Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 2,173,784,4402,200,194,040 ordinary shares, par value US$0.00005 per share.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yeso Noþ

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or (15)(d) of the Securities Exchange Act of 1934. Yeso Noþ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer or a smaller reporting company. See the definitions of “largeand large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noþ

Except where the context otherwise requires and for purposes of this annual report on Form 20-F only:

This annual report on Form 20-F includes our audited consolidated financial statements as of December 31, 20072009 and 20062008 and for the years ended December 31, 2007, 20062009, 2008 and 2005.2007.

This annual report on Form 20-F contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. All statements other than statements of ahistorical fact in this form are forward-looking nature.statements. These forward-looking statements can be identified by words or phrases such as “may”, “will,” “expect,” “anticipate,” “estimate,” “plan,” “believe,” “is/are likely to” or other similar expressions. The forward-looking statements included in this form relate to, among others:

These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward- looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “seeks, “estimates”reasonable, we cannot assure you that our expectations will turn out to be correct. Our actual results could be materially different from and similar statements. The accuracy of these statements may be impacted by a number of businessworse than our expectations. Important risks and uncertaintiesfactors that could cause our actual results to differbe materially different from those projected or anticipated, including but not limited to those risks and uncertainties identified underour expectations are generally set forth in the section heading “Risk Factors” below.

The following table presents certain selected consolidated financial information for our business. You should read the following information in conjunction with our audited consolidated financial statements, the notes thereto and Item 5 “Operating and Financial Review and Prospects” included elsewhere in this annual report on Form 20-F. The following data as of December 31, 20072009 and 20062008 and for the years ended December 31, 2007, 20062009, 2008 and 20052007 has been derived from our audited consolidated financial statements for those years and should be read in conjunction with those statements, which are included in this annual report beginning on page F-1. The following data as of December 31, 2005, 20042007, 2006 and 20032005 and for the years ended December 31, 20042006 and 20032005 have also been derived from our audited consolidated financial statements for those years, which are not included in this annual report on Form 20-F. Our audited financial statements for the foregoing periods were prepared in accordance with United States generally accepted accounting principles, or US GAAP.

We present our historical consolidated financial statements in U.S. dollars. In addition, certain pricing information is presented in U.S. dollars and certain contractual amounts that are in Renminbi include a U.S. dollar equivalent solely for the convenience of the reader. Except as otherwise specified, this pricing information and these contractual amounts are translated at RMB 7.2946RMB6.8259 = US$1.00, the prevailing rate on December 31, 2007.2009. The translations are not a representation that the Renminbi amounts could actually be converted to U.S. dollars at this rate. For a discussion of the exchange rates used for the presentation of our financial statements, see note 2(l)2(17) to our audited consolidated financial statements.

The noon buying rate in New York City for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York was RMB 6.9400RMB6.8270 = US$1.00 on May 30, 2008.April 23, 2010. The following table sets forth the high and low noon buying rates for cable transfers between Renminbi and U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York for each of periods indicated below.

The following table sets forth the average noon buying rates for cable transfers between Renminbi and U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York for each of 2003, 2004, 2005, 2006, 2007, 2008 and 2007,2009, calculated by averaging the noon buying rates on the last day of each month during the relevant year.

We offer our services over mobile networks to consumers through the twothree principal telecom operators in China, China Mobile Communications Corporation, or China Mobile, and China United Telecommunications Corporation, or China Unicom.Unicom, and China Telecommunications Corporation, or China Telecom. These principal operators service the major portion of China’s approximately 547747 million mobile phone subscribers as of December 31, 2007,2009, according to a December 2007 Reportthe 2009 Statistic Bulletin on National Telecommunication Industry issued by China’s Ministry of Industry and Information Industry,Technology, or the MII. To a lesser extent, we also offer our services to consumers through China Telecommunications Corporation, or China Telecom, and China Network Communications Corporation, or China Netcom.MIIT. Our agreements with these operators and their provincial affiliates are non-exclusive and have a limited term (generally one year for China Mobile and one or two years for China Unicom). We usually renew these agreements or enter into new ones when the prior agreements expire, but on occasionoccasionally the renewal or new agreements can be delayed by periods of one month or more. In 2008, China Telecom and its provincial affiliates entered into new agreements with us in connection with the network assets that they acquired from China Unicom (as discussed below).

If any of China Mobile, China Unicom or China Telecom ceases to continue to cooperate with us, it would be impossible to find appropriate replacement telecom operators with the requisite licenses and permits, infrastructure and customer base to offer our wireless value-added services (“WVAS”). to customers of such telecom operator. We derived approximately 60%50% of our combined WVAS revenue from China Mobile, 26%25% from China Unicom, 10%and 21% from China Telecom and 1% from China Netcom in 2007.2009.

In addition, the Chinese government has extensive involvement in determining the structure of the telecommunications industry in China. During the development of this industry, changes in government policy have resulted in major restructurings of the telecommunications operators, including the establishment of new operators and the combination of all or part of existing operators. In an effort to promote greater competition among the telecommunications operators and foster the development of 3G mobile networks, on May 24, 2008, the MII,MIIT, the PRC National Development and Reform Commission, or the NDRC, and the PRC Ministry of Finance jointly issued the Notice on Strengthening the Reform of Telecommunications Systems, or the Telecom Notice, which aims to consolidate China’s currently existing telecommunication operators into three new telecommunications operators that can offer both mobile and fixed-line services. Under the Telecom Notice, China Mobile is expected to mergemerged with China Railway Communication Co., Ltd., which operatesoperated a national fixed-line network, China Telecom is expected to acquireacquired the Code Division Multiple Access (CDMA) wireless business and network from China Unicom, and China Unicom, which operates a Global System for Mobile communications (GSM) network and business, is expected to mergemerged with China Netcom, which iswas principally a fixed-line operator. OnceDue to the consolidations are completed,restructuring, our services to China Telecom have increased and our services to China Unicom have decreased beginning from October 1, 2008, the PRC government is expected to issuedate that China Telecom officially acquired the CDMA wireless business and network from China Unicom. On January 7, 2009, the MIIT issued 3G licenses to such operators. We are currently assessingChina Mobile, China Unicom and China Telecom. China Mobile operates the potential impact of such expected consolidations on our business.TD-SCDMA network, China’s self-developed 3G standard, China Unicom operates the WCDMA, a 3G standard originally developed in Europe, and China Telecom operates CDMA2000, a 3G standard originally developed in U.S.

Any future significant restructuring of any segment of the telecommunications industry in China, including in particular China Mobile, China Unicom China Telecom or China NetcomTelecom (which are collectively referred to hereinafter in this annual report on Form 20-F as the “telecom operators”) or any other telecom operators in China and the potential combination of the mobile operations of various telecom operators in China, could significantly affect our relationships with these telecom operators, our operations and our revenues. Due to our reliance on China Mobile, China Telecom and China Unicomthe telecom operators for our WVAS, any loss or deterioration of our relationshiprelationships with them, due to their own business decisions or government-imposed restructurings, may result in severe disruptions to our business operations and the loss of a major portion of our revenue.

Given the dominant market position of China Mobile, China Unicom and China Telecom, our leverage with these telecom operators is limited in terms of negotiating agreements, resolving disputes or otherwise. In particular, our agreements with them can be terminated in advance, penalties may be imposed or other parts of our services may be suspended or terminated, and approval for our new services may be delayed for a variety of reasons which vary among the individual agreements with the telecom operators, including, for example, whereif we breach our obligations under the agreements, a high number of customer complaints are made about our services or we cannot satisfy the operational or financial performance criteria established by the applicable mobile operator.

