,701,104
    
    
    
    10,070
    
    
    
    (10,070
    )
    
    
    133,145
    
    
    
    (3,322,061
    )
    
    
    (102,246
    )
    
    
    (3,291,162
    )Accretion on Convertible Redeemable Series B
  Preferred Shares to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (822,315
    )
    
    
    
    
    
    
    (822,315
    )Accretion on Convertible Redeemable Series B-1
 Preferred Shares to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (281,369
    )
    
    
    
    
    
    
    (281,369
    )Beneficial conversion feature on convertible note
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    508,352
    
    
    
    
    
    
    
    
    
    
    
    508,352Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    132,926
    
    
    
    
    
    
    
    
    
    
    
    132,926Cumulative currency translation adjustments of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83,471
    )
    
    
    (83,471
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,585,076
    )
    
    
    
    
    
    
    (9,585,076
    )Balance as of December 31, 2008
    
    
    100,701,104
    
    
    
    10,070
    
    
    
    (10,070
    )
    
    
    774,423
    
    
    
    (14,010,821
    )
    
    
    (185,717
    )
    
    
    (13,422,115
    )Accretion on Convertible Redeemable Series B
 Preferred Shares to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,659,705
    )
    
    
    
    
    
    
    (1,659,705
    )Accretion on Convertible Redeemable Series B-1
 Preferred Shares to redemption value
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (564,994
    )
    
    
    
    
    
    
    (564,994
    )Stock-based compensation expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    204,336
    
    
    
    
    
    
    
    
    
    
    
    204,336Cumulative currency translation adjustments of
subsidiaries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,412
    
    
    
    6,412Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,011,708
    )
    
    
    
    
    
    
    (10,011,708
    )Balance as of December 31, 2009
    
    
    100,701,104
    
    
    
    10,070
    
    
    
    (10,070
    )
    
    
    978,759
    
    
    
    (26,247,228
    )
    
    
    (179,305
    )
    
    
    (25,447,774
    )
   F-64




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##### Table of Contents



KU6 HOLDING LIMITED
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2008
    
    
    2009US$
    
    
    US$Cash flows from operating activities:Net loss
    
    
    (9,585,076
    )
    
    
    (10,011,708
    )Adjustments for:Share-based compensation
    
    
    132,926
    
    
    
    204,336Depreciation of property and equipment
    
    
    921,408
    
    
    
    1,413,150Amortization and write-down of video copyrights
    
    
    1,533,326
    
    
    
    1,747,350Interest expense
    
    
    221,263
    
    
    
    40,206Bad debt provision for receivables and other assets
    
    
    73,554
    
    
    
    101,415Loss from disposal of property and equipment
    
    
    
    
    
    
    53,106Foreign exchange loss
    
    
    40,249
    
    
    
    18,177Beneficial conversion charge on convertible loan
    
    
    508,352Fair value changes in warrant liabilities
    
    
    46,328
    
    
    
    (186,533
    )Changes in assets and liabilities:Accounts receivable
    
    
    (2,063,507
    )
    
    
    (742,668
    )Prepayments and other current assets
    
    
    45,894
    
    
    
    (153,488
    )Accounts payable
    
    
    402,356
    
    
    
    928,002Taxes payable
    
    
    137,708
    
    
    
    71,289Other payables and accruals
    
    
    3,329,990
    
    
    
    982,836Net cash used in operating activities
    
    
    (4,255,229
    )
    
    
    (5,534,530
    )Cash flows from investing activities:Purchase of property and equipment
    
    
    (1,823,016
    )
    
    
    (905,528
    )Purchase of video copyrights
    
    
    (1,514,305
    )
    
    
    (915,275
    )Net cash used in investing activities
    
    
    (3,337,321
    )
    
    
    (1,820,803
    )Cash flows from financing activities:Cash received from issuance of convertible note
    
    
    3,000,001
    
    
    
    Proceeds from issuance of convertible redeemable preferred shares
    
    
    15,873,282
    
    
    