We may also be compelled to alter our agreements with these telecom operators in ways which adversely affect our business, such as by limiting the services we can offer or imposing other changes that limit the revenue we can derive from such agreements. In 2006, China Unicomthe past, telecom operators have entered into new contracts in certain provinces with service providers in which it changedchange the share percentages it retained for customer payments. For example, where prior to 2006,The percentage of the payments from customers received by service providers would receive 70% of a payment from a customer purchase and China Unicom would retain 30%, China Unicom changed the share percentage of customer payments that service providers may retain to 40% inhas been decreasing since 2006. We may not be able to adequately respond to any such changes because we are not able to predict if the telecom operators will unilaterally amend our contracts with them.

In addition, in the last several years, acting under the guidance of the MII,MIIT, the telecom operators have begunbeen enforcing their customer service policies more rigorously than in the past and have initiated steps to improve customer service. This rigorous enforcement has resulted in a number of severe penalties being imposed on us and other participants in the market.market in recent years. Penalties have included precluding service providers from offering certain services over a mobile operator’s network or from offering new services for a fixed period.

These new policies and practices negatively affected our results of operations in the second half of 2006 and in 2007 and caused us to record impairment charges of $38.8 million in respect of our goodwill and $2.5 million in respect of our long-lived assets in 2007. We may not be able to adequately respond to these or other developments in mobile operator policies, or changes in the manner in which such policies are enforced. Furthermore, because the telecom operators’ policies are in a state of flux at this time and they are highly sensitive to customer complaints (even if the complaints have no merit), we cannot be certain that our business activities will always be deemed in compliance with those policies despite our efforts to so comply. Accordingly, we may be subject to monetary penalties or service suspensions or both, even for conduct which we believed to be permissible. Any future noncompliance with the telecom operators’ policies by us, whether inadvertent or not, could result in a material and adverse effect on our revenue and profitability.

China has enacted regulations governing telecommunication service providers, Internet access and the distribution of news and other information. In the past, the Chinese government has stopped the distribution of information over the Internet that it believes to violate Chinese law, including content that is pornographic or obscene, incites violence, endangers national security, is contrary to the national interest or is defamatory.

China Mobile, China Unicom and China TelecomThe telecom operators also have their own policies regarding the distribution of inappropriate content by wireless value-added serviceWVAS providers and have punished certain providers for distributing inappropriate content through the imposition of fines and service suspensions. Some of those providers indicated that the telecom operators informed them that certain of their content were construed as too adult-oriented or sexually suggestive. In addition,See “— Unilateral changes in June 2004, along with other participantsthe policies of the MIIT and the telecom operators and in their enforcement of their policies have resulted in service suspensions and our industry, we received informationhaving to pay additional charges to the telecom operators, and guidance from China Mobilefurther changes could materially and China Unicom regarding what they consider to be inappropriate content for WVAS. In response, we reviewedadversely impact our servicesrevenue and removed certain interactive voice response (“IVR”) and picture downloadsprofitability in order to comply with such information and guidance. There can be no assurance that we will not receive future guidance that could compel us to further alter our services.the future.”

The current practice of both China Mobile and China Unicomthe telecom operators is generally to place the most popular WAP services at the top of the menu on the first page of the list of services available in each service category on their WAP portals. Services at the top of the menu are more accessible to users than other services and, in our experience, are more frequently accessed than those services lower on the menu. This effectively reinforces the position of the most popular services. The placement of services on these menus creates significant competitive advantages for the top-ranked services and significant challenges for newer and less popular services. We believe that our prominent position on the WAP portals of the two principal telecom operators in Chinahas historically helped us maintain our position in the market. If either China Mobile or China Unicomany of the telecom operators changes its current practices so that the most popular services are not those that are the most accessible to customers, restricts the number or type of services a service provider is permitted to place on service menus or adopts new interface technologies that eliminate the current service menus, our services could become more difficult for users to access and could, therefore, become less popular. In addition, as discussed below under the heading “—Our revenue from WVAS may be adversely affected by China Unicom or China Mobilethe telecom operators providing their own full portfolio of 2G and 2.5G servicesWVAS that compete with our services,” China Mobile also began the practice of only includingincludes links to its own WVAS offerings on the embedded menus of mobile handsets with customized software for China Mobile users while excluding links to products from third party WVAS service providers such as our company. SuchThis practice has adversely affected our revenues. If additional similar changes occur, they will likely materially and adversely affect the revenue from our services, and thus our overall financial condition.

In 2006, China Mobile began operating its own music WAP portal and procuring music content from music companies directly. Our revenues as a service provider have been adversely affected by this development, although some of this effect has been mitigated by China Mobile procuring music content from our affiliated music companies. China Mobile also began the practice of only includingincludes links to its own WVAS offerings on the embedded menus of mobile handsets with customized software for China Mobile users while excluding links to products from third party WVAS service providers like us. Such practice has adversely affected our revenues. Our business would likely be adversely affected if China Unicom or China Mobile or bothany of the telecom operators decide to provide additional 2G and 2.5G servicesWVAS to mobile phone users, which compete with our services. In that case, we would not only face enhanced competition, but could be partially or completely denied access to the networks of these telecom operators which would adversely affect our revenue from WVAS.

We must rely on China Mobile and China Unicomthe telecom operators to maintain accurate records of the fees paid by users and deduct the service and network fees due to them under our network service agreements. Specifically, the telecom operators provide us with monthly statements for our 2G servicesWVAS that do not provide itemized information regarding amounts paid for each of our services or calculations of the service and network fees. As a result, monthly statements that we have received from the telecom operators for our 2G servicesWVAS cannot be reconciled to our own internal records for the reasons discussed under “— China Mobile and China UnicomThe telecom operators do not supply us with detailed information on billing and transmission failures, revenues, service or network fees or other charges, particularly with respect to our 2G services, and accordingly, it is difficult to analyze the factors affecting our financial performance.” In addition, we have only limited means to independently verify the information provided to us with respect to such 2G services because we do not have limited or no access, depending on the type of service, to the telecom operators’ internal records. Rather, we can only seek consultations with the telecom operators to discuss the reasons for any discrepancies.

With respect to our 2.5G services, the telecom operators allow us limited access to their transmission and billing system information to monitor if our services are actually delivered and paid for, which information we then reconcile to our own internal records. In addition, the telecom operators in generalgenerally provide us with monthly statements within two to three weeks after month end. To date,However, the statements can be delayed at times by periods of four months or more. As discussed below in Item 5.A. “Operating Results —Factors Affecting Results of Operations and Financial Condition”, there historically existed discrepancies between our internal records and the telecom operators’ confirmations have been insignificant.due to billing and transmission failures, which can not be recognized as revenue. Nonetheless, we are still ultimately dependent on the ability of the telecom operators’ systems to accurately collect and analyze the relevant transmission and payment data regarding our services.

Because of the dominant market position of these telecom operators, we have limited leverage in challenging any discrepancies between their monthly statements, and 2.5G system information, on the one hand, and our own records, on the other hand. Our profitability and the market price of our ADSs could be adversely affected if these telecom operators miscalculate the revenues generated from our services and our portion of those revenues.

We do not collect fees for our services from China Mobile and China Unicomthe telecom operators in a number of circumstances, including if:

These situations are known in the industry as billing and transmission failures, and we do not recognize any revenues for services which are characterized as billing and transmission failures. Billing and transmission failures therefore significantly lower the revenues we record. The failure rate for 2G services can vary amongIf we are unable to obtain actual figures from the telecom operators, and by province, and also has fluctuated significantly inwe recognize revenue earned on an accrual basis using the past, rangingestimates of monthly revenue based on a monthly basis from 0.0% to 9.8% of the total billable messages which are reflected in our internal records during 2007.

We must obtain approval from China Mobile, China Unicom and China UnicomTelecom with respect to each 2G and 2.5G serviceWVAS that we propose to offer to their customers and the pricing for such service. In addition, any changes in the pricing of our existing services must be approved in advance by these operators. There can be no assurance that such approvals will be granted in a timely manner or at all. Failure to obtain, or a delay in, obtaining such approvals could place us at a competitive disadvantage in the market and adversely affect our revenue and profitability. In addition, the recent more rigorousincreasingly stringent enforcement of customer service policies by China Mobile and China Unicomthe telecom operators could result in heightened scrutiny of our existing or proposed services and pricing by the telecom operators. This could, in turn, result in delays in their approving new services, our failure to obtain approval for new services or suspensions or termination of all or part of our existing services or reductions in approved pricing of our services. The occurrence of any of these actions could materially and adversely affect our revenues.

In order to implement our strategy to enter theWe engage in artist development, music development, production, andoffline distribution and concert promotion industries, we formed a newevent organization through our affiliated Chinese entity, Hurray! Digital Music Technology Co., Ltd. in November 2005, whose name was changed to Hurray! Digital Media Technology Co., Ltd. (“Hurray! Digital Media”). In November 2005, Hurray! Digital Media agreed to acquire 60% of the equity interest in Beijing Freeland Wuxian Digital Music Technology Co., Ltd., whose name was subsequently changed tomusic companies, Hurray! Freeland Digital Music Technology Co., Ltd. (“Freeland Music”) to which certain entities of the Freeland Group, a group of affiliated companies in China engaged in the production and distribution of audio and visual products, contributed their respective music businesses. In December 2005, Hurray! Digital Media acquired 51% of the equity interest in, Beijing Huayi Brothers Music Co., Ltd. (“Huayi Brothers Music”), a subsidiary of Huayi Brothers Group. In November 2006, Hurray! Digital Media agreed to acquire 30% of the equity interest in Beijing New Run Entertainment Development Co., Ltd. (“New Run”), and in March 2007, Hurray! Digital Media agreed to acquire 65% of the equity interest in Guangzhou Hurray! Secular Bird Culture Communication Co., Ltd. (“Secular Bird”). In April 2007, Freeland, Seed Music acquired a 51% equity interest inGroup Limited (“Seed Music Group”), Xifule (Beijing) Culture Broker Co., Ltd (“Xifule”) and Beijing Hurray! Fly Songs International Culture Co., Ltd. (“Fly Songs”). These five companies,, which we refer to collectively as our affiliated music companies were either successful top-tier domestic independent recordin this annual report on Form 20-F. The first five of the foregoing companies in China, which engage in artist development and music production and music distribution or,in Mainland China (and in Taiwan in the case of Seed Music Group), and Fly Songs a successfulengages in concert promotion company.promotions in Mainland China and Taiwan. We have also recently expanded our artist agency business as discussed in Item 4 “Information on the Company—Our Business—Products and Services for Users—Our Music and Artist Agency Business.”

In addition, our affiliated music companies license and distribute songs to third parties such as providers of Internet and WVAS, which then distribute the music content to their customers. Such companies may be subject to claims by such providers or any of their other customers if the customers suffer losses as a result of a dispute over the ownership of copyrights to songs provided to them.

Our affiliated music companies often enter into various types of contracts with third parties on behalf of their artists, including contracts relating to album publishing, advertising and promotional activities and public performances. If an artist fails to satisfy the requirements under any such contract for whatever reason (such as health problems), then our affiliated music companies may be deemed to have breached the relevant contracts. In that case, our affiliated music companies may be subject to claims for breach of contract by the counterparty to the contracts, which could expose them to significant costs and business disruption.

Selective acquisitions and strategic investments, such as our 2007 acquisitionsrecent acquisition of Shanghai Saiyu Information Technology Co., Ltd. (“Shanghai Saiyu”), Henan Yinshan Digital Network Technology Co., Ltd. (“Henan Yinshan”) and Fly SongsKu6 as described in Item 4. “Information Abouton the Company—History and Development of the Company,” form part of our strategy to further expand our business. Such companies may not be as successful as they have been in the past, and may also not perform as well as we expect. Moreover, the integration of such companies into our operations has required significant attention from our management. In particular, we must ensure that the relationships of our newly acquired wireless value-added service companies with the telecom operators are not disrupted by the acquisitions. In addition, our management must also devote significant resources to enhancingenhance its knowledge of the musiconline video development, production and distribution businessbusinesses in China, with which we have limited experience. Future acquisitions will also likely present similar challenges.

The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business. Acquisitions expose us to potential risks, including risks associated with the assimilation of new operations, services and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenues to offset the costs and expenses of acquisitions and potential loss of, or harm to, relationships with employees and content providers as a result of integration of new businesses. The acquisition of any company could also subject us to unforeseen liabilities arising from the acquisition itself or the operations of the company or both.

The Chinese market for WVAS is changing rapidly and is intensely competitive. We compete principally with four groups of 2G and 2.5GWVAS service providers in China, which include companies that focus primarily or entirely on these markets,the WVAS market, major Internet portal operators in China, niche service providers and the telecom operators.

There are low barriers to entry for new competitors in the 2G and 2.5G servicesWVAS market and many of our competitors have longer operating histories in China, greater name and brand recognition, larger customer bases and databases, significantly greater financial, technological and marketing resources and superior access to original content than we have. Recently, certain of the telecom operators have begun offering WVAS directly to their customers. See “—Our revenue from WVAS may be adversely affected by China Unicom or China Mobilethe telecom operators providing their own full portfolio of 2G and 2.5G servicesWVAS that compete with our services” above. As a result, our existing or potential competitors may in the future achieve greater market acceptance and gain additional market share, which in turn could reduce our revenues.

With respect to our music business, we face significant competition from two groups of competitors. The first group consists of traditional record companies, which are extending downstream to establish their own WVAS or Internet services companies in China. Such competitors include international record companies and independent labels based in Hong Kong, Taiwan and mainlandMainland China, which have longer operating histories, larger music libraries and greater pools of popular artists in comparison to our affiliated music companies. The second group of competitors consists of WVAS providers that focus on music-related products and have extended upstream to establish their own music production businesses in China. See Item 4.B. “Business Overview—Competition.”

We have limited operational, administrative and financial resources, which may be inadequate to sustain the growth we want to achieve. If the user base of our WVAS increases or our affiliated music and online video companies expand, we will need to increase our investment in our technology infrastructure, facilities and other areas of operations, in particular our product development, customer service and sales and marketing, which are important to our future success. If we are unable to manage our growth and expansion effectively, the quality of our services and our customer support could deteriorate and our business may suffer. For example, any such performance issue could prompt China Unicom, China Mobile, China TelecomUnicom, or China NetcomTelecom to cease offering our services over their networks. Our future success will depend on, among other things, our ability to:

In connection with China’s entry into the World Trade Organization, or WTO, foreign investment in telecommunications and Internet services in China has been liberalized to allow for a maximum of 50% foreign ownership in value-added telecommunications and Internet services in China. To comply with these ownership requirements, we have implemented a structure which is similar to those used by several of our competitors such as SINA,Sina, Sohu, NetEase Linktone and TOM OnlineLinktone by entering into various agreements with affiliated companies incorporated in China (which we refer to as our affiliated Chinese entities)“variable interest entities” or “VIEs”), including Hurray! Solutions Ltd. (“Hurray! Solutions”), Beijing Cool Young Information Technology Co., Ltd. (“Beijing Cool Young”), Beijing WVAS Solutions Ltd. (“WVAS Solutions”), Beijing Enterprise Network Technology Co., Ltd. (“Beijing Network”), Beijing Palmsky Technology Co., Ltd. (“Beijing Palmsky”), Beijing Hutong Wuxian Technology Co., Ltd. (“Beijing Hutong”), Shanghai Magma Digital Technology Co., Ltd. (“Shanghai Magma”), Beijing Hengji Weiye Electronic Commerce Co., Ltd. (“Hengji Weiye”), Shanghai Saiyu Information Technology Co.,Ltd. (“Shanghai Saiyu”) and Henan Yinshan Digital Network Technology Co., Ltd. (“Henan Yinshan”), Xifule (Beijing) Culture Broker Co., Ltd. (“Xifule”), Ku6 (Beijing) Information Technology Co., Ltd. (PRC) (“Ku6 Information”), Tianjin Ku6 Zheng Yuan Information Technology Co., Ltd. (PRC) (“Tianjin Ku6”) and their shareholders. Each of these affiliated Chinese entitiesVIEs is owned by various individuals in China.