    Issuance cost paid in connection with the issuance of the
redeemable convertible preferred shares
    
    
    (598,769
    )
    
    
    Net cash provided by financing activities
    
    
    18,274,514
    
    
    
    Effect of exchange rate changes on cash
    
    
    (179,109
    )
    
    
    (10,946
    )Net increase/(decrease) in cash and cash equivalents
    
    
    10,502,855
    
    
    
    (7,366,279
    )Cash, beginning of year
    
    
    898,878
    
    
    
    11,401,733Cash, end of year
    
    
    11,401,733
    
    
    
    4,035,454Supplemental disclosure of cash flow information:Cash (received) paid during the year for income tax
    
    
    
    
    
    
    Supplemental disclosure of non-cash investing and financing
activities:Accounts payable related to purchase of property and equipment
and video copyrights
    
    
    464,855
    
    
    
    898,297Conversion of the convertible notes to redeemable convertible
preferred shares
    
    
    3,053,809
    
    
    
    
   F-65




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##### Table of Contents



KU6 HOLDING LIMITED
 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 (Amounts expressed in U.S. dollars, unless otherwise stated)
 1. ORGANIZATION AND NATURE OF OPERATIONS
   Date of
    
    PercentageName of Subsidiaries
    
    incorporation
    
    of ownershipSubsidiariesKu6 (Beijing) Technology Co., Ltd. (Beijing WOFE)
    
    March 5, 2007
    
    
    100
    %Wei Mo San Yi (Tianjin) Science and Technology Co., Ltd. (Tianjin
WOFE)
    
    December 23,
2008
    
    
    100
    %Variable Interest EntitiesKu6 (Beijing) Information Technology Co., Ltd. (Beijing VIE)
    
    April 20, 2006
    
    
    100
    %Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (Tianjin VIE)
    
    March 20, 2009
    
    
    100
    %
      
  F-66




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 1. ORGANIZATION AND NATURE OF OPERATIONS (CONTINUED)
 
 
 
 
 Consolidation of Variable Interest Entities, an
Interpretation of ARB No. 51
 2. PRINCIPAL ACCOUNTING POLICIES
 (1) Basis of presentation
     F-67




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
   (2) Consolidation
   (3) Fair value measurements
 Fair Value Measurements Effective Date of FASB Statement No 157
  F-68




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
  (4) Foreign currency translation
   (5) Cash and cash equivalents
  (6) Allowances for doubtful accounts
   F-69




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 (7) Property and equipment
  Computer equipment
    
    3 yearsLeasehold improvements
    
    Lesser of the term of the lease or the estimated useful lives of the assetsFurniture and fixtures
    
    3 years
  (8) Video production and acquisition costs and licensed video copyrights
  Video production and acquisition costs
      F-70




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 Licensed video copyrights
    (9) Impairment of long-lived assets
  (10) Financial instruments
  (11) Revenue recognition
  Online advertising services
   Multiple Element Arrangements
  F-71




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
   Accounting for Consideration Given by a Vendor to a
Customer
 Software service revenue
  Business tax and related surcharges
  (12) Cost of revenue
   F-72




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 (13) Sales and marketing
   (14) General and administrative
  (15) Share-based compensation
 Accounting for stock-based compensation
   (16) Interest income
  (17) Leases
   F-73




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 (18) Taxation
  Accounting for
Uncertainty in Income Taxes  an interpretation of FASB Statement No. 109
 (19) Profit appropriation and statutory reserves
  (20) Contingency
  (21) Recent accounting pronouncements
 Subsequent
Events Subsequent Events Amendments to Certain Recognition and Disclosure
Requirements
  F-74




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 The FASB Accounting
Standards Codification and the Hierarchy of Generally Accepted Accounting Principles  a
replacement of FASB Statement No.162
 Amendments to FASB Interpretation No. 46(R)
 Multiple-Deliverable Revenue
Arrangements
 Fair Value Measurements and
Disclosures: Improving Disclosures about Fair Value Measurements
  F-75