We do not have any direct ownership interest in our affiliated Chinese entitiesVIEs but have entered into a series of agreements with these entities through which we intend to be able to assert a degree of control and management. In addition, we control Hurray! Digital Media through three of our affiliated Chinese entities,VIEs, Hurray! Solutions, Beijing Network and Beijing Hutong. It is possible that the relevant Chinese authorities could, at any time, assert that our agreements with our affiliated Chinese entitiesVIEs or any portion or all of the existing or future ownership structure and businesses of each of our company, our wholly-ownedwholly owned subsidiary, Beijing Hurray! Times Technology Co., Ltd. (“Beijing Hurray! Times”), or our affiliated Chinese entitiesVIEs violate existing or future Chinese laws, regulations or policies. It is also possible that the new laws or regulations governing the telecommunication or Internet sectors in China that have been adopted or may be adopted in the future will prohibit or restrict foreign investment in, or other aspects of, any of our, Beijing Hurray! Times’ or our affiliated Chinese entities’VIEs’ current or proposed businesses and operations. In addition, these new laws and regulations may be retroactively applied. If any of our company, Beijing Hurray! Times andor our affiliated Chinese entitiesVIEs is found to be in violation of any existing or future Chinese laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violation, including, without limitation, the following:

In any such case, we could be required to restructure our operations, which could adversely affect our ability to operate our business effectively or at all.

Except for a certain amount of cash held by Hurray! Holding Co., Ltd. (approximately $49$33.8 million as of December 31, 2007)2009), we have no significant assets other than our equity interestinterests in Beijing Hurray! Times.Times, Hurray! Media (through which we hold equity interests in Seed Music Group) and Ku6 Holding. We are a holding company, and we rely principally on dividends that may be paid from Beijing Hurray! Times, Hurray! Media and Ku6 Holding from time to time and technical consulting and service fees, license fees and other fees paid to Beijing Hurray! Times by our affiliated Chinese entitiesVIEs for our cash requirements, including any debt we may incur. We are likely to lose all of our sources of funds if Beijing Hurray! Times, Hurray! Media or Ku6 Holding is restricted from paying dividends to us. However,

Chinese legal restrictions, however, permit payment of dividends only out of net income as determined in accordance with Chinese accounting standards and regulations, which in turn restricts our ability to receive these revenues.

Our revenues and results of operations have varied in the past and may continue to fluctuate in the future. Many of the factors that cause such fluctuation are outside our control. Steady revenues and results of operations will depend largely on our ability to:

Because theThe WVAS industry in China is new and rapidly evolving, our experience in the music industry is limited and our business has experienced significant volatility in terms of financial results as a result of the factors stated above,above. Therefore, you should not rely on quarter-to-quarter comparisons of our results of operations as an indication of our future performance. It is possible that future fluctuations may cause our results of operations to be below the expectations of market analysts and investors. This could cause the market price of our ADSs to decline.

We believe the copyrights, service marks, trademarks, trade secrets and other intellectual property we use are important components of our WVAS.WVAS and online services. In addition, our affiliated music companies are substantially dependent on their ability to protect their rights over their music content. Any unauthorized use of suchour intellectual property by third parties may adversely affect our current and future revenue from such services and software, as well as our reputation. For example, rampant piracy in China has negatively affected offline sales of CDs and tapes by our affiliated music companies, and if piracy becomes a problem in online distribution channels, their financial results wouldmay be further materially adversely affected.affected by piracy in online distribution channels. We rely primarily on the intellectual property laws and contractual arrangements with our employees, clients, business partners, and users and others to protect suchour intellectual property rights. Third parties may be able tononetheless obtain and use suchour intellectual property without our authorization. We have invested significant resources to acquire licenses to use and distribute the intellectual property of others for our online video site; failure to maintain or protect these rights could harm our business. Furthermore, the validity, enforceability and scope of protection ofavailable under intellectual property inlaws with respect to the Internet, wireless value-added and music industries in China is uncertain and still evolving, and these laws may not protect intellectual property rights to the same extent as the laws of some other jurisdictions. In particular, the intellectual property law in China is less developed than in the United States and, historically, China has often not protected private parties’ intellectual property rights to the same extent as such parties might enjoy in the United States. Moreover, litigation may be necessary in the future to enforce or protect our intellectual property rights, which could result in substantial costs and diversion of our resources, and have a material adverse effect on our business, overall financial condition and results of operations.

Due to the fact that we aggregate content and applications for our WVAS, and because our services may be used for the distribution of information through, for example, our wireless community services, claims may be filed against us for defamation, negligence, copyright or trademark infringement or other violations. In addition, third parties could assert claims against us for losses in reliance on information distributed by us. For example, if we are found to have infringed any intellectual property rights of others, we may be enjoined from using such intellectual property, and we may incur licensing fees or be forced to develop alternative intellectual property. While the vast majority of claims that have been asserted against us in the past have not developed beyond the demand letter stage and do not ultimately result in liability to us, we may also incur significant costs in investigating and defending such claims. We have not purchased liability insurance for these risks.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products, and do not, to our knowledge, offer business liability insurance. As a result, we do not have any business liability insurance coverage for our operations. Moreover, while business disruption insurance is available, we have determined that the risks of disruption and cost of the insurance are such that we do not require it at this time. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources, particularly if it affects our technology platform which we depend on for delivery of our WVAS.

We will be classified as a PFIC for U.S. tax purposes for a taxable year if either (a) 75% or more of our gross income for such taxable year is passive income, or (b) 50% or more of the average percentagequarterly value of our assets during such taxable year consists of assets that either produce passive income or are held for the production of passive income. For such purposes, if we directly or indirectly own 25% or more of the shares of another corporation, we generally will be treated as if we (a) held directly a proportionate share of the other corporation’s assets, and (b) received directly a proportionate share of the other corporation’s income. The determination of whether or not we are a PFIC is made on an annual basis and depends on the composition of our income and assets, including goodwill, from time to time. We believe that we were a PFIC for taxable years 2006, 2007, 2008 and 20072009 and are likely towe may be classified as a PFIC for the current taxable year. Because our PFIC status for any taxable year of 2008, although such determination cannotwill not be made with certaintydeterminable until after the end of the taxable year and will depend on the composition of our income and assets and the market value of our assets for such taxable year, which may be, in part, based on the market price of our ordinary shares or ADSs (which may be especially volatile), there can be no assurance we will not be a PFIC for any taxable year. Such characterization could result in adverse U.S. federal income tax consequences to a U.S. investor. For example,In general, if we are a PFIC, then “excess distributions” to a U.S. investor and any gain realized by a U.S. investor on the sale or other disposition of our ordinary shares or ADSs will be allocated ratably over the U.S investor’s holding period for the ADSs,ordinary shares or ADSs; the amount allocated to the current taxable year and any year prior to our becoming a PFIC will be taxed as ordinary income; and (iii) the amount allocated to each of the other taxable yearsyear will be subject to tax at the highest rate of tax in effect for the applicable class of taxpayer for that year. Additionally, an interest charge for the deemed deferral benefit will be imposed with respect to the resulting tax attributable to each such other taxable year and the U.S. investor will be subject to U.S. tax reporting requirements. Some of these adverse tax consequences may be avoidedAlternatively, if thewe are a PFIC and if our ADSs are “regularly traded” on a “qualified exchange,” a U.S. investor makescould make a “mark-to-market”mark-to-market election that would result in tax treatment different from the general tax treatment for the ADSs.

Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Companies Law (2007(2009 Revision) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders, and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law in this area may not be as clearly established as they would be under statutes or judicial precedent in existence in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and some states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate laws. Moreover, our company could be involved in a corporate combination in which dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations. Also, our Cayman Islands counsel is aware of only a few reported cases of derivative actions having been brought in a Cayman Islands court. Such actions are ordinarily available in respect of United States corporations in U.S. courts. Finally, Cayman Islands companies may not have standing to initiate shareholder derivative actions before the federal courts of the United States. As a result, our public shareholders may face different considerations in protecting their interests in actions against the management, directors or our controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States, and our ability to protect our interests may be limited if we are harmed in a manner that would otherwise enable us to sue in a United States federal court.

On April 6, 2007, the capital account department of the SAFE issued theOperating Procedures for Administration of Domestic Individuals Participating in the Employee Stock Option Plan or Stock Option Plan of an Overseas Listed Company, or Circular 78. It is not clear at this time whether Circular 78 covers all forms of equity compensation plans, including restricted purchase share awards granted by us, or only those which provide for the granting of stock options. For any plans which are so covered and are adopted by a non-PRC listed company such as our company after April 6, 2007, Circular 78 requires all participants who are PRC citizens to register with and obtain approvals from SAFE prior to their participation in the plan. In addition, Circular 78 also requires PRC citizens to register with SAFE and make the necessary applications and filings by July 5, 2007 if they participated in an overseas listed company’s covered equity compensation plan prior to April 6, 2007. In May 29, 2007, the General Affairs Department of the SAFE issued theNotice on Printing and Distributing the Operating Rules for the Notice of the State Administration of Foreign Exchange on the Relevant Issues about Foreign Exchange Control over the Financing and Return Investment of Domestic Residents through Overseas Special Purpose Companies, or Circular 106. This notice also requires PRC citizens who hold stock options pursuant to a company’s equity incentive plan to register with the SAFE. We submittedhave completed the required registration on behalf of our stock option holders who are PRC citizens with the SAFE in December 2007 and such registration is currently pending approval.SAFE. Although Circular 78 has not yet been made publicly available nor has it been formally promulgated by the SAFE, and we have submitted the registration with the SAFE on behalf of our stock option holdingsholders who are PRC citizens stock option holders pursuant to Circular 106, any failure to comply with such provisions may subject us and the participants of our equity compensation plans who are PRC citizens to fines and legal sanctions and prevent us from being able to grant equity compensation to our personnel which is currently a significant component of the compensation of many of our PRC employees, as a result of which our business operations may be adversely affected.

In addition, two of our subsidiaries, Saiyu and Henan Yinshan, continued to benefit from the preferential tax rate of 25% of the calculated taxable income, which is based on 10% of the revenues in 2009. Our qualified new standard ratescultural enterprises, Huayi Brothers Broker, Freeland Culture and Secular Bird, were entitled to a tax exemption in 2008. If our PRC companies cannot enjoy the preferential tax treatment, our income tax expenses would increase, which would have a material adverse effect on our financial condition and results of operations.

The New EIT Law includes a provision specifying that legal entities organized outside China will be considered residents for calculation of deferred taxes until the necessary approvals are obtained.

In accordance with the New EIT Law, dividends paid to it outwhich arise from profits of profitsforeign invested enterprises (“FIEs”) earned after January 1, 2008, from its PRC subsidiaries would beare subject to a 10% withholding tax. In addition, under the tax treaty between the PRC and Hong Kong, if a foreign investor is incorporated in Hong Kong and qualifies as a Hong Kong tax resident, the applicable withholding tax ofrate is reduced to 5%, if the investor holds at least a 25% interest in the FIE, or 10%.

The PRC government has adopted regulations governing Internet access and the distribution of news and other information over the Internet. Under these regulations, Internet content providers and Internet publishers are prohibited from posting or displaying over the Internet content that, among other things, violates PRC laws and regulations, impairs the national dignity of China, or is reactionary, obscene, superstitious, fraudulent or defamatory. Failure to comply with these requirements may result in the revocation of licenses to provide Internet content and other licenses and the closure of the concerned websites. In the past, failure to comply with such requirements has resulted in the closure of certain websites. The website operator may also be held liable for such censored information displayed on or linked to the website.

Although we attempt to monitor the content in our websites, we are not able to control or restrict the content of other Internet content providers linked to or accessible through our websites, or content generated or placed on our our websites by our users. To the extent that PRC regulatory authorities find any content displayed on our websites objectionable, they may require us to limit or eliminate the dissemination of such information on our websites. If third-party websites linked to or accessible through our website operate unlawful activities such as online gambling on their websites, PRC regulatory authorities may require us to report such unlawful activities to relevant authorities and to remove the links to such websites, or they may suspend or shut down the operation of such websites. PRC regulatory authorities may also temporarily block access to certain websites for a period of time for reasons beyond our control. Any of these actions may reduce our user traffic and adversely affect our business. In addition, we may be subject to penalties for violations of those amountsregulations arising from information displayed on or linked to our websites, including a suspension or shutdown of our online operations.

Under the equity pledge agreements among Beijing Hurray! Times and some of our VIEs, and their respective individual shareholders, the individual shareholders of these VIEs have pledged all of their equity interests therein to Beijing Hurray! Times by recording the pledge on the shareholder registers of the respective entities. However, according to the PRC Property Rights Law, which became effective as of October 1, 2007, a pledge is not effective without being registered with the relevant local administration for industry and commerce. The State Administration for Industry and Commerce, or SAIC, and the Beijing Administration for Industry and Commerce have adopted registration procedures with respect to the registration of equity interest pledge according to the Property Rights Law. These VIEs are in the process of registering the equity pledge with the Beijing/Shanghai Administration for Industry and Commerce. We cannot assure you that they will be able to register the pledges. If they are unable to do so, the pledges may be deemed ineffective under the PRC Property Rights Law. If any individual shareholder of our VIEs breaches his or her obligations under the agreement with Beijing Hurray! Times, there is a risk that Beijing Hurray! Times may not be able to successfully enforce the pledge and would need to resort to legal proceedings to enforce its contractual rights.

Under the equity pledge agreements among Ku6 Holding Co., Ltd.. Theand its VIEs, and their respective individual shareholders, the individual shareholders of its VIEs have pledged all of their equity interests therein to Ku6 Holding by recording the pledge on the shareholder registers of the respective entities, which were registered with the Beijing Administration for Industry and Commerce or Tianjin Administration for Industry and Commerce in November 2008.

As a result of our corporate structure and the contractual arrangements between Beijing Hurray! Times and some of our consolidated affiliated entities in China, we are effectively subject to the 5% PRC business tax on both revenues generated by our consolidated affiliated entities’ operations in China and revenues derived from Beijing Hurray! Times’s contractual arrangements with these consolidated affiliated entities. Moreover, we would be subject to adverse tax consequences if the PRC tax authorities have also clarifiedwere to determine that distributions made out of retained earnings accumulated prior tothe contracts between Beijing Hurray! Times and these consolidated affiliated entities were not on an arm’s-length basis and therefore constituted a favorable transfer pricing. Under the new PRC Enterprise Income Tax Law, which became effective on January 1, 2008, are not subjectan enterprise must submit its annual tax return together with information on related party transactions to the withholding tax.tax authorities. The tax authorities may impose reasonable adjustments on taxation if they have identified any related party transactions that are inconsistent with arm’s-length principles. For example, the PRC tax authorities could request that our consolidated affiliated entities adjust their taxable income upward for PRC tax purposes. Such a pricing adjustment could adversely affect us by increasing our consolidated affiliated entities’ tax expenses without reducing Beijing Hurray! Times’ tax expenses, which could subject our consolidated affiliated entities to interest due on late payments and other penalties for under-payment of taxes.

Although our 2G and 2.5GOur WVAS services are subject to general regulations regarding telecommunication services, specific laws at the national level governing WVAS, such as our services related to short messaging service (“SMS”) and WAP, have only been issued recently.services. The interpretation and application of newly issued Chinese laws and regulations and the possibility of new laws or regulations being adopted have created significant uncertainty regarding the legality of existing and future foreign investments in, and the businesses and activities of, Chinese companies providing 2G and 2.5GWVAS services, including our affiliated Chinese entities.VIEs. Many providers of 2G and 2.5GWVAS services have obtained various value-added telecommunication services licenses.