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 2. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
 Technical Corrections to
Various Topics. This amendment eliminated inconsistencies and outdated provisions and provided the
needed clarifications to various topics within ASC topic 815
 Compensation- Stock
Compensation
 3. CASH AND CASH EQUIVALENTS
  4. ACCOUNTS RECEIVABLE
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Accounts receivable
    
    
    2,516,845
    
    
    
    3,262,220Less: Allowance for doubtful accounts
    
    
    
    
    
    
    (101,463
    )2,516,845
    
    
    
    3,160,757
  2008
    
    
    2009US$
    
    
    US$Balance at beginning of year
    
    
    
    
    
    
    Add: Current year additions
    
    
    
    
    
    
    (101,463
    )Less: Current year reversal
    
    
    
    
    
    
    Balance at end of year
    
    
    
    
    
    
    (101,463
    )
  F-76




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 5. PROPERTY AND EQUIPMENT
  December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Computer equipment (including servers)
    
    
    4,022,606
    
    
    
    3,923,815Leasehold improvements
    
    
    72,837
    
    
    
    72,905Furniture and fixtures
    
    
    278,882
    
    
    
    311,922Total
    
    
    4,374,325
    
    
    
    4,308,642Less: Accumulated depreciation
    
    
    (1,220,305
    )
    
    
    (2,111,477
    )Net book value
    
    
    3,154,020
    
    
    
    2,197,165
  6. TAX PAYABLES
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Business tax payable
    
    
    192,138
    
    
    
    249,924Others
    
    
    41,219
    
    
    
    54,974Total
    
    
    233,357
    
    
    
    304,898
 7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Accrued payroll and welfare
    
    
    709,112
    
    
    
    1,410,013Accrued litigation provision (Note 15)
    
    
    1,593,199
    
    
    
    1,644,200Accrued advertising and promotion expenses
    
    
    860,816
    
    
    
    1,437,372Accrued professional consulting fee
    
    
    
    
    
    
    325,446Payable to a third party company
    
    
    585,257
    
    
    
    Others
    
    
    182,386
    
    
    
    140,945Total
    
    
    3,930,770
    
    
    
    4,957,976
   F-77




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 8. REDEEMABLE CONVERTIBLE PREFERRED SHARES AND CONVERTIBLE NOTES
        F-78




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 8. REDEEMABLE CONVERTIBLE PREFERRED SHARES AND CONVERTIBLE NOTES (CONTINUED)
    Redeemable convertible preferred shares
  ProceedsIssuance
    
    Outstanding
    
    
    
    
    
    
    net of issuance
    
    
    Carrying amount
    
    
    Carrying amountSeries
    
    date
    
    Shares
    
    
    Issue Price
    
    
    costs
    
    
    December 31, 2008
    
    
    December 31, 2009US$
    
    
    US$
    
    
    US$
    
    
    US$A
    
    April 2007
    
    
    55,555,555
    
    
    
    0.08526
    
    
    
    4,595,888
    
    
    
    4,736,842
    
    
    
    4,736,842A-1
    
    June 2007
    
    
    10,198,604
    
    
    
    0.0981
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,000,000B
    
    June 2008
    
    
    67,810,295
    
    
    
    0.19049
    
    
    
    12,318,204
    
    
    
    12,814,541
    
    
    
    14,317,537B
    
    June 2008
    
    
    7,070,160
    
    
    
    0.14287
    
    
    
    1,010,114
    
    
    
    1,336,093
    
    
    
    1,492,801B-1
    
    July 2008
    
    
    22,967,402
    
    
    
    0.21770
    
    
    
    5,000,003
    
    
    
    5,281,372
    
    
    
    15,810,338163,602,016
    
    
    
    
    
    
    
    
    
    
    
    25,168,848
    
    
    
    27,393,547
  a. Dividends:
   F-79




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 8. REDEEMABLE CONVERTIBLE PREFERRED SHARES AND CONVERTIBLE NOTES (CONTINUED)
 b. Liquidation preference
  c. Voting rights
  d. Conversion
    e. Redemption
    F-80