The Chinese legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases have little precedential value. Although legislation in China over the past 20 years has significantly improved the protection afforded to various forms of foreign investment and contractual arrangements in China, these laws, regulations and legal requirements are relatively new and their interpretation and enforcement involve uncertainties, which could limit the legal protection available to us, and foreign investors, including you. In addition, the Chinese government may enact new laws or amend current laws that may be detrimental to our current contractual arrangements with our Chinese affiliates, which may in turn have a material adverse effect on our ability to operate our business.

The economy of China has historically been a planned economy subject to governmental plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the economic development of China, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operations. In addition, the Chinese economy differs from the economies of most countries belonging to the Organization for Economic Cooperation and Development, or OECD. These differences include:

As a result of these differences, our business may not develop in the same way or at the same rate as might be expected if the Chinese economy were similar to those of the OECD member countries.

The PRC government also imposes controls on the convertibility ofcurrency conversion between Renminbi and foreign currencies into Renminbi and, in certain cases, the remittance of currency out of and into China. We receive substantially all of our revenue in Renminbi, which is currently not a freely convertible currency. Under our current corporate structure, the income of our company will be primarily derived from dividend payments from Beijing Hurray! Times. Shortages in the availability of foreign currency into China.may restrict the ability of Beijing Hurray! Times to remit sufficient foreign currency to pay dividends to us, or otherwise satisfy its foreign currency-dominated obligations. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, can be made in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, in most cases, particularly payments of capital accounts items, approval from appropriate governmentgovernmental authorities is required where (i) Renminbi is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of offshore bank loans denominated in foreign currencies, or (ii) any foreign currency is to be converted into Renminbi and remitted into China to pay capital expenses, such as payments denominatedfor investment in Renminbi for acquisitions. ShortagesChina. The PRC government may also at its discretion restrict access in the availability offuture to foreign currencies for current account transactions. If the foreign exchange control system prevents us from converting Renminbi may limit theinto foreign currencies or vice versa, and obtaining sufficient Renminbi or foreign currency to satisfy our currency demands, our ability of our PRC subsidiaries and affiliates to remit sufficienttransfer Renminbi to fund our business activities including future acquisitionsoperations in China or to pay dividends in foreign currencies to our shareholders may be adversely affected.

We conduct substantially all of our operations in China and substantially all of our assets are located in China. We cannotIn addition, most of our directors and executive officers reside within China. As a result, it may not be certain thatpossible to effect service of process within the Chinese regulatory authorities will not impose more stringent restrictions on the convertibilityUnited States or elsewhere outside China upon some of the Renminbiour directors and foreign currencies, especiallysenior executive officers, including with respect to foreign exchange transactions.matters arising under U.S. federal securities laws or applicable state securities laws. Moreover, the PRC does not have treaties with the United States or many other countries providing for the reciprocal recognition and enforcement of judgment of courts.

The change in value of the Renminbi against the U.S. dollar Euro and other currencies may fluctuate and is affected by, among other things, changes in China’sthe PRC’s political and economic conditions. OnThe People’s Bank of China issued a public notice on July 21, 2005 increasing the PRC government changed its decade-old policy of pegging the Renminbi to the U.S. dollar. Under the new policy, the Renminbi is permitted to fluctuate within a narrow and managed band against a basket of foreign currencies. Since the adoption of this new policy, the valueexchange rate of the Renminbi against the U.S. dollar has fluctuated daily withinby approximately 2% to RMB8.11 per US$1.00. Further to this notice, the PRC government reformed its exchange rate regime by adopting a narrow band, but overall has appreciated significantly againstmanaged floating exchange rate regime based on market supply and demand with reference to a portfolio of currencies. Under this regime, the Renminbi is no longer pegged to the U.S. dollar. WhileWe cannot predict how and to what extent the international reaction to the Renminbi revaluation has generally been positive, there remains significant international pressure on the PRC government to adopt an even more flexible currency policy, which could result in a further and more significant fluctuationexchange rate of the Renminbi againstwill fluctuate in the U.S. dollar. future.

To the extent that we need to convert U.S. dollars into Renminbi for our operational needs and shouldoperations, appreciation of the Renminbi appreciate against the U.S. dollar could have a material adverse effect on our business, financial condition and results of operations. Conversely, as we rely entirely on dividends paid to us by Beijing Hurray! Times, any depreciation of the Renminbi may materially and adversely affect our cash flows, revenue and financial condition, and the value of, and any dividends payable on, our ordinary shares in foreign currency terms.

In addition, the financial markets in general, and the market prices for Internet-related companies in particular, have experienced extreme volatility that often has been unrelated to the operating performance of such companies. These broad market and industry fluctuations may adversely affect the price of our ADSs, regardless of our operating performance.

A holder of our ADSs may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Upon receipt of voting instructions of a holder of ADSs in the manner set forth in the deposit agreement, the depositary will endeavor to vote the underlying ordinary shares in accordance with these instructions. Under our amended and restated memorandum and articles of association and Cayman Islands law, the minimum notice period required for convening a general meeting is ten days. When a general meeting is convened, you may not receive sufficient notice of a shareholders’ meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any instructions to vote, for the manner in which any vote is cast, or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if your ordinary shares are not voted as you requested.

Pursuant to the New EIT Law, we may be treated as a PRC resident enterprise for PRC tax purposes. See “— Additional Risks Related to Our Company — Changes in PRC tax laws could have a material adverse effect on our operating results.” If we are so treated by the PRC tax authorities, we would be obligated to withhold PRC income tax of up to 5.0% on payments of dividends on our shares and/or ADSs to investors that are non-resident enterprises of the PRC located in Hong Kong and 10.0% on payments of dividends on our ordinary shares and/or ADSs to investors that are non-resident enterprises of the PRC located outside Hong Kong, if the dividends payable on our ordinary shares and/or ADSs are considered derived from sources within the PRC. In addition, any gain realized by non-resident investors from the transfer of our ordinary shares and/or ADSs could be regarded as being derived from sources within the PRC and be subject to a 10% PRC tax. Such PRC tax would reduce your investment return on our ordinary shares and/or ADSs and may also adversely affect the price of our ordinary shares and ADSsand/or ADSs.

Your ADSs represented by American Depositary Receipts are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems expedient in connection with the performance of its duties. The depositary may close its books for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer, or register transfers of our ADSs generally when our books or the books of the depositary are closed, or at any time if we decideor the depositary thinks it is advisable to convert our Renminbi into U.S. dollars fordo so because of any requirement of law or any government or governmental body, or under any provision of the purpose of declaring dividends on our ordinary sharesdeposit agreement, or for any other business purposesreason.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to our ADS holders in the United States unless we register the rights and the U.S. dollar appreciates againstsecurities to which the Renminbi,rights relate under the U.S. dollar equivalentSecurities Act or an exemption from the registration requirements is available. In addition, the deposit agreement provides that the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act or exempted from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our earnings from our subsidiaryrights offerings and may experience dilution in China would be reduced.their holdings. In addition, if the depositary is unable to sell rights that are not exercised or not distributed or if the sale is not lawful or reasonably practicable, it will allow the rights to lapse, in which case you will receive no value for these rights.

We became an independent company in September 1999 when we were spun-off from UT Starcom Inc., a Nasdaq-listed company that manufactures telecommunication equipment in China. At that time, we focused on developing billing software and providing system integration services for telecommunications network operators in their fixed-line Internet infrastructure build-outs. In June 2001, members of our current management team conducted a management buy-in by purchasing a substantial equity interest in our company, at which time the team assumed management control of us with the purpose of developing products and services for 2.5G mobile networks. Prior to the management buy-in, a majority of the new management team had previously worked together in senior management positions at AsiaInfo Holdings, Inc., a Nasdaq-listed company and a leading provider of telecommunications software and system integration services in China.

In April 2002, we established a new holding company, Hurray! Holding Co., Ltd., in the Cayman Islands. We currently conduct our business in China through our wholly owned subsidiary, Beijing Hurray! Times. To comply with ownership requirements under Chinese law which imposes certain restrictions on foreign companies from investing in certain industries such as value-added telecommunication and Internet services, we have entered into a series of agreements with our ten affiliated Chinese entitiesnine VIEs and their respective shareholders. We hold no ownership interest in any such affiliated Chinese entities.VIEs. See Item 7.B. “Related Party Transactions,” and Item 4.C. “Information Abouton the Company — Organizational Structure.”

In November 2007,2009, we announcedentered into a definitive share purchase agreement with Ku6 Holding to complement our digital music and mobile distribution platform. We completed the signingacquisition in January 2010. Ku6 Holding is currently a wholly owned subsidiary of an agreement to merge with Enlight MediaHurray! and has retained its brand name.

Our principal executive offices are located at c/o Hurray! Holding Co., Ltd., a private entertainment content and distribution company11/F, China Railway Construction Tower, No. 20, Shijingshan Road, Shijingshan District, Beijing PRC, 100131, People’s Republic of China. Our telephone number is +86 10 8869 5000. Our agent for service of process in China, in an all stock transaction. That agreement was subsequently terminated in March 2008 due to a divergence in business strategies and a mutual determination that a combination would not be in our mutual interests.

We derive most of our revenues from WVAS, which includes 2G services such as SMS, IVRInteractive Voice Response (“IVR”) and RBT, and 2.5G services such as WAP, MMS, and Java™.

SMS Services. SMS is the largest and most mature wireless value-added serviceWVAS in China. It is the most basic form of mobile messaging service and is supported by substantially all mobile phone models currently sold. We have focused our activities in SMS on our strongest core services to maximize our revenues. These core services include chat and other community services, interactive television entertainment, quizzes and games. Users can purchase our SMS services through the networks of China Mobile and China Unicomthe telecom operators by responding to our broadcast messages advertising our services, or sending us a request via SMS using a specific code.

IVR Services. IVR services are available on the networks of China Mobile, China Unicom, China Telecom and China Netcom, and include chat services whereby users can chat with each other live over their mobile handsets in wireless public chat rooms. We believe this service is attractive to young mobile users in China as a cost-effective way to speakcommunicate with their friends and to make new friends, although it may be less useful for business purposes because conversations in these chat rooms are open to anyone. Users can also utilize our IVR services to access music, greetings from famous Chinese celebrities, jokes and serial stories, such as detective stories, from their mobile phones or send this content to the mobile phones of their friends or others.

RBT Services. We offer RBT services on the networks of China Mobile, China Unicom and China Telecom. RBT services allow a mobile phone user to customize the ringtone that callers hear when calling the user’s mobile phone. We offer a variety of entertaining content including pre-recorded messages, movie dialogues and soundtracks and a wide range of classical and popular music. RBT services are currently available on all 2G mobile phones. They are also one of the most effective platforms for mobile music products, which have become one of our strategic focuses. Accordingly, we believe that they present significant growth potential.

Record companies in China began in 2005 to experience a rapid increase in revenues from sales of digital and mobile music rights to wireless value-added serviceWVAS providers (such as our company) and Internet music website operators. This music content can be used in such services as ringtones, RBT, and truetonetrue-tone downloads and playbacks over mobile and Internet platforms. To capture more of this market opportunity, many record companies in China are increasingly focused on building their wireless and Internet distribution channels, including by offering their own WVAS or working directly with telecom operators.

Our network service agreements with China Unicom provide that China Unicom directly billbills customers who use our services and, for collecting these fees and for their network services, deductdeducts a service fee from the aggregate amounts paid by customers for our services. These service fees range from 12%15% to 50% of gross revenue for amounts received by provincial operators of China Unicom and vary from province to province. If there is a discrepancy between our billing records and China Unicom’s billing records and the discrepancy is 5%8% or less of total amounts billable to our customers, the calculation of service fees is based on China Unicom’s billing records. If the discrepancy exceeds 5%8%, the agreements provide that we and China Unicom reconcile our records to address the discrepancy.

Our network service agreements with China Telecom permit it to deduct a service fee between 15% to 50% of gross revenue, depending on the type of service, from the amounts it receives from customers for our services.

Generally, our contracts with the telecom operators are silent on the arrangements relating to payment from the operators in the event such contracts are not renewed. Payment and billing disputes, if any, will therefore be resolved in accordance with the provision in the contracts that the parties resolve disagreements through amicable negotiation (where such provision survives the termination of the respective agreements) or through court proceedings if amicable resolution cannot be reached.

Payment and billing disputes are resolved in accordance with the provision in the agreements that the parties resolve disagreements through amicable negotiation or through court proceedings if amicable resolution cannot be reached.

We develop most of our content and applications for WVAS in-house through our approximately 100-member42-member product development team.team as of March 1, 2010. Our product development team focuses primarily on developing new services such as WAP services andmusic, Java™ games as well as developingand 3G-compatible services.

In addition to in-house developed content, we also acquire rights to certain copyrighted content such as music, pictures, games, news and other information from a large number of content providers such as record companies, traditional media companies and original providers of news and information services. With the exception of music, content from international and domestic content providers has not contributed a significant portion of our 2G and 2.5G servicesWVAS revenues to date, and we do not expect it to do so for the foreseeable future. Nonetheless, we will continue to seek out content relationships with leading international and domestic content providers to further increase the variety of our services. Under our agreements with these content providers, we pay them a fixed licensing fee or a percentage of the revenue for our services, which we receive from the telecom operators after deducting service and network fees. For most of our agreements, the content providers receive 40% of such net amount, but in a few cases the providers receive between 40% and 50%.

We license music rights from international record companies such as Universal Music and from domestic record companies such as Taihe Rye and Ocean Butterfly. For most of license agreements, music providers receive 50% of the revenue we collect for our services. In addition, some music content that we use in our services is provided by our affiliated music companies. We typically purchase outright, as opposed to license, Java™ games.

We engage in music production through our affiliated music companies, Freeland Music, Huayi Brothers Music, New Run, Secular Bird and Secular Bird.Seed Music Group. These companies are domestic record labels in China and, in the case of Seed Music Group, also in Taiwan, with an aggregate of approximately 173167 employees as of December 31, 2009 specializing in artist development, music production and music distribution. In addition, Freeland Music, Huayi Brothers Music, New Run, and Secular Bird currentlyand Seed Music Group have a total of 5039 artists under contract.contract as of December 31, 2009.

Our affiliated music companies are pioneers in developing music artists and producing and distributing their songs in China.China and across Asia. Together, their portfolio of artists includes some of the most popular singers in China, such as Kenji Wu from Seed Music Group, Xiangxiang from Freeland Music, Jane Zhang and Kun YangLaure Shang from Huayi Brothers, Nan He Wen DouHan Xiao from New Run, and Jing Han from Secular Bird. Many songs produced by our affiliated music companies are top hits in ringtones, ringbacktonesring-back-tones and digital downloads on mobile phones and the Internet in China and across Asia as measured by the number of downloads on both China Mobile’s music portal and the music search platform of Baidu.com, Inc., an online search platform in China. For example, “If This Love Continues” (Ru Guo Ai Xia Qu)“Write a Poem for You” (“Wei Ni Xie Shi”) by Jane Zhang, “White Fox” (Bai Hu)Kenji Wu, and ‘Right Hand’ (“You Shou Bian”) by Rui Chen, as well as “Autumn Is Not Coming Back” (Qiu Tian Bu Hui Lai) by Qiang WangLiang Guang, were among the most popular songs released by our recording artists on those services when they were released.