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 8. REDEEMABLE CONVERTIBLE PREFERRED SHARES AND CONVERTIBLE NOTES (CONTINUED)
  Warrants
   Warrants (continued)
  Note I Warrant
    
    
    Note III WarrantFair value of Series B Preferred Shares (US$)
    
    
    0.1905
    
    
    
    0.1905Exercise price
    
    
    0.1905
    
    
    
    0.1905Expected volatility (%)
    
    
    49%~82
    %
    
    
    57
    %Expected dividend yield (%)
    
    
    0
    %
    
    
    0
    %Expected term(years)
    
    
    3
    
    
    
    3Risk-free interest rate (per annum) (%)
    
    
    4.419%~4.283
    %
    
    
    2.746
    %
 
    
    Expected volatility was estimated based on average annualized standard deviation of the
share price of comparable listed companies and applied certain discount for a period equal
to the expected term preceding the valuation date.
 
    
    Expected dividends are considered as zero because the Company has no history or
expectation of paying dividends on its ordinary shares.
 
    
    The expected term was considered as equal to the term of the warrants pursuant to the
agreement.
 
    
    Risk-free interest rates are based on the derived market yield of the US$ denominated
Chinese government bonds for the term approximating the expected life of the warrants at
the time of valuation.
  F-81




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 8. REDEEMABLE CONVERTIBLE PREFERRED SHARES AND CONVERTIBLE NOTES (CONTINUED)
 Convertible Notes
  9. SHARE-BASED COMPENSATION
    WeightedWeighted
    
    
    averageOptions
    
    
    Average
    
    
    remaining
    
    
    AggregateOutstanding
    
    
    Exercise Price
    
    
    contractual life
    
    
    Intrinsic valueUS$
    
    
    
    
    
    US$Outstanding at January 1, 2008
    
    
    922,000
    
    
    
    0.00853Granted
    
    
    8,611,000
    
    
    
    0.09166Forfeited
    
    
    
    
    
    
    Outstanding at January 1, 2009
    
    
    9,533,000
    
    
    
    0.08362Granted
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at December 31,2009
    
    
    9,533,000
    
    
    
    0.08362
    
    
    
    8.3
    
    
    
    175,230Vested and expected to vest at
December 31, 2009
    
    
    9,306,500
    
    
    
    0.08399
    
    
    
    8.3
    
    
    
    167,629Vested and exercisable at
December 31, 2009
    
    
    2,613,750
    
    
    
    0.07700
    
    
    
    8.2
    
    
    
    65,352
  F-82




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 9. SHARE-BASED COMPENSATION (CONTINUED)
     2007
    
    
    2008Fair value of ordinary shares (US$)
    
    
    0.067~0.077
    
    
    
    0.123~0.128Exercise price (US$)
    
    
    0.00853
    
    
    
    0.042632~0.0981Expected volatility (%)
    
    
    40%~45
    %
    
    
    55%~65
    %Expected dividend yield (%)
    
    
    0
    %
    
    
    0
    %Expected term(years)
    
    
    5.5~7
    
    
    
    5.5~7Risk-free interest rate (per annum) (%)
    
    
    5.16%~5.38
    %
    
    
    4.52%~5.05
    %
 
    
    Expected volatility was estimated based on average annualized standard deviation of the
share price of comparable listed companies and applied certain discount for a period equal
to the expected term preceding the valuation date.
 
    
    Expected dividends are considered as zero because the Company has no history or
expectation of paying dividends on its ordinary shares.
 
    
    The expected term was considered as equal to the term of the options pursuant to the
agreement.
 
    
    Risk-free interest rates are based on the derived market yield of the US$ denominated
Chinese government bonds for the term approximating the expected life of the warrants at
the time of valuation.
  F-83




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 10. FAIR VALUE MEASUREMENTS
   2008
    
    
    2009US$
    
    
    US$Balance at beginning of year
    
    
    
    
    
    
    228,886Issuance of warrants
    
    
    173,765
    
    
    
    Change in fair value of warrant liability
    
    
    46,328
    
    
    
    (186,533
    )Effect of exchange rate changes
    
    
    8,793
    
    
    
    128Balance at end of year
    
    
    228,886
    
    
    
    42,481
  11. COST OF REVENUES
 2008
    
    
    2009US$
    
    
    US$Payroll
    
    
    1,703,558
    
    
    
    2,505,645Internet bandwidth cost
    
    
    2,790,243
    
    
    
    3,709,045Depreciation of servers and other equipments
    
    
    835,661
    
    
    
    1,277,816Amortization and write-down of licensed video
copyright cost
    
    
    1,533,326
    
    
    
    1,747,350Share based compensation
    
    
    33,184
    
    
    
    43,799Others
    
    
    766,040
    
    
    
    734,834Total
    
    
    7,662,012
    
    
    
    10,018,489
  F-84




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 12. TAXATION
 Cayman Islands
  China
   Composition of income tax expense
  2008
    
    
    2009US$
    
    
    US$Current income tax expenses
    
    
    
    
    
    
    Deferred income tax expense
    
    
    
    
    
    
    Income tax expenses
    
    
    
    
    
    
    
 Reconciliation of the differences between statutory tax rate and the effective tax rate
  2008
    
    
    2009Statutory income tax rate
    
    
    25
    %
    
    
    25
    %Differential statutory tax rate
    
    
    (3
    %)
    
    
    (2
    %)Change in valuation allowance
    
    
    (22
    %)
    
    
    (23
    %)Effect of non-deductible expenses
    
    
    0
    %
    
    
    0
    %Effective EIT rate
    
    
    0
    %
    
    
    0
    %
  F-85




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 12. TAXATION (CONTINUED)
 Significant components of deferred tax assets
 December 31,
    
    
    December 31,2008
    
    
    2009US$
    
    
    US$Deferred tax assets:Temporary differences in relation to accruals
    
    
    853,654
    
    
    
    1,237,682Less: Valuation allowance
    
    
    (700,676
    )
    
    
    (1,094,781
    )Current deferred tax assets
    
    
    152,978
    
    
    
    142,901Depreciation and amortization
    
    
    152,570
    
    
    
    433,761Tax loss carry-forwards
    
    
    1,901,479
    
    
    
    3,611,293Less: Valuation allowance
    
    
    (2,054,049
    )
    
    
    (3,919,418
    )Non-current deferred tax assets
    
    
    
    
    
    
    125,636Deferred tax liabilities:Revenue recognition
    
    
    (152,978
    )
    
    
    (268,537
    )Current deferred tax liabilities
    
    
    (152,978
    )
    
    
    (268,537
    )Net deferred tax assets
    
    
    
    
    
    
    
 Movement of valuation allowance
 2008
    
    
    2009US$
    
    
    US$Balance at the beginning of year
    
    
    (536,252
    )
    
    
    (2,754,725
    )Current year additions
    
    
    (2,109,077
    )
    
    
    (2,255,835
    )Effect of exchange rate changes
    
    
    (109,396
    )
    
    
    (3,639
    )Balance at the end of year
    
    
    (2,754,725
    )
    
    
    (5,014,199
    )
   F-86




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 13. EMPLOYEE BENEFITS
  14. CERTAIN RISKS AND CONCENTRATIONS
 Concentration of credit risks
   Business and economic risks
     F-87




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 14. CERTAIN RISKS AND CONCENTRATIONS (CONTINUED)
 Foreign currency exchange rate risk
   15. COMMITMENTS AND CONTINGENCIES
 Operating lease agreements
  TotaloperatingleasecommitmentsUS$2010
    
    
    2,573,6022011
    
    
    13,4212,587,023
 Litigation
     F-88




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##### Table of Contents



KU6 HOLDING LIMITED
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts expressed in U.S. dollars, unless otherwise stated)
 16. SUBSEQUENT EVENT
    F-89