Pursuant to certain contractual arrangements, Hurray! Digital Media has the exclusive right to license and distribute via digital channels, including wireless and Internet-based platforms, all music content of Freeland Music worldwide and all music content of Huayi Brothers Music, New Run, and Secular Bird and Seed Music Group in mainland China. We have also agreed to allow Freeland Music, Huayi Brothers Music, New Run, and Secular Bird and Seed Music Group to directly distribute their respective music content via digital channels, in order to maximize the value of our affiliated music companies’ record labels.

If Hurray! Digital Media licenses the music content of our affiliated music companies to any other third party, then our affiliated music companies are entitled to receive a license fee from Hurray! Digital Media, which is equal to the amounts paid by the third party to Hurray! Digital Media, less any taxes payable on such amount by Hurray! Digital Media and a 10% to 20% service fee which Hurray! Digital Media retains.

Record companies in China have traditionally generated revenues from offline CD distribution, concert tours and corporate sponsorship. Starting in 2005, record companies began to see rapid growth of a new revenue stream: music rights sales to Internet and WVAS providers for music-related products such as ringtones, ringbacktones,ring-back-tones, and MP3-quality truetonetrue-tone downloads or playbacks. In addition to marketing campaigns associated with major album or song releases, our affiliated music companies, Freeland Music, Huayi Brothers Music, New Run, and Secular Bird and Seed Music Group, focus their sales and marketing activities in the following four areas:

We work to provide high quality customer service. This is an important factor for maintaining our relationships with the telecom operators in China as discussed above in “— Network Service Agreements with Operators.” Our dedicated customer service center in Beijing provides our users real-time support and employed 3324 customer service representatives as of December 31, 2007.2009. We strive to achieve the fastest response times and highest customer satisfaction levels in the industry. Our centralized customer service center is supported by our local customer service teams located in our four regional offices. We also maintain a dedicated billing and collection center, which works with the various offices of the telecom operators to ensure that we receive the correct fees for our services provided over their networks.

We have developed a reliable, flexible and scalable platform with open and adaptive technology through which we:

Our platform supports multiple protocols, networks and billing solutions, with high scalability, load balancing, intelligent session management, and performance measurement. It also allows us to monitor our services and their delivery to the telecom operators’ networks on a real-time basis, which allows us to optimize the efficiency of our system and quickly address any problems. The platform is equipped with an open application interface for rapid connectivity by third party content providers and access to multiple channels for SMS, IVR, RBT, WAP, MMS, Java™ and Web connectivity.

Our user database, which operates on our proprietary software and is an integral part of our platform, allows us to store, analyze, retrieve and compare various statistical information and to identify relevant trends. This database also supports our customer service activities by providing our service professionals with real-time user data and information regarding service delivery and billing. In addition, our platform can rapidly schedule, deploy and manage WAP pushes and SMS pushes to promote our services.

Our website and services are made available primarily through network servers located in the facilities of China Telecom, China Netcom,Mobile, China Unicom and China Mobile.Telecom. Such network servers run on either Unix^™, Windows^™, or Linux^™-based operating systems.

The market for WVAS in China is highly fragmented with more than 1,000 service providers. Wireless service providers in China can be principally categorized into four groups. The first group is comprisedconsists of companies like ours, which focus primarily or entirely on this market and offer a wide range of 2G, and/orand 2.5G services.services (and are expected to offer a range of 3G services as 3G networks are launched in China). These include companies such as Tom Online, KongZhong, and Linktone. This group of competitors is generally characterized by strong market knowledge and, in some cases, well developed relationships with the telecom operators on a provincial and national basis. Companies in this category also tend to focus on entertainment-related services.

The second group is comprisedconsists of the major Internet portal operators in China, including publicly-listed companies such as SINA,Sina, Sohu and Tencent. The Internet portals leverage their strong brand names and their existing strength in aggregating content, marketing and cross-selling wireless services to their established Internet user base.

The third group is comprisedconsists of smaller service providers such as privately owned Rock Mobile and A8, who like us, are focused on music-related products.

The fourth group is comprisedconsists of the telecom operators. In 2006, China Mobile began operating its own music WAP portal and procuring music content direct from music companies. This development has made China Mobile a competitor for offering music content through WAP services. Some of this competitive effect, however, has been mitigated by the fact that China Mobile has purchased music from our affiliated music companies. China Mobile also began the practice of only including links to its own WVAS offerings on the embedded menus of mobile handsets with customized software for China Mobile users while excluding links to products from third party WVAS service providers like us. Such practices have adversely affectedsuch as our revenues.company. See Item 3.D. “Risk Factors— Risks Related to Our business would likelyCompany— Risks Related to Our Wireless Value-added Services—Our revenue from WVAS may be adversely affected ifby the telecom operators decide to directly provide additional WVAS to mobile phone users, whichproviding their own full portfolio of 2G, 2.5G and any upcoming 3G services that compete with our services. In that case, we would not only face enhanced competition, but could be partially or completely denied access to the networks of these telecom operators which would adversely affect our revenue from WVAS.”

In our music business, weWe face significant competition to our music and artist agency business from two groups of competitors. The first group includes traditional record companies, which are extending downstream to establish their own WVAS or Internet services companies in China. These companies include international record companies such as Warner Music, Universal, EMI and Sony BMG and independent labels based in Hong Kong, Taiwan, and mainland China such as Taihe Rye, Rock Music, Ocean Butterfly, and Zhushu. In comparison to our affiliated music companies, many of these competitors have longer operating histories in China and have accumulated larger libraries of songs and pools of popular artists. They also generally have more experience, expertise, resources and management capacity than us in the artist development and music production field.

The second group of competitors includes WVAS providers such as Rock Mobile, a subsidiary of Rock Music, and A8, which have recently focused on music-related products and extended upstream to establish their own music production businesses in China. We believe that both Rock Mobile

With respect to our online video business, we face significant competition from over 100 other online video sharing sites. Amongst the independent online video sites, our management believes Tudou.com and A8Youku.com command over half of the online viewership market. Moreover, several large Internet portals in China, such Sina.com, Sohu.com and Baidu.com, which have recently acquired additional capitallonger operating histories and more experience in attracting and retaining users and managing customers than we do, have begun to accelerate the implementationlaunch their own video businesses. Other advertising media, such as newspapers, yellow pages, magazines, billboards and other forms of outdoor media, television and radio, compete for a share of our customers’ marketing budgets. Large enterprises currently spend a relatively small percentage of their music strategies, and may pose a significant competitive challengemarketing budgets on online marketing as compared to us in the long-run.percentage they spend on other advertising media.

The following is a summary of the principal governmental laws and regulations that are or may be applicable to companies such as ours in China. The scope and enforcement of many of the laws and regulations described below are uncertain. We cannot predict the effect of further developments in the Chinese legal system, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement of laws, particularly with regard to 2G and 2.5G services, which is an emerging industry in China.laws. For a description of the regulatory risks related to our business, please see Item 3.D. “Risk Factors — Legal Risks Related to Wireless and Internet Services — The telecommunication laws and regulations in China are evolving and subject to interpretation and will likely change in the future. If we are found to be in violation of current or future Chinese laws or regulations, we could be subject to severe penalties;” “— Legal Risks Related to Wireless and Internet Services — The regulation of Internet website operators is also new and subject to interpretation in China, and our business could be adversely affected if we are deemed to have violated applicable laws and regulations;” and “— Risks Related to Our Company — Additional Risks Related to Our Company — Our corporate structure could be deemed to be in violation of current or future Chinese laws and regulations, which could adversely affect our ability to operate our business effectively or at all.”

The telecommunications industry, including certain 2G and 2.5G services,the Internet sector, is highly regulated in China. Regulations issued or implemented by the State Council of China, the MIIMIIT and other relevant government authorities cover many aspects of telecommunications network operation, including entry into the telecommunications industry, the scope of permissible business activities, interconnection and transmission line arrangements, tariff policy and foreign investment.

The principal regulations governing the telecommunication and Internet content services we provide in China include